The introduction of the Spring Statement as one of the Chancellor’s first acts really is a testament to his ironic nickname “Box Office Phil” as he is renowned for avoiding a showmanship style of politics in favour of caution to avoid unintended headlines. The new annual economic report by the Government was not intended to reveal any new tax or spending initiatives, indeed the famous ‘Red Box’ of announcements was ditched for this occasion.
This is actually a welcome change for our tax system, as the previous twice-yearly meddling has contributed to the UK now having the longest tax code in the world, at more than 10 million words.
Hammond set the scene for a current budget surplus expected in 2018/19, 3 years after his predecessor pledged to eliminate the structural deficit by 2015/16. Cautious Phil was careful not to fully allocate this extra wriggle-room. This will clearly establish new political dividing lines between those who want to press the breaks on austerity and those who want to prioritise making a start on tangibly paying down our national debt, now standing at an eye-watering £1.8 trillion (85.6% of GDP in 2017/18). By contrast, it took the UK just short of half a century to pay off the debt left behind after the Second World War.
The Office for Budget Responsibility’s outlook showed an “unexpected strength in tax receipts since November”, with onshore Corporation Tax receipts exceeding their expectations. Receipts are forecast to total £752 billion in 2017/18, nearly £26 billion more than the year before. Whilst this is reassuring, bumper tax revenues could be a sign of uncertainty. The cost of tax relief to the Exchequer for capital expenditure incurred by businesses has fallen from £23.1 billion last year to £21.5 billion forecast for this year; this may be in part due to the cut in the Corporation Tax rate from 20% to 19% but possible weaker business investment can result in tax reliefs not being claimed.
There were some muffled announcements but these mainly related to consultations for proposals to introduce a VAT ‘pay-as-you-go’ system for certain online traders and an opportunity for external investors in companies to bank preferential entrepreneurs’ tax rates in cases where their shareholding is diluted below 5%, which may not be too popular with all start-up companies who usually want continual commitment from existing investors.
All in all, there might not have been any rabbits being pulled out of hats but there does seem to be light at the end of the tunnel as far as the public finances are concerned, after much false hope.