Who said ‘Spreadsheet Phil’ didn’t know how to put on a show? The Chancellor liberally sprinkled his Budget today with jokes and jibes, perhaps best among them this gem about the virtues of driverless and electric cars:
‘I know that Jeremy Clarkson doesn’t like them, but there are many other good reasons to pursue this... sorry Jeremy, but definitely not the first time you’ve been snubbed by Hammond and May.’
Tears all around, naturally.
The OBR’s downward revision of UK GDP growth forecasts were somewhat less amusing. The independent body no longer assumes that productivity growth will return to pre-crisis levels, and now expects GDP growth of only 1.5% this year, dropping to 1.4% in 2018 and 1.3% in 2019, before ‘recovering’ to a decidedly anaemic 1.6% by 2022.
So what is Hammond planning on doing about it?
1. An additional £3bn to prepare for Brexit
It pays to be prepared, but it also costs. With EU negotiations only just showing progress, the chances of a messy, hard Brexit are higher than when Hammond gave the spring Budget. Putting this money aside for the next two years may not be encouraging, but it is at least pragmatic.
2. Infrastructure money
One way of boosting British productivity is to throw money at it. Better transport and digital infrastructure and a more skilled workforce certainly couldn’t hurt.
The Chancellor announced an additional £8bn for the National Productivity Investment Fund, £1.7bn of local transport money in the new Transforming Cities Fund and £500m on high tech projects such as AI, fibre broadband and 5G mobile networks. He also increased the R&D tax credit for large companies from 11% to 12%.
3. A mixed bag for small businesses
There were two measures of particular importance for small businesses. First up, business rates. The government had already agreed to calculate rates with the lower CPI measure rather than the current RPI, from 2020. Hammond just brought that forward to next year.
Second, the VAT threshold. Businesses currently don't have to register for VAT if their turnover is under £85,000. There have been calls to lower this figure, arguing that it disincentives growth. Hammond resisted, keeping the current threshold for at least two years, but he did put it under review.
4. National Living Wage hike
The National Living Wage (the minimum wage for over 25s), will rise 4.4% to £7.83 in April. Good news perhaps for consumer spending, but not so good for wage bills in sectors like retail and hospitality.
5. Housing: carrot and stick
The government wants 300,000 net new homes a year, so it’s making more funds available to local authorities to commission them, which housebuilders will surely welcome. Less welcome will be the urgent review into why there are so many more planning permissions granted than homes built.
If housebuilders are found to be hoarding land for commercial purposes, Hammond warned, the government would consider measures to make them release it – including compulsory purchase. Gulp.
6. A clever tax boost for North Sea oil and gas
Subsidies for fossil fuels are a tough sell politically, so this move is smart. Hammond announced that tax history for North Sea fields would be made transferable, allowing new buyers to benefit from legacy tax credits, which should boost investment.
7. Are cars electric?
The writing’s on the wall for the internal combustion engine, but it’s not going to be a quick death. An additional £400m a year for the electric charging network, £100m for plug-in grants and £40m in electric car charging R&D might help ease its passing...
8. Tackling tax avoidance
Ever wondered why some of the world’s great corporations are headquartered in a beach hut in the Caiman Islands or a Luxembourgish cupboard? Ah, the joys of offshoring. One particular strain involves such exotic divisions charging a royalty on profits made elsewhere, thus denying the tax man or woman their dues.
Hammond intends to apply income tax to those royalties where the profits are from UK sales. He says it will raise £200m, but don’t be surprised if the world’s best highest paid tax accountants somehow find a way round it.