CPA response to the Spring Budget 2017

By Emma Salmon at Wednesday, March 8, 2017

Chancellor Philip Hammond delivered his first Spring Budget earlier today but anyone seeking major announcements are likely to be disappointed, as perhaps the government could be seen to be waiting for a post-EU landscape.

Mr. Hammond promised to prepare Britain for a ‘global future’ and ‘build an economy that works for everyone’, in a budget aimed very much at individual households.

A handful of announcements relevant to construction product manufacturers and distributors were carried over from the previous Autumn Budget including a £220 million fund to identify pinchpoints in the transport infrastructure. Productivity was identified as a driver of economic growth, but in a shift away from infrastructure investment, the focus was on skills and education. This included a £500 million plan to prepare young people for the global economy with investment in technical education.

However, away from the Chancellor’s speech today government revealed they have spent just £5.5 billion of capital investment in transport in 2016/17, which is £0.8 billion lower than the £6.3 billion promised in its March 2016 Budget. The gap is expected to widen this year to £1.4bn and will remain at £1.0 billion in 2018/19.

Dr Diana Montgomery, Chief Executive of the Construction Products Association, said: "Despite constant announcements, the government has struggled to get transport projects such as road and rail off the ground. We have a real concern regarding the quiet reduction in the transport infrastructure budget given that government has clearly outlined a major infrastructure programme to encourage companies to invest.”

Other content relevant to construction product manufacturers and distributors was pretty low but key points include:

  • To improve the condition of the school estate, the Budget provides a further £216 million investment in school maintenance over three years.
  • The government aims to encourage students to continue their training at institutions such as National Colleges or Institutes of Technology. From 2019/20, the government will provide maintenance loans, like those available to university students, to students on technical education courses at levels 4 to 6 in National Colleges and Institutes of Technology. This also aims to support adults to retrain at these institutions.
  • The government will extend the free schools programme with investment of £320 million in this Parliament to help fund up to 140 schools (in addition to 500 already committed in the Conservatives’ manifesto), including independent-led, faith, selective, university-led and specialist maths schools.

Economic and Fiscal Overview

The Office for Budget Responsibility (OBR) has published its latest forecasts on the economic and fiscal outlook.

http://cdn.budgetresponsibility.org.uk/March2017EFO-231.pdf

The OBR forecasts that the UK economy will grow by 2.0% in 2017, up from the 1.4% predicted in the Autumn Statement, reflecting stronger-than-expected growth in consumer spending in the final quarter of 2016. However, in the near-term, rising inflation linked to the Sterling depreciation is expected to squeeze real incomes and, in turn, consumer spending, meaning that in 2018, the OBR has marginally revised down its forecast for UK GDP growth to 1.6% from 1.7%. Similarly, the OBR’s forecasts for GDP growth in 2019 and 2020 have been revised down to 1.7% and 1.9% respectively, from the 2.1% projected for each year in the Autumn Statement. Furthermore, GDP growth of 2.0% is projected in 2021, unchanged from November.

Inflation expectations for 2017 have been revised up by 0.1 percentage points. Inflation is forecast at 2.4% for 2017, up from 2.3% anticipated in the Autumn Statement, reflecting higher import prices associated with the weak Sterling, as well as rising global commodity and energy prices. In 2018 and 2019, inflation is forecast at 2.3% and 2.0%, down from a rate of 2.5% and 2.1% respectively, predicted in the November forecast. An expectation of a modest appreciation in the Sterling that will reduce the upward pressure on import prices is responsible for the slightly lower rates of inflation projected in the medium-term.

Business investment is forecast to decline 0.1% in 2017, a slight improvement from the 0.3% fall anticipated in the November publication due to stronger investment intentions reported in surveys conducted by the Bank of England and the Confederation of British Industry. In 2018, the OBR expects business investment to increase 3.7%, followed by 4.2% in 2019. Thereafter, growth is projected to slow to 3.9% and 3.6% in 2020 and 2021, respectively. Overall, the downward revision in growth rates in the medium-term reflects the impact of uncertainty on investment.

Public sector net borrowing is estimated to have totaled £51.7 billion in 2016/17 and is forecast to rise to £58.3 billion during the 2017/18 financial year, albeit a downward revision from £59.0 billion expected in the November forecast. Total public sector net debt as a percentage of GDP is expected at 88.8% in 2017/18, down from 90.2% in the November forecast, before declining in each year thereafter to reach 79.8% in 2021/22.

