Chancellor looks to the future as GDP growth forecasts weaken
Philip Hammond kept his eyes focused on Britain’s long-term economic future as he was forced to revise down the short-term expectations for the UK’s economy.
Brexit was the elephant in the room as he announced measures that he hopes will provide the foundations for future prosperity.
The Chancellor said he was investing to “build an economy fit for the future” as he announced funding for scale-up businesses, research and development, and driverless cars.
The long-term challenges of housing were a key target, and Hammond committed at least £44bn to support the housing market and £1.5bn for the Home Builders Fund. He also abolished stamp duty for first-time buyers on properties up to £300,000.
A £1.7bn Transforming Cities fund, a second devolution deal for West Midlands and money for rail infrastructure were among the measures announced as part of the efforts to address the regions.
He said: “We are at a turning point in our history and we resolve to look forward, not backwards, to build on the strengths of the British economy.”
Hammond, who appeared more at ease at the dispatch box than when delivering his first Budget in March, introduced the weaker GDP forecasts by flippantly ad-libbing “this is the bit with the long economic-y words in it” before delivering the bad news.
The Office for Budget Responsibility now expects economic growth to be 1.5% this year, 1.4% next year and 1.3% in 2019 and 2020.
The scale of the Brexit transition was also acknowledged as he set aside £3bn, in addition to £700m already announced, to deal with the preparations.
The UK faced “a future full of new challenges but full of opportunities”, said Hammond, and he wanted to “seize those opportunities for Britain”.
A new fund for scale-up businesses, managed by the British Business Bank, will be seeded with £2.5bn as part of an action plan to unlock £20bn of investment.
Having acknowledged that “productivity continues to disappoint”, the Chancellor announced the National Productivity Fund is being extended by one year and £8bn, while a further £2.3bn is being provided for investment in research and development.
“We can’t build an economy fit for the future without supporting our 5.5m small businesses”, said Hammond.
He brought forward by two years planned changes to business rates, shifting the inflation-linked changes from RPI to CPI.
The so-called staircase tax, the result of a legal judgement that affected businesses with offices in the same building that weren’t directly linked, will be removed by legislation and the change backdated.
Hammond also introduced a measure, which “sends a signal” he said, to make digital businesses which operate in the UK’s cyberspace pay tax.
Rob Durrant Walker, head of business tax at Garbutt + Elliott in Yorkshire, said: “The significant downgrade in growth will have a long-term impact on raising taxes for revenues. The slower growth will see mounting further pressure for later years to higher taxes again.”
Durrant Walker said it was very much a budget for youth and innovation. He said: “It is looking at bringing the country forward for innovation and infrastructure.
“I was also pleasantly surprised by the increase in R and D tax credits. That looks to be mainly for larger companies but the majority of claimants are SMEs so we will have to take a look as to what it will do for those businesses, as they are are already favourable and it will be interesting to see how businesses can use that initiative to boost further innovation.”
He added that he was pleased to see the abolition of stamp duty.