Ben Kumar, Investment Manager, Seven Investment Management
The UK Budget is usually as much a political statement as it is a fiscal one. Given the current state of UK politics, Philip Hammond might have preferred to focus on the economics. However, unfortunately there doesn’t seem to be much wiggle room in that area either. There has been a lot of talk about businesses struggling to plan in the face of Brexit uncertainty, and today’s statement showed that the Treasury is facing the same problem.
We’ve seen over the past months that any good news on the economy – such as yesterday’s stellar manufacturing new orders figure – is accompanied by a qualifying statement on how unclear the future is. The Office for Budget Responsibility’s (OBR) forecasts are certainly gloomy, with all years revised downwards and nothing higher than 1.5% GDP growth predicted out to 2021.
The more interesting thing is a statement from the OBR pointing out how little it has to go on: “Given the uncertainty regarding how the Government will respond to the choices and tradeoffs it faces during the negotiations, we still have no meaningful basis on which to form a judgement as to their final outcome and upon which we can then condition our forecast.” Pretty strong words! It seems most likely that in the face of the ambiguity generated by Brexit, the OBR and the Chancellor have erred heavily on the side of caution, accepting that the biggest influence on the UK economy over the next few years is not going to be fiscal policy.
As ever, the Treasury have a decent summary of the main points here https://www.gov.uk/government/news/autumn-budget-2017-25-things-you-need-to-know, and we make a few comments on some highlights below:
- Setting aside £3 billion for Brexit preparations. This is a good political headline, it placates members of Hammond’s own party, and should reassure the country that there is someone in charge making preparations. It would be nice to see more detail on how that money might be spent – £3 billion is a lot of money – and there would be pretty limited support if the bulk of it ends up in the pockets of think tanks and consultants.
- Stamp Duty abolished for first time buyers. Largely leaked before the budget, this will be a popular policy in the short term, with no one explicitly losing out from the change. With average stamp duty coming in at around 10% of median annual earnings (33% in London!), the problem was plain to see. The Treasury will have a hole to fill as stamp duty brings in over £8 billion a year in revenue, but the hope is that if the housing market gets going again, receipts from higher up the chain will increase.
- 300,000 new homes built a year. This attempt to address the long term supply issue for residential property is a decent proposal – but we have heard such promises before. Convincing housebuilders to move away from building expensive properties in desirable areas is a long, drawn out process. Increased funding for infrastructure and changes to the planning and approvals system will be welcomed, but are unlikely to provide an instant impact. Property will continue to be an issue for governments for years to come.
- Investing in technology. This budget placed heavy emphasis on the government’s aspirations for Britain’s technology sector to become a world leader. We saw recognition that there is a lack of the basic infrastructure necessary to do so – whether broadband, 4G, electric vehicle charging or simply accessing the funds needed to start a business. This type of longer term thinking, trying to promote and protect the growth industries of the future, is to be welcomed.
All in all, the budget didn’t really represent much of a change of direction. Some pieces were moved around the chequerboard, but the Chancellor certainly didn’t propose to start a whole new game.