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The Month of Two Budgets: What to expect in the UK Budget 2017

This is an new institution- a single, annual UK Budget instead of the previous pattern of a March Budget and an Autumn Statement. Here in Northern Ireland, it is a bit like the old joke about buses; two Budgets have come along almost on top of each other.

What has not changed is that this is a Budget conducted under difficult circumstances. The constraints on the Chancellor may have increased since the spring. Although it may be the case that tax revenues will have grown more rapidly during 2017-18 than had been predicted in March, Chancellor Phillip Hammond faces a number of very significant medium term challenges:

  • The independent Office for Budget Responsibility (OBR) has already indicated that it is preparing to revise downwards projections for economic growth in the UK in 2017, 2018, 2019 and 2020. The OBR is now taking the view that there has been a reduction in the trend rate of growth of labour productivity in the UK economy. Economic growth in the UK could end up not much higher than 1.5% in 2017 and, as the Ulster University Economic Policy Centre is indicating, Northern Ireland’s own regional growth rate may not be much higher than 1% this year.
  • Brexit uncertainties continue. There is, for example, the dilemma of how much the Chancellor should spend in 2018 and 2019 to prepare the customs and border services in the UK to be ready for trading relations if the UK is outside of the European customs union and Single Market.
  • Following the March Budget, the Chancellor reversed proposals to increase National Insurance Contribution payments by the self-employed. In the Budget there is a question of whether he will make any tax changes in the response to the findings of the Taylor Review on employment practices.
  • According to many commentators, social care in England needs a multi-billion injection of funding. Similarly, it is being argued that NHS England is seriously under-funded.
  • Government Ministers have already indicated that they feel the level of tuition fee debt in England is too high. Any attempt to reduce that debt (or make the terms of such loans more generous) could require a large, up-front level of public expenditure.
  • The rate of house building, particularly of affordable homes, in England remains well below the post-Second World War trend. What measures might the Chancellor introduce to increase house building?

The Chancellor faces plenty of demands for spending increases but limited options regarding how to raise revenue- a punitive tax on diesel cars may be on its way, higher taxation on occupational pensions and (possibly) a retreat from the previous commitment to cut UK Corporation Tax to 17% by April 2020.

More specifically, how might the various measures in Wednesday’s UK Budget impact here in Northern Ireland? It is important to keep in mind that once devolution was introduced to Scotland and Wales in 1999 and in Northern Ireland (though, currently inoperative) to some degree the Chancellor’s Budget has been for England as much as for, or more than for, the UK in general:

  • There could be a small addition to public spending in Northern Ireland- though such a positive Barnett consequential is likely to be small (less than £100m in one year and possibly less than £50m). The Chancellor will be able to be more generous if he decides to push the previously stated target of a balanced budget in the next Parliament back by a few years.
  • If the Chancellor is able to spend more on social care or hospitals in England, or on English universities or on the introduction of welfare reform (a reduced “taper rate” for Universal Credit [Note 1] then the Barnett benefits to the devolved administrations will increase.
  • Any change in the planned reduction in UK Corporation Tax probably alters the cost-benefit calculus relating to the proposal to deliver a reduction in the Northern Ireland rate to 12.5%. That said, such a policy will in any case be difficult to deliver in the absence of devolution.
  • Any change in the scale of Universal Credit or the National Living Wage would have a direct impact on Northern Ireland.”

Notes

  1. Taper rate= when a Universal Credit (UC) recipient earns one extra pound, by how many pence does their UC benefit reduce. The Chancellor is under pressure to reduce that taper rate in order to improve work incentives amongst the. There is also strong lobby to decrease the initial waiting period, currently six weeks, before the first UC payment is made.