With the government still reeling from a huge second defeat on Theresa May’s Brexit deal, Philip Hammond has delivered his Spring Statement in the face of worsening political deadlock and continuing economic uncertainty.
No significant changes were expected - the Budget is where the government makes sweeping changes and announcements on tax and spending, whereas the Spring Statement is more of a health check on the economy, often with a few tweaks or the odd surprise announcement thrown in for good measure.
Here’s a rundown of the key themes:
The economy is still growing – slowly
While the economy is growing, it has slowed down greatly over the last few months with Brexit and the deteriorating political situation acting as a severe drag on growth. The OBR has forecast growth to be 1.2% this year, down 0.4% on the previous forecast. The trend of sluggish economic growth is likely to continue until or unless a Brexit deal is agreed between the UK and the EU.
Borrowing is falling
The difference between the amount the government spends compared to the amount it receives in revenue is known as the deficit. This shortfall in government revenue is made up through borrowing. Government borrowing is expected to fall from £29.3bn this year to £13.5bn by 2023-24.
The national debt is increasing (but falling as a percentage)
Each year government borrowing adds to the national debt, which currently stands at 87% of GDP or around £1.78tn. However, as the economy grows and borrowing falls, the national debt falls as a percentage of GDP – it is expected to decrease to 82.5% of GDP by 2023.
What else came up?
The Chancellor has pledged to launch a full three-year spending review before the summer recess which will look at the amount of money allocated to public services, defence and local government, paving the way for the end of austerity (as announced by Theresa May at the Conservative Party Conference in 2018). He also commented on the so-called Brexit ‘deal dividend’, pledging to spend his £26.6bn Brexit war chest to boost the economy if an orderly exit is agreed and uncertainty is lifted.
Did we see any rabbits?
The Spring Statement is a time where previous chancellors have often found a few sweeteners or pulled a few fiscal rabbits out of the hat. Among the little extras announced include:
- A new £3bn Affordable Homes Guarantee Scheme, supporting the delivery of around 30,000 new affordable homes
- £100m to be made available to police forces across England to tackle the rise in knife crime
- The government will fund free sanitary products in secondary schools and colleges in England from September
For a full summary of what was announced, visit the government website.