Just as Brexit uncertainty has affected business investment, so today’s spring statement saw the chancellor pleading for certainty and putting off decisions.
Sitting in the shadow of last night’s defeat of the prime minister’s Brexit deal and tonight’s vote on no deal, this was always going to be a very low-key spring statement. The chancellor took it as a political opportunity to press home his own views on Brexit.
Philip Hammond began by warning of the ‘dark cloud’ of uncertainty hanging over the economy; he went on to warn of the economic disruption caused by a no-deal Brexit including a hint that the risk of inflation could limit the scope for any fiscal stimulus. He held out the prospect of a spending review that would finally end austerity provided there is a Brexit deal. And he used the end of his speech to make a seemingly personal pitch to MPs to rule out no deal, extend Article 50 and use the time to find a solution that would provide for an orderly Brexit.
An exercise in treading water
The good news was that economic forecasts are holding up (with a slight improvement on last year’s forecast). Public finances are looking strong enough to allow for some significant increases in public spending (specifically referencing local government) in the multi-year spending review that will be launched in the summer. These measures are all subject to an orderly Brexit and avoiding no deal.
Placeholders not priorities
There were hints of some of the priorities Philip Hammond might pursue in the spending review, if he is still chancellor, including:
taking on ‘digital giants’ (such as Amazon, Google, Facebook) with an investigation into competition in digital advertising and confirmation that the UK will press ahead with a digital services tax despite it being dropped as an EU-wide proposal (it has not been dropped by a number of EU countries such as France, Spain and Italy)
housing investment and Northern Powerhouse transport infrastructure remains a priority
measures to tackle climate change, including mandating zero fossil fuels in all new build homes from 2025.
These felt like placeholders; a possible government programme if the UK ever completes the interminable current phase of Brexit decisions.
Brexit homework for every business
The most significant announcement was made earlier this morning: the import tariffs the UK government will introduce in the event of a no-deal Brexit on 29 March or thereafter. What these mean for business will vary on a case-by-case basis. This requires a fair bit of number crunching – with a complex combination of tariffs, reliefs, preferential rates for some countries, and quotas. Every business will need to work through exactly what these mean for costs, supply chain sourcing, competition and pricing – alongside other no-deal cost variables of foreign exchange rates and increased customs administration costs.
No deal still on the table
Parliament votes tonight on whether to pursue a no-deal Brexit - a hard Brexit with no transition. MPs are likely to vote against, but this will not stop a no-deal Brexit. Unless Brexit is abandoned altogether (very unlikely at this stage), only the EU leaders can stop a no-deal Brexit by agreeing to allow more time, and MPs need to agree on an alternative approach to Brexit in the next week to persuade the EU that they should give us more time.
So it probably makes sense to follow the chancellor’s approach: get ready for a disruptive no-deal Brexit and keep a placeholder for your summer investment plans.