Last week's Autumn Statement signalled additional borrowing as a result of Brexit, but offered little clarity for businesses on the process for exiting the European Union.
Five months to the day that Britain voted to leave the European Union (EU), the Chancellor Phillip Hammond delivered his first and, as he announced, last Autumn Statement.
Despite containing little detail on the government’s approach to the upcoming negotiations, the Autumn Statement was clearly framed by Brexit and its impact on the UK’s finances.
Following the referendum, money is tight. Growth is forecast to be 2.4% lower over the next five years and government is predicted to borrow an additional £58 billion by 2021.
The Chancellor abandoned the fiscal surplus target and announced measures to invest in shovel-ready infrastructure projects designed to support greater productivity and unlock business growth.
Aiming to ensure that Britain is "match-fit" for the transition period ahead and signal that we will maintain a globally competitive economy, Hammond announced his focus on research and development and his ambition to deliver more housing, world class infrastructure (including 5G fibre networks) and a doubling of UK Export Finance capacity.
Business will welcome these measures, but they do not provide the much-desired roadmap to Brexit.
Government offers a few hints on Brexit next steps
The Prime Minister began the week with a keynote speech at the CBI. Resisting the recurring calls for greater details on her plans for delivering Brexit, she hinted at the possibility of a transitional arrangement with the EU. Designed to avoid a "cliff-edge" it would cover the period between agreeing our departure from the union and the establishment of a new relationship.
Pushed again for timings during Prime Minister's Questions, Theresa May took the opportunity to reinforce her commitment to triggering Article 50 by the end of March 2017.
Murky predictions from the Office of Budget Responsibility
The Office of Budget Responsibility (OBR), who provide independent analysis of the UK's public finances, caveated their projections with the acceptance that there is substantial uncertainty over the future.
Stating that "the government's response (to requests for further details of their Brexit plans) leaves us little the wiser as regards choices and tradeoffs" it is worth understanding what assumptions they used.
The OBR based their predictions on the basis that:
1 The UK leaves the EU in April 2019
2 Negotiating new trading arrangements with the EU and others will slow the pace of import and export growth for the next 10 years
3 The UK will adopt a tighter migration regime than what is already in place – however it will not reduce migration to stated aim of 'tens of thousands'
Perhaps there is nothing new here, but the impact that these assumptions had on the OBR's modelling, contributing to more than a £200 billion deterioration in public finances, will be of concern to Whitehall and beyond. As further details emerge, things will continue to develop, but it is evident that the continued uncertainty is damaging the economy.
Following Autumn Statement, where is the Brexit process?
- June's vote has already had a significant impact on the economy, with growth forecasts revised down but remaining positive.
- The UK remains primed to begin formal negotiations to exit the EU by April 2017. The Supreme Court appeal is yet to be heard (verdict expected January 2017), this could alter the timeline.
- The UK may seek arrangements to smooth the transition from membership of the EU to our new relationship following the completion of Article 50 negotiations – this will depend on what type of Brexit the UK opts for and what relationship with the EU this entails.
- Immigration looks set to fall and it remains uncertain which frameworks current and future EU nationals will have to negotiate.
Unfortunately, this means the picture remains largely unchanged. Organisations should continue to plan on a ‘hard Brexit’ by March 2019 scenario, whilst keeping this under review as events develop over the coming months.
For more information on the firm's post-referendum work please visit our dedicated Brexit online hub.