I personally thought last weeks Budget was a bit boring, and much of the commentary on it seems to be based around the fact that the Chancellor’s delivery wasn’t as bad as predicted and he even made a joke or two. Now the fact that Osborne before him had several nightmare Budgets in a row, as well as Hammond also having to backtrack on increasing NIC payments on the self employed last time, if this Budget was a bit of a success it’s only when compared to extraordinarily low expectations and past missteps.
Hammond trailed a reduction in the VAT threshold from £85,000 to £40,000 (some suggested £20,000) which would have hit small, growing and nascent businesses hard with cashflow pressure, increased prices and administrative burdens. However, unlike his last Budget he took heed of the early feedback and had the sense to back down before announcing the plan.
So the Budget in summary; the economy is tanking and we are not even building Brexit into the equation yet, but don’t worry here is a Jeremy Clarkson joke.
“The Chancellor eases off on austerity” proclaimed the Times headline. But his pledge that there’d be no stamp duty on homes up to £300,000 doesn’t help anyone who is feeling the bite of austerity.
Those who rely on councils for care and the NHS and other frontline services being cut due to austerity usually don’t go around buying £300,000 houses. Certainly not in Scotland – but it doesn’t apply to us so that’s ok.
The stamp duty cut does show how desperate the Chancellor is to stop the slide in house prices in London and the south-east and may in fact buy a him few more months before the pending house price readjustment (crash) I predicted (two years ago) for 2018 hits.
To be fair to the Chancellor, he didn’t come across as a bumbling idiot with a limited understanding of his brief and no clue about the economic impact of Brexit.
So compared to the recent performances of the rest of the UK Government front benches Hammond looked almost strong and stable.
However, the UK growth forecasts are pretty bleak and as we are no closer to knowing the Brexit deal, with single market and customs union status, the projections do not yet model the impact of leaving the EU. They assume the status quo and so it’s very bad news indeed that the growth forecasts are dropping so much. There may be some element of caution due to uncertainty in the OBR’s growth forecast, but its not modelled on Brexit.
Taking a look at the UK GDP growth forecast for 2017 of 1.5% (half a percent lower than predicted back in March). That’s not good, but everyone is pointing out how all the future years are now forecast to be lower than before.
So let’s take a different slant and compare that to the EU GDP growth prediction for 2017 of 2.3% which has been revised upwards. Again, the EU forecast assumes the status quo and doesn’t include the impact of Brexit and when it does it will impact less on EU growth than it will on UK growth.
This raises the prospect of EU growth rates post Brexit being at least double that of the UK.
Let’s also compare economies previously described by representatives of the UK Government as as basket-cases, such as post bailout Ireland and Greece and previously cliff-edged Spain to UK in GDP growth projections for 2017/18/19.
In 2017 – UK 1.5%, Ireland 3.1%, Greece 4.8%, Spain 1.6%.
In 2018 – UK 1.4%, Ireland 2.5%, Greece 3.9%, Spain 2.5%.
And 2019 – UK 1.3%, Ireland 2.1%, Greece 3.1%, Spain 2.5%.
So to be clear, the UK even before Brexit was falling behind the EU economically and recovering much more slowly than others that were also badly hit by the credit crunch.
This could be seen as a little surprising as the impact of the weak pound has meant that exports are up and this has been protecting growth, however the wrong Brexit deal could wipe out any exporting advantage from the weaker pound and many firms that import components are also seeing costs rises.
Scotland, with more exports and more manufacturing per head than the rest of the UK, may see more of a boost from the fall in the pound if the flip side is that inflation costs us more personally as imported foods make up a bigger share of our household spending.
Finally, two really interesting statements were made by the Chancellor relating to the oil industry. Firstly, with the ability for oil companies to sell assets to new companies who would then inherit the big companies tax write-offs, he effectively declared the North Sea a tax-free zone and reduced Scottish oil revenues for years to come ahead of the next independence referendum. The short-sighted SNP thanked him for it.
However, a bigger surprise was his boast that the North Sea has 20 billion barrels of oil left to extract. This was fascinating as the UK Government have now switched from backing Sir Ian Woods referendum debate – 14-15 billion barrels of oil left forecast, (we have extracted more than a billion barrels since then) – to predicting 20 billion now and a £40bn oil and gas bonanza.
So convinced were they that there were only 14 billion barrels left in 2014 Treasury Secretary Danny Alexander claimed that an independent Scotland would face a basic income tax rate of 30% or 5% cuts to public spending across the board based on Wood’s new oil and gas estimates – which he knew were wrong.
I guess with some companies doubling production, costs down to as low as $14.00 a barrel and the oil price having gone back up to over $60.00 those oil reserves we were told were economically unreachable are now firmly in the Treasury’s sights to help them recover from Brexit a few years down the line.