Underwhelming StatementUnderwhelming Statement

Spring Statement by the Chancellor of the Exchequer on 12 March 2019

Phillip Hammond delivered his Spring Statement on Tuesday, in the shadow of a last-minute vote on Theresa May’s revised Brexit deal. While the Chancellor was confident an agreement would be reached on Brexit, and praised the resilience of the UK economy, he struck a cautious tone on spending. Cognisant of the timing of his report, he announced a full three-year spending review this year, to begin in the summer if a Brexit deal is agreed.

The review, planned to conclude by the Autumn budget, is intended to boost productivity by allocating funding to departments up to the 2022/23 financial year. Hammond renewed focus on growing productivity and “outcomes achieved for the money invested” in supporting a high-growth economy with public services.

The Chancellor also issued revised forecasts for growth and public spending:

  • 2019 GDP growth cut from October’s forecast of 1.6% to 1.2%.
  • Next year’s GDP growth remains unchanged, predicted to be 1.4%, followed by three years of 1.6% growth.
  • Government borrowing declined to 1.1% of GDP, £3bn lower than projected in the Autumn Statement.
  • Aim to cut borrowing from £29.3bn in 2019-20 to £13.5bn in 2023-24, the lowest level in 22 years.

To complement the spending review, a £37bn National Productivity Investment Fund will be implemented to tackle the UK’s perennial productivity stagnation. The fund has pledged £200m for genetic research in Cambridge, a new laser technology Extreme Photonics Centre in Oxfordshire, and the ARCHER national supercomputer at the University of Edinburgh.  

£3bn was also pledged for an Affordable Homes Guarantee scheme, aimed at delivering 30,000 new affordable homes across the country.

The Spring Statement offered no sweeping reforms to the area of personal finance, though Hammond reiterated the rise in the personal tax allowance and higher rate tax threshold to £12,500 and £50,000 respectively this April. 

In addition, he announced the following reviews:

  • A consultation on Child Trust Funds to ensure they retain tax-free status upon maturity.
  • A review of probate fees, potentially linking them to the value of estate rather than a flat charge of £215. Critics say this is a ‘stealth tax’ and could end up costing £6,000 on estates over £2m.
  • A plan to issue legislation on Enterprise Investment Schemes (EIS) giving the government greater discretion to set “appropriate conditions and approve funds.”
  • A review of Stamp Taxes on share considerations. This could impact succession planning at family-owned businesses, as gifts of shares may incur stamp duty based on their fair market value at the time of transfer. 

The government will also consult on proposed changes to capital gains tax private residence relief. Due to commence in April 2020, lettings relief and final period rules will tighten significantly. A possible capital gains tax increase for those selling a property they once used as a main house but now let out, may result in a scramble to sell before the changes become law.

Philip Hammond also proposed a £26bn ‘deal dividend’ spending increase if MPs could vote to leave the European Union with a deal. The statement was notably bullish on the UK’s long-term prospects provided a deal to exit the European Union can pass Parliament but was cautious not to make any fundamental changes at such an uncertain time.  

This was not, unlike previous Spring statements, a “mini budget”, and offered no surprises either for investors or savers.