If today's Budget was a shipping forecast of the UK economy and fiscal environment, here is what it might have said: “Scattered showers. Good to moderate across most of the UK. Some gusts may be coming in from the Channel. Possible big storm brewing in the Atlantic.”
The overall UK forecast showed small changes since the autumn statement: inflation up a little, just over 2%; growth around 2%; borrowing down slightly.
George Osborne was fond of talking about “fixing the roof while the sun shines”. Today was a rainy Budget day. The Chancellor found a number of leaks in the house (business rates, social care) that needed spending to fix and allocated additional funds for these. Paying for some of it by taxing the higher paid self-employed (gradually levelling up national insurance contributions) created some sense of fairness.
The longer term economic weather forecast looks quite unpredictable. We have a couple of years of negotiations before we see what deal emerges on Brexit and some large businesses may start taking investment decisions in the meantime; elections this year in the Netherlands, France and Germany create uncertainty; and concerns remain about the health of euro-zone banks. It has been reported that the Chancellor was therefore planning to stash £60bn under the mattress to allow for any economic damage suffered because of a global or Brexit downturn. There was no mention of this in the Budget Speech but he did refer to a similar contingency (albeit smaller) in November; we will need to study the fine detail of the Budget documents to see if this is the case (NB Treasury have yet to publish all of these as I go to press).
There is one fiscal and economic storm that may be brewing in the US, which the Chancellor made no allusion to. Storm Donald could blow in across the Atlantic over the next few years. The US government is looking at radical tax reform to encourage businesses to domicile in the US and to manufacture in the US - with lower corporation tax, potentially a system based on revenue rather than profit, and a border tax on imports as part of ‘border adjustability’.
The UK needs to look at these development in America, both as an inspiration for what a radically simple tax system, reflecting reality of global economy, could look like; and to assess the challenges and opportunities for British trade and investment and develop plans to address these. Philip Hammond will want to avoid ‘doing a Michael Fish’. There is a risk we all get distracted by Brexit and fail to plan for events in the US. Government and business need to keep US tax reforms under review and prepare their own plans for how to respond.
Scattered showers. Good to moderate across most of the UK. Some gusts may be coming in from the Channel. Possible big storm brewing in the Atlantic