What to expect in the budget?
Tax and spend are the biggest powers Governments have, which is why the Budget is always such a big political event in the UK. Until this week’s, that is.
We expect this to be merely a warm-up for the most significant act in our recent political history, when the Prime Minister triggers Article 50 in a couple of weeks’ time. Philip Hammond cannot, however, waste the opportunity to lay the pitch for a confident start to the process of leaving the EU.
First of all, the principal message this Budget must convey is that the UK is in the best shape possible for Brexit. The big card in the Chancellor’s favour is that growth is expected to be revised up and borrowing down. There will be some new spending, but the priority will be to maintain a grip on the deficit in order that significant borrowing, if needed, can happen later as we transition out of the EU. If the uncertainty causes private sector investment to dry up, then we will need scope for a significant boost from public finances.
So, what will the real meat of the Budget be? What I hope and expect is for Hammond to build on the ‘industrial strategy’ themes set out recently. Specifically, a reaffirming of the PM’s commitment to raising skills and productivity, and helping boost regional economic capability as essential measures to help boost regional growth once we are outside the EU.
Measures on skills have already been pre-briefed, in the form of an extra £500m for post-16 training, so called ‘T-Levels’, but we expect other measures in education to appear also on the day. We must remember that as the UK leaves the EU, 25% of the construction labour force are foreign workers.
We also expect a focus on regional funding for construction and transport connectivity. I doubt we will see much genuinely new spend – more likely allocations of the £23bn ‘productivity investment fund’ set out at the Autumn Statement in 2016 – which itself was made up largely of pre-planned spending.
Even so, upgrading the transport connections that link our major cities outside London would be an excellent focus. We recently published research showing that small upgrades that made average journey times between major cities outside of London just 60 seconds faster would deliver economic benefits of £3.4 billion each year to our regional economies.
Another key area of concern to address is housing. The UK undoubtedly has a significant shortfall in housing, and despite the recent measure proposed in the Housing White Paper, looks likely to fall further behind.
The Chancellor pledged at the last Autumn Statement to review the R&D tax environment and we have called on Government to use a contribution from the National Productivity Investment Fund to prioritise a special 5% uplift on existing innovation tax credits for construction projects, in recognition for the essential role our sector will play in rebalancing our economy post-Brexit. This would send a strong positive signal to investors, and combined with the planned lowering of corporation tax would help make the UK a more likely prospect for serious investment.
Overall, the big positive for Philip Hammond is that the UK economy has held up much better than expected since the EU referendum. His opportunity now is to lay the pitch for the triggering of Article 50; to send out a clear message to voters and investors alike that Britain is set for success, whatever challenges and opportunities Brexit presents us.