Philip Hammond’s Spring Statement has suggested marginally stronger growth and an eradication of the spending deficit but the OECD still see Britain as the slowest growing G20 member this year
The Chancellor’s Spring Statement has been overshadowed by a continued low growth projection for the UK from the OECD. Although the OECD did revise up the UK’s economic growth projection from 1.2% to 1.3% the country remains the weakest in the G7 and the G20 in terms of growth. It predicted growth for the UK to drop to 1.1% in 2019.
By contrast global growth was predicted to be at its highest since 2011 with an annual rate of 3.9% over the next two years. This figure is just below the current level of UK RPI inflation which sits at 4% and which was singled out by the OECD as continuing to squeeze living standards and wages in the UK. However, as announced by the Chancellor, the UK’s Office for Budget Responsibility (OBR) suggested growth of 1.7% in 2017, 1.5% in 2018, 1.3% in 2019 and 2020, 1.4% in 2021 and 1.5% in 2022. This was lower than the growth levels predicted in the Autumn, which predicted levels of 1.5% in 2021 and 1.6% in 2022. PwC economist John Hawksworth commented on the projections, saying the OBR see the UK as being in the “slow lane of global growth for some time to come”.
The Chancellor’s big news in his statement was the reduction of the UK deficit, the difference between the amount brought in by the government and the amount it spends, suggesting that by next year the government could begin a surplus and by 2021 be able to brook £15.4 billion “headroom”.
Currently UK public debt totals £1.8 trillion, equating to £65,000 per household or 86.5% of GDP. Speaking today, Hammond said this would go to 85.1% next year and 78.9% by 2023.
However, in what might be seen as a nod towards those both inside and outside the Conservative party who believe austerity has lasted too long, the Chancellor did detail some spending measures. He referenced his Autumn budget, notably a commitment to give £9 billion to the NHS, and £2.2 billion to be spent on education and skills.
He also mentioned £80 million to help fund 3 million new apprenticeships, a reduction of business rates and the championing of T-Levels to help build an economy that was “open and outward looking, confident to compete with the best in the world”. Hammond also claimed a new “tech business is founded every hour,” in the UK.
21st Century Tax
Additionally, there were measures to combine technological advancements with revenue collection, including reviews of the taxing of large digital businesses, VAT collection mechanism for online sales and an insight into digital payments with the commitment to ensure cash remains available for those who need it.
Tax was also laid out as a tool to encourage green, environmental conscientiousness: “not as a way of raising revenue but as a way of changing behaviour”.
However, the challenges of economic growth below inflation remain. Tellingly the Chancellor said he hoped to see “inflation to fall back to target” by 2019, meaning people would see real wage growth only then.
Political and economic pressures beyond government control also remain. The Chancellor was jeered when reporting that “since the last budget we’ve made substantial progress with our negotiations with the European Union.” Following this statement, he detailed £1.5 billion had been set aside as “Brexit preparation funding”.
Responding to the Chancellor’s statement, the Shadow Chancellor, Labour’s John McDonnell, said: “Hasn’t he listened to the doctors and nurses, the teachers, the police officers, the carers and even his own councillors? They are telling him they can’t wait for the next Budget. They’re telling him to act now. For eight years they’ve been ignored by this government. And today – they’ve been ignored again.”