The Chancellor faced a tough job to reassure businesses and while some measures, such as the increase in Annual Investment Allowance and the business rates relief are welcome, Iain Wright, director of corporate and regional engagement at ICAEW, concludes that increasing national debt shows the fragility of the recovery and the uncertainty arising from Brexit.
On specific measures, the increase in Annual Investment Allowance from £200,000 to £1m is a particularly welcome boost as a means of trying to encourage business investment. The changes to business rates will go some way to easing the burden on small businesses, especially in terms of trying to level the playing field between, say, traditional retailers and digital insurgents.
That being the case, the digital services tax, which will be targeted to specific digital companies, will be interesting to see what will happen. Focusing on a small number of digital behemoths, raising only about £400m, it is unlikely to change the way in which retail is being transformed.
This was always going to be a complicated issue, likely to add confusion to an already complex tax system. But I am pleased to see consideration has been taken to ensure that small businesses are not unfairly affected by the measures.
On the negative side, it is frustrating that the Red Book predicts a persistently large trade deficit. There doesn’t seem to be any boost to trade following Brexit: indeed, the Red Book suggests that exports will fall from 2022.
The Chancellor said “austerity is coming to an end”, which is at odds with the Prime Minister’s firm “austerity is at an end”.
Given the figures in the Red Book, the Chancellor is probably more accurate: the tap has been turned on a little bit, to make a few splashes, which is a marked change in public finance management than the past eight years, but we are nowhere near the reversal of some of the cuts in public expenditure that we have seen since 2010.
There was broadly good news on the big economic picture: growth forecasts are slightly up, to an average of about 1.5% throughout the period, while borrowing forecasts are slightly down, to about £25bn a year.
However, this good news needs to be tempered by several things. The long-term economic growth of this country over the post-war period is about 2%: this growth forecast puts us on a much lower trajectory than our historical performance.
In addition, our competitors are seeing high rates of growth than we are: Germany is forecasting about 2%, as is the Eurozone as a whole, while the United States is in the region of 2.9% growth. Does this mean that people and businesses in this country will have to accept lower rates of growth to the long-term norm and to what our main economic rivals are currently enjoying?
The Chancellor seems to have made a political decision not to eliminate the deficit. This was due to be eliminated by 2015, then 2018, but the Red Book states that the deficit, although reducing, will still be £19.8bn by 2023/24. The trade-off has therefore been slightly more spending at the expense of achieving the government’s long-delayed deficit target.
This has an impact on public sector debt. According to the Red Book, national debt will actually increase over this period, to reach £1.9bn by 2023/24. The fact that at this stage in the economic cycle the government is running a deficit and still increasing the national debt shows the fragility of the recovery and the uncertainty arising from Brexit.