Chancellor Philip Hammond (pictured) has upgraded forecasts for growth and predicted falling inflation, debt and borrowing in his Spring Statement.
Speaking in the House of Commons today (March 13), he claimed the UK economy had reached a turning point and revealed a forecast of 1.4% growth this year – 0.1% higher than the forecast from the Office for Budget Responsibility in November.
The outlook for 2019 and 2020 remained unchanged at 1.3%.
Despite this upwards revision, Helen Dickinson, chief executive of the British Retail Consortium (BRC) claimed that the economic picture remained “fairly bleak”, with Office for Budget Responsibility (OBR) expecting private consumption to make a lower contribution to growth this year.
“That will only add to the challenges of the current trading environment,” she explained. “The [retail] industry is undergoing rapid structural change as technology revolutionises the way we shop and operating costs escalate, at the same time as inflation continues to outpace wage growth – eating into consumers’ spending power and keeping overall sales growth low.
“The cumulative effect of these prevailing retail headwinds has unfortunately been highlighted by the recent casualties on the high street, which should refocus attention to what is going on in retail in the UK at present.”
The Chancellor also revealed that the next revaluation for business rates would be brought forward to 2021, with revaluations occurring every three years after this.
Patrick O’Brien, retail research director at GlobalData, a leading data and analytics company, commented: “Philip Hammond trailed his Spring Statement as an event-free speech and he did not disappoint. While the upbeat signals beforehand hinted that the OBR would be backtracking from the savage downward revisions to the economic forecasts it made in November last year, instead it made only a 0.1% increase to GDP in 2018, which was outweighed by decreasing forecasts 0.1% in both 2020 and 2021.
“The data does point to a slightly better near-term picture for retailers though, with falling inflation leading to an increase of 1.2% in real household disposable income in 2018.
“On the perennial problem of business rates, though, the only help was the bringing forward of the next revaluation to 2021, which will be little help to struggling retailers about to be hit by increased rate bills next month.”
Ms Dickinson added: “We’ve consistently called for more frequent revaluations and welcome the Chancellor’s decision to move forward the next revaluation by a year to 2021 as a step in the right direction. More frequent revaluations are no easy task and require strong collaboration and exchange of information jointly between the Valuation Office and ratepayers.”
Mr Hammond also put forward a series of consultations on future policies, which included a new VAT collection mechanism for online sales to ensure that the VAT that consumers pay “actually reaches the treasury”, as well as how online platforms can help users to pay the right amount of tax and the future of cash and digital payments.
Ms Dickinson commented: “The Government needs to look more widely than simply focusing on digital tax, instead looking across all elements of business taxation. Given the fundamental questions we now face in a digitally connected and globalised world, where tax systems have evolved on a national basis, the Government needs to go further than the current business tax road map, published in March 2016. Specifically, there is a need to rebalance away from input taxes (on things like people and property) and towards output taxes (on profits), as well address other underlying problems with the way the different taxes work. This would attract investment, which would lead to greater productivity and improved living standards.”
The Chancellor also suggested measures to end late payments to firms, as well as plans to make the least productive businesses learn from the most productive.
Federation of Small Businesses (FSB) national chairman Mike Cherry said: “The Chancellor has sent a clear message to UK boardrooms by committing to ending the late payment crisis that destroys 50,000 businesses a year. We look forward to working with the Chancellor and his team to eliminate the scourge of late payments. Ending the late payment crisis could add £2.5 billion to our economy annually and help close the productivity gap.
“Eight in 10 small firms suffer from late payments. The collapse of Carillion highlighted the dangers of the UK’s pernicious poor payment culture. We need to create an environment where another Carillion can’t happen.”
The KBSA welcomed the announcements with caution, stating that the update was short on “detail and drama”.
KBSA national chair Richard Hibbert said: “The new format means that much of the meaty content will be delivered in the autumn budget but the Chancellor presented an optimistic statement with good news on employment and inflation.
“Many of the areas of interest to our sector were subject to consultations such as measures to end late payments for firms and a reduction in tax for the least polluting vans. We welcome the bringing forward of the next revaluation for business rates to 2021, after which the government will move to revaluations every three years. There was also more money for housing and apprenticeships and training.
“Overall the Chancellor may be trying to paint a rosy picture of the current situation but we believe there is still much uncertainty and that the outlook remains challenging.”
However, BMA chief executive Yvonne Orgill welcomed the “upbeat” update but claimed she remained cautious over the long-term outlook for the economy.
She said: “We are pleased to see investment for apprentices and housing but we remain cautious about the long term outlook, predicted growth and the impact of Brexit. It is good to see that the Government are taking action on what they said in the autumn about housing and that it remains at the top of their agenda. We are pleased that councils will get help to access the £4.1bn Housing Infrastructure Fund. There is further good news in that deals are already in place in two areas. Supported by a £100m grant from the land remediation fund, 215,000 new homes are to be built in the West Midlands by 2030-31, while the government is making available an extra £1.67bn to provide 26,000 affordable homes in London.
“We also welcome the decision to more than double the Housing Growth Partnership, to £220m, which provides financial assistance to small house builders. It remains to be seen if the Chancellors ‘light at the end of the tunnel’ is really on its way, there is still much uncertainty around Brexit, which could impact on the fragile growth predictions.”