On 29 October, Philip Hammond delivered his third budget as Chancellor of the Exchequer – and the last before the UK’s scheduled departure from the European Union. Here are the agenda items of his speech that got us talking at Access Partnership.
Farewell to austerity?
The chancellor’s key message in the budget statement was clear – austerity is coming to an end. Hammond has been given an unexpected £11 billion windfall from the budget watchdog, the Office for Budget Responsibility (OBR), due to better-than-expected government borrowing figures. He opted to loosen the purse strings and spend nearly all of it, announcing an unexpectedly generous package of giveaways, on everything from defence spending to the NHS while refraining from tax increases.
In theory, this blunts opposition messages that prolonged austerity is damaging public services at a time when Labour is uncomfortably close in the polls. In practice, though, critics and independent think-tanks were sceptical that the announced increases would not go far enough to reverse the cuts in services implemented since 2010.
The other danger is perennial for finance ministers worldwide. Forecasts change, so the windfall may become a black hole overnight – but there is special reason to think things might change for Britain’s finances as we approach…
The pledge to increase public spending however comes with a caveat – it is based on the assumption that Britain will have a smooth exit from the European Union. This means that the bag of carrots dangled before Conservative backbenchers in the budget statement, including a promised extra £15 billion “double deal dividend”, might be snatched away if parliament rejects the deal Theresa May brings from Brussels. A no-deal break with the EU, Hammond admitted, would force him tear up the budget and set the economy on a “new direction”. While this message has been walked back in recent days, it would be unsurprising if Brexit forced a rethink.
One of only a handful revenue-raising measures announced in the Budget was the decision to introduce a “narrowly targeted” digital sales tax, levied at 2% on the UK activities of large e-commerce, search and social media platforms with a turnover of over £500 million globally. This will come in by April 2020 after a consultation on its precise design but is thought to be able to raise half a billion for the Treasury each year. The chancellor made it clear that the UK was ready to go it alone but expressed hopes that an international agreement rides to his rescue before the tax is imposed in 2020.
The government signalled that it would no longer be a “pushover” in public procurement, after a string of high-profile failures of public contracts over the years. Tech companies will be aware that this stiffening of resolve has resulted in initiatives like G-Cloud and the Digital Marketplace, which has seen smaller, shorter contracts displace large, multi-year ones.
The government will abolish the use of the unpopular private finance initiatives (PFIs) to fund future projects. Hammond said a “centre of excellence” would be set up to monitor the remaining deals, worth approximately £200bn, starting in the health sector. A comprehensive spending review is due next year, meaning civil servants and ministers alike will be keen to emulate the chancellor’s tough posture. Will it be all talk, or will we see the rhetoric hit contract terms?
A number of small changes to the Apprenticeship Levy were announced in the budget which are likely to disappoint the tech industry. The government confirmed that from April, it would allow large companies to redistribute 25% of their potential allowance to their supply chains and halved the contribution rate for small businesses to 5%. But this minor improvement does not address the concerns tech companies have that the system does not allow them to take advantage, regardless of how much a company wants to contribute.