When Philip Hammond became the Chancellor of the Exchequer in July 2016, he was given a major task of steering the economy in the right direction and to avoid the negative impacts of Brexit. On Wednesday, he delivered his first and final spring budget. As announced in the 2016 Autumn statement, the 2017 spring budget would be the final one and from next year it will become the 'Spring statement'. The Autumn statement will be replaced with the 'Autumn Budget' and the inaugural one will be held this year.
The Economic Forecast:
The Office for Budget Responsibility (OBR) has raised the economic growth forecast by 0.6% from 1.4% to 2%. This shows that the economy is expected to perform better than originally expected. Brexit meant there was some risk to the economy however the OBR believes that the economy is likely to perform well this year. The national debt is currently at an approximated £1.7 trillion. Borrowing has been forecasted to be at £51.7bn in 2016/17 and £58.3bn in 2017/18 and therefore the UK will be borrowing '£1 for every £15 spent'. Borrowing will increase next year and this could be due to the fact that the Government will need to be prepared for extra funds needed if the Brexit process takes a toll on the economy. However, the chancellor said at the dispatch box that 'I report today on an economy that has continued to confound the commentators with robust growth.'
A new route of education for 16 to 19 year olds is being devised by the Government and will be introduced in Autumn 2019. The 'Technical levels' will give students the chance to be trained and be given industrial placement opportunities to experience work life. This is similar to Apprenticeships but the focus will be on the education aspect as well as the industrial placement. Details are still yet to emerge about how they will work. £300 million will be made available for research programmes and 1,000 new PhD places for academics. The PhD places will focus more on STEM subjects and this will help with the latest industrial strategy. £270 million will be invested into the industrial strategy challenge fund. Overall, this will help research intensive universities and businesses. A total of 110 new free schools will be created by the Government as well. The new free schools could help with the provision of education.
Tax and Work:
National Insurance contributions increasing for self-employed people who make a profit of over £16,250. It will increase by 1% to 10% next year and then to 11% in 2019. The national insurance contribution tax increase has been controversial. Philip Hammond said that a 'strong economy requires a tax system that is competitive, a strong society requires one which is fair'. It is thought that he has broken the Conservative Party's election manifesto, where it was promised that National insurance contribution tax wouldn't be increased. The Liberal Democrats leader stated that 'targeting the self-employed' essentially 'betrays Theresa May's pledge'. The National living wage will rise from £7.20 an hour to £7.50 in April. The rise mainly affects people over the age of 25, however those aged between 21-24 will get 10 pence rise to £7.05. Therefore, the Government haven't realistically raised the minimum/ 'living wage' significantly for under-25's. The Tax-free dividend allowance will be cut from £5,000 to £2,000.
A £2 billion fund, which will be invested into social care. The £2 billion fund to social care has been welcomed but there are calls that the figure should have been higher. This comes after an increase in 'pressure' on NHS services and investment in social care would help reduce that. In addition, the £425 million being invested into the NHS will help to ease the pressure but it's been described as a 'sticking plaster' and not enough capital for the service.
There was hardly any mention of Brexit in the Budget and this was unusual because Article 50 is expected to be triggered at the end of this month as part of Theresa May's so called 'Brexit timetable'. This could mean that the Chancellor may be saving some key points and policies, which may vary because of the economic impacts of Brexit and these could be announced at a later date. The SNP economic spokesman said that the chancellor not mentioning the Brexit would mean that the country may not be able to 'mitigate the damage' of Brexit.
The Chancellor's first budget was overall precautious. There have been reassurances that the economy is on track but there is criticism that the Chancellor has failed to invest enough in public services. This could be because there is another budget later this year, where the Chancellor can announce more ambitious plans to come into effect for the new year. The Autumn budget will be an indicator of how well the economy is doing and we could see some more announcements being made. can also be dubbed the Brexit Budget because the likely impact from Article 50 and negotiations may change the way the Government does business.