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Philip Hammond, the Chancellor, starts by saying he wants to lift the cloud of uncertainty we’ve had on all the bad news last night of the Brexit vote and the uncertainty that creates. And he was quite proud and quite upbeat about what he’s created

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A robust economy

He bragged about the economy and he’s saying, well, we’ve got a really robust economy. This is the ninth consecutive year of growth in the economy and that’s with the backdrop of the world economy going backwards. And I think the predictions are again that the next five years we’ll still see some growth in our economy, so pretty good overall for the UK.

On the back of that, also, we’ve got the fastest wage growth for a decade. Now he’s really proud of that. This is a real growth in wages above inflation. I think predicting about 3% current wage growth and that’s a very important statistic, as far as he’s concerned, as people are hopefully feeling that in their pockets at last.

Improving public finances as well, and I think that’s important now we’re seeing the OBR predicting economic growth, yet they’ve downgraded those from last year, even from the autumn when we have predicted I think 1.2% this year and then 1.4% next year. And then 1.6% for the three years after that, but it’s still growth and that’s still positive.

600,000 new jobs by 2023

Also 600,000 new jobs by 2023. Now, that was again, if you remember, what he said going back in the Autumn, I think he talked about 800,000 jobs but it’s still jobs and it’s still good news. Some of the criticism about the new jobs that have been created is about a lot of part time, a lot of zero hours contracts, but the statistics he quoted were I think 96 percent of the jobs created last year, were full time jobs.

Borrowing as a percentage of GDP is 1.1% currently. So again, pretty much under control and he wants to further reduce that and get it down to something like 0.5 % of GDP by 2023-24. That would be a borrowing of about £13bn at that stage. So, a far cry from where we were out there. He used the expression about a balanced approach and I think what he means by that is still making significant investment in the UK, you know tax cuts which we’ve seen and a very low tax regime, and debt very much under control which is being supported by what the OBR are saying.

The end of austerity?

He also tried to kind of answer his critics, what does he mean by the end of austerity? And he talks about lots of things, but yet he’s harking back to real wage growth. Debt under control. Significant investment still going on, low inflation, low taxes and high productivity. Put all that together, that’s what the Chancellor views as the end of austerity.

Now with all the uncertainty of Brexit out there it would be wrong for him to say nothing about that, but he did make reference to the fact they have just put plans in place to cater for that no deal Brexit. Now we don’t know what they are precisely, but clearly if that was where we’ll end up in a couple of weeks time, there are some real plans in place.

The digital economy

He talked about three other main things, the digital economy is one very important part of it. Housing is another part and environmental. So what did he say about those three things? Starting on the digital economy. He sees that as we all do.

There’s lots of opportunities that the new digital world creates. But equally it offers lots of challenges as well. I think he made it clear that the big global players out there, there’s been a lot of criticism about the avoidance of tax by those players. And further steps taken to ensure they’re paying the correct amount of tax on their UK born profits. He still wants to be at the forefront of innovation and he wants the UK being very much on the map and he announced one particular thing, it was a large computer installation, £79bn investment into what’s referred to as the ‘ARCHER 2’ project, and that’s a big computer going into Edinburgh University. Still showing that we want to be at the forefront of innovation and R&D.

He reminded us of other expenditure plans out there, things like £34bn of additional spending go into the NHS. Much of that in the technology side of furthering our skills that the NHS offers but that’s by the end of this parliamentary term. He also talked about bringing forward the apprenticeship rate changes because I don’t think he’s seen probably enough take up of that.

Ambitious housing plans

So turning to the next point which is housing. Very proud to say 220,000 new homes built last year. Now that’s a pretty impressive stat, but again they want to go further, they’ve got the five-year program out there which is about a £45bn housing program which aims to deliver 300,000 new houses every year for the next five years. Now that in itself creates some problems but it’s a great opportunity for lots of our clients and suppliers to get onto the property chain. So it’s a massive, massive boost.

Now how’s he done that? He has done help to buy. He’s done planning reforms, SDLT changes to hopefully help first time buyers as they are not paying SDLT on buying the properties. But he has also announced a couple of new measures. That’s about £3bn going into the affordable home scheme and £1bn going into the enabling building program. So I think you know again the overall message is that housing is pretty central to that part of the economy.

Environmental focus

Now, linked to that. You build all those new houses, you have more people. And the environmental issues we’ve heard a lot about recently whether that’s control of plastics and all those types of things. But he wants to also make sure we’ve got it under control and linked very much the housing side. He’s made the announcement that by 2025 the abolition of fossil fuel boilers going into new homes and new builds. And that’s something that the industry needs to wake up to and respond to very quickly.

At the same time he wants to increase the percentage of the green gases being fed into the grid over the next few years rather than the reliance on gas and coal fired power stations at present. And he also wants to help smaller businesses with their carbon emissions, their carbon footprint. So again, we need to see what the precise details are out there but it’s something which is important to this government.

To wrap it all up

So I think taking it around with all that kind of uncertainty that we sit here with following the vote on Brexit last night, here’s a pretty bullish Chancellor, and it’s interesting to see what the opposition is saying in response to that. But I think it comes back to his definition of the end of austerity. And just to refresh what he meant by that; real wage growth out there, record low unemployment, continuing to make investments in the UK, low inflation, low taxes, high productivity – put all that together and it’s a pretty good combination. And overall, I’m very positive from what I’ve heard from the chancellor’s afternoon.”

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SIMON BAINES, Partner and Head of Tax

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