UK Spring Budget. The calm before the storm
Posted on March 08, 2017 by Paul Mac Flynn
In what will be the UK's last Spring Budget, earlier today Philip Hammond gave what could only be described as a lacklustre financial statement to the House of Commons. There were moves to increase funding for Social Care and a small reversal of the increases to Business rates in England. At UK level, there as an increase in National Insurance for the self-employed but also an increase in tax thresholds with the higher rate threshold moving up to £50,000. The increases in the thresholds will benefit higher income tax payers more than modest gains for lower earners. For Northern Ireland, specifically, there was an increase of £120m in block grant spending over the next three years with £90m for day to day spending and £30m for capital projects. To put that in context £90 is 0.9% of Northern Ireland's current day to day resource spending. The block grant is set to fall by £184m in real terms by next year alone and to fall by over 5% by 2020. Whilst any new funding is welcome, austerity will continue to be the economic narrative in Northern Ireland for many years to come.
There was however some good news in the form of OBR forecasts of government borrowing and overall debt, both of which have fallen since the Autumn Statement. However, all things are relative. Today's borrowing and debt figures only look good because the same forecasts took a hammering in the Autumn Statement following the Brexit vote. Brexit has opened up the public finances to massive vulnerabilities and the reason the Chancellor did not use the extra fiscal space provided by today's figures is because he knows things have the capacity to get an awful lot worse over the next two years.
The UK economy has surpassed most expectations in the month since the Brexit vote, but the overall growth figures hide a worrying trend. Consumer spending has been powering much of this growth over the last 9 months. Consumption fuelled growth always brings concerns over sustainability but the current dynamic is more worrying still. The collapse of Sterling since the referendum has meant that higher levels of inflation are back with a bang. As the price of everyday goods starts to rise, consumers may start to fret and the UK economy may lose the momentum that has been sustaining it just as it moves into Brexit negotiations.
Northern Ireland is especially vulnerable to this trend. The tourism and retail sector have enjoyed a period of weak sterling and the advantages this brings in cross-border trade. This is, however, coming to an end. This will put the brakes on Northern Ireland's growth but should also highlight the drastic situation in other sectors of the economy, particularly manufacturing.
Today's budget felt underwhelming but if anything, it is merely the calm before the storm.