Industry and sector policies

The government made a series of new announcements relevant to businesses and industry. These include:

  • The main rate of Class 4 National Insurance Contributions (NICs) will increase from 9% to 10% in April 2018, and to 11% in April 2019. Taken together with the abolition of Class 2 NICs from April 2018, this means that only self-employed individuals with profits above £16,250 will have to pay more NICs.
  • Following the business rates revaluation in England from April 2017 and the £3.6 billion transitional relief which was announced in November 2016, the government will also provide £435 million of further support for businesses facing significant increases in bills from the English business rates system. The government will set out its preferred approach for more frequent revaluations of properties at the Autumn Budget 2017 and will consult ahead of the next revaluation in 2022.
  • From 1 April 2017, Vehicle Excise Duty rates for cars, vans and motorcycles registered before April 2017 will increase by Retail Prices Index (RPI).
  • HGV Vehicle Excise Duty and Road User Levy rates will be frozen from 1 April 2017. A call for evidence on updating the existing HGV Road User Levy will be launched this spring. The government will work with industry to update the Levy so that it rewards hauliers that plan their routes efficiently, to incentivise the efficient use of roads and improve air quality.
  • Starting in 2021/22, the government will target a total carbon price and set the specific tax rate at a later date, giving businesses greater clarity on the total price they will pay. Further details on carbon prices for the 2020s will be set out at Autumn Budget 2017.
  • The Aggregates Levy rate for 2017/18 will be frozen at £2 per tonne, continuing the freeze that has been in place since 2009.
  • Landfill Tax – The value of the Landfill Communities Fund (LCF) for 2017-18 will remain unchanged at £39.3 million and the cap on contributions by landfill operators will be increased to 5.3%.
  • From 1 April 2017 the VAT registration threshold will increase from £83,000 to £85,000 and the deregistration threshold from £81,000 to £83,000.
  • HMRC will work constructively with businesses and interested parties to consult over the summer on its process for risk profiling large businesses and promoting stronger compliance.
  • The government will consult on options to combat missing trader VAT fraud in the provision of labour in the construction sector, in particular, applying the reverse charge mechanism so the recipient accounts for VAT.
  • The government will increase the number of programme hours of training for 16-19 year olds on technical routes by more than 50%, to over 900 hours a year on average, including the completion of a high quality industry work placement during the programme. This will be introduced from 2019/20, with over £500 million of additional funding invested per year once routes are fully implemented.
  • The government aims to encourage students to continue their training at institutions such as National Colleges or Institutes of Technology. From 2019/20, the government will provide maintenance loans, like those available to university students, to students on technical education courses at levels 4 to 6 in National Colleges and Institutes of Technology. This also aims to support adults to retrain at these institutions.
  • The government will spend up to £40 million by 2018/19 to test different approaches to help people to retrain and upskill throughout their working lives.
  • The government will work with business groups and public sector organisations to identify how best to increase the number of ‘returnships’, which will offer people who have taken lengthy career breaks a clear route back to employment. This will be supported by £5 million of new funding.
  • The government will extend the free schools programme with investment of £320 million in this Parliament to help fund up to 140 schools (in addition to 500 already committed in the Conservatives’ manifesto), including independent-led, faith, selective, university-led and specialist maths schools.
  • To improve the condition of the school estate, the Budget provides a further £216 million investment in school maintenance over three years.
  • Starting in 2017, the government will invest £200 million to fund a programme of local projects to test ways to accelerate market delivery of new full-fibre broadband networks.
  • A new Digital Infrastructure Investment Fund will be launched in spring 2017. Government investment of £400 million will be at least matched by private sector investors, and will accelerate the deployment of full-fibre networks by providing developers with greater access to commercial finance.
  • The government has agreed a Memorandum of Understanding on further devolution to London. The agreement will provide scope for locally-delivered criminal justice services, action to tackle congestion and a taskforce to explore piloting a new approach to funding infrastructure. The agreement also commits to explore options for devolving greater powers and flexibilities over the administration of business rates and greater local influence over careers services and employment support services.
  • The government will invest £325 million over the next three years to support the local proposals for capital investment in health services through local Sustainability and Transformation Plans.

 

By Emma Salmon at 8 Mar 2017, 08:20 AM