Month: March 2019

Spring Statement 2019…


When we write these reports on the chancellor’s Budget speeches – and, more latterly, his Spring Statements – we always try and put them in the relevant political and economic context.

This year it is impossible not to put the Spring Statement in a political context. On Monday night, the Prime Minister flew to Strasbourg and yet another meeting with Jean-Claude Juncker. She claimed to have secured a ‘legally binding’ agreement on the Northern Ireland backstop, but by Tuesday lunchtime, Attorney General Geoffrey Cox was delivering his opinion that ‘nothing had changed.’ With the ‘Star Chamber’ of Brexit lawyers advising MPs not to vote for May’s deal, it seemed impossible that it could get through the Commons, and that duly proved to be the case, as Theresa May lost her second ‘meaningful vote’, this time by 391 votes to 242.

As we write this introduction on the morning of Wednesday March 13th, the Prime Minister has promised the Commons a free vote this evening on taking ‘no deal’ (effectively leaving the European Union on March 29th and defaulting to World Trade Organisation rules) off the table. This seems likely to be approved by the Commons, who will then presumably pass a further motion asking for an extension to Article 50.

Whether the motion to remove ‘no deal’ has any force in law and whether the EU will agree to an extension of Article 50 are both subjects that are yet to be endlessly debated. It may be that by the time you read this, the situation will have changed again – but the practicalities of getting a report on the Spring Statement to clients quickly means that we had to settle on a cut off point. As we all know by now, with Brexit there is barely a day that goes by without the situation veering one way or another, but the Spring Statement waits for no man or woman, including Theresa May.

You wonder how history will see Mrs May and there is a suspicion that neither said history, nor the management text books, will be kind to her. As the Spectator put it on Tuesday night, reacting to May’s decision to grant a free vote on ‘no deal’, ‘for the governing party to have no position on the most important issue to come before the Commons in years is remarkable.’

The economic background

It’s against this most turbulent and febrile background that the chancellor stood to deliver his Spring Statement. As usual there was plenty of information already in the public domain which formed the economic background to Philip Hammond’s position as he prepared to deliver his statement.

Mr Hammond’s views on Brexit, for example, are well known. Despite his own constituency voting to leave the EU, the chancellor has made no secret of his opposition to the referendum result and recently referred to the “Brexit wing of the Conservative party”.

In the days leading up to the Spring Statement, he freely talked of the purse strings being opened if MPs backed the Prime Minister’s withdrawal agreement – so one would presume that ‘no deal’ will see those purse strings staying tightly drawn.

As always with the economic