On 13th March, Chancellor Philip Hammond’s Spring Statement arrived without the usual fanfare, though it made repeated mentions of the dangers of a no-deal Brexit outcome. The Chancellor warned that a no-deal Brexit would make the economy smaller and weaker, with higher prices for consumers and a “short to medium-term reduction in productive capacity”.
Beyond Brexit, the Chancellor set out in advance that there would be no key policy or tax changes in the speech, which was made up largely of notes about consultations, early-stage discussion papers and calls for evidence on topics ranging from the National Living Wage to a low-carbon Future Homes Strategy.
But there were two general conclusions – first, the economy is expected to weaken this year, with the Office for Budget Responsibility (OBR) changing its growth forecast from 1.6% last autumn to 1.2%. Second, public finances are in decent shape, with the deficit expected to be 1.1% of GDP this year.
Revised forecasts for public borrowing are £3 billion lower for 2018-19 than suggested at the time of the Autumn Budget. Borrowing is forecast to drop to £13.5 billion by 2023-24, but the Brexit caveat was present again, with the Chancellor noting that the figures are based on the UK not crashing out without a deal.
The Chancellor was keen to press that April’s tax changes, which see the personal tax allowance increasing to £12,500 and the higher-rate threshold rising to £50,000 will see households receiving a boost to take-home pay. How that plays out remains to be seen – Hargreaves Lansdown is among those predicting people will in fact be paying more tax in the long run through inflation, wage rises and asset price growth.
Tax came up again in the government’s plan to usher in a new digital reporting system. Making Tax Digital (MTD) will be come into force in the new tax year, but with lighter penalties to offset the challenges of working with the new system. The Treasury will also publish the results of a call for evidence on how HMRC can make it easier to amend tax returns.
According to the OBR the price of the average home will fall 0.3% this year. Its forecasts have been significantly downgraded from the forecast growth of 3.2% in 2019. Once again, uncertainty over Brexit muddies the waters, with these figures assuming an orderly exit. Last week that looked unlikely, suggesting forecasts would be further downgraded, but with the latest twist in the plot turning to a Brexit extension, opinions may well be revised again.
Among other housing points were the announcement of a new £3 billion ‘Affordable Homes Guarantee’ scheme for 30,000 homes, as well as £717 million for 37,000 new homes on sites in West London, Cheshire, Didcot and Cambridge.
No material changes here, although the government did commit to responding to a House of Lords report that recommends reform of the retail price index (RPI). According to the report, the measure of inflation used to calculate a range of things, including increases to student loan repayments, transport fares and some utility bills is ‘flawed’ and the government will respond in the coming months.
Cashflow worries were potentially eased with the announcement that the government will consult on plans to force large companies and their audit committees to publish payment practices in their annual report and accounts. It’s a move to bring about transparency and accountability as part of a crackdown on late payments from large companies to smaller suppliers. It’s a problem believed to put 50,000 small and medium-sized firms out of business each year.
In other rays of sunshine for business, the statement brings forward to April a £700 million package of reforms to help small businesses take on apprentices, originally announced in the Autumn Budget. The Chancellor also noted that assuming a Brexit deal can be reached, there’ll be a fresh spending review and £26.6 billion of extra cash to boost the economy.
Long-term financial planning
Probate fees are set to increase – a move that the OBR has claimed is essentially a tax. Probate allows families to secure legal control over a deceased person’s estate, with a flat fee of £215 currently in use. Under the new system, fees will be linked to the value of the estate, with people administering estates worth more than £2m paying the full charge of £6,000. Along with the OBR charities and legal workers have criticised the move believing it will hit charitable giving.
In a further long-term wealth planning point, the government will publish a consultation on maturing child trust funds (CTFs) with draft regulations to make sure they can retain their tax-free status after reaching maturity.
Quick OBR predictions
Finally, the OBR uses the Chancellor’s annual statements to update its forecasts on a range of points. Here, in brief, are their takeaways.
- Real household income will increase to just below 2% by the end of 2023.
- The Bank of England’s key interest rate will be lower over the next four years than predicted in August, expected to exceed 1% by the end of 2023.
- House price growth will drop to zero in 2020 before recovering to about 4% per in 2022.
- The pound won’t recover anytime soon, trading at around 75% of its value in 2007, where it’s expected to stay for the next four years.
- Gross household debt is expected to rise but more slowly than assumed last autumn.
If you’d like to discuss what the Spring Statement means for you, or you’d just like to sit down and talk about your financial goals, we’re here to help.
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