Chancellor of the Exchequer, Philip Hammond, recently delivered his November 2018 budget.
What does it mean for UK business in general?
The realities of life
Hammond and the government faced some serious challenges in trying to prepare their budget. Although that’s often the case, in this instance, the problems were exacerbated by:
- The government lacks a majority in parliament
- The well-publicised rancour and schisms within the conservative party arising from Brexit, meaning that the atmosphere was unusually highly charged
- Forces within the governing party pulling in radically different directions – those demanding on-going fiscal constraint and those arguing for a loosening of the purse strings in order to inject more cash into the economy
- Economic productivity and growth figures which continue to be acknowledged as being sluggish
Almost inevitably, as a result, the budget was never likely to be either one that involved significant tax increases or massive “giveaways”. The chancellor was attempting to keep some fundamentally opposing forces within government happy and at the same time, continuing to try to formulate decisions based on the objective interests of the country and economy.
However, following the Prime Minister’s statement at the recent party conference that austerity was over, the Chancellor was clearly in a position where he had to do whatever was possible to prove that by investing more money into the economy to stimulate growth.
This resulted in a package of measures designed to achieve such. They included:
- Increases in tax allowances for individuals which should, in theory, stimulate spending
- An increase in the annual investment allowance from £250,000 to £1million for 2019 and 2020
- The National Productivity Investment Fund (NPIF – not to be confused with the identically-named “NPIF” for “Northern Powerhouse Investment Fund”) will be extended in terms of its lifecycle (2023-24) and will see further growth in the funds available
- Larger extra sums will be made available for things such as city centre refurbishment and above all, improvements to the road network
- Money is being made available to roll out fibre networks across the whole country, with the objective being that everywhere will be connected by 2033
- Another £1.6 billion has been found for investment in new technologies
What will these measures achieve?
This is the question that chancellors and financial analysts agonise about in the run-up to and immediately after, any budget statement.
The honest answer is, of course, that nothing is certain.
Some of the proposals should have an immediate direct effect in stimulating the economy. Significant public investments in construction within the city centres and the road network will, inevitably, generate work and knock-on economic growth benefits in related industries.
The additional investment in new technologies is also likely to be welcomed, as the world is moving increasingly rapidly in this domain and the UK will need to keep up if the commercial opportunities arising are to be realised.
Some of the other measures though are perhaps softer and therefore harder to analyse in terms of their direct consequences.
For example, whilst the increase in tax allowances should permit some individuals to feel they can spend more money, the overall effect on an average family budget in the year is relatively minor in terms of additional cash in the pocket.
It’s also the case that the public’s reluctance to spend money may be being driven as much by psychological as financial forces. In the 10 years since the 2008 collapse and its associated kick-off of “austerity”, public confidence has been significantly dented. It may take a considerable period of time before it is fully restored.
Even so, it’s possible to see the budget overall as generating a positive investment and therefore economic outlook. Companies might be advised to start to position themselves for that accordingly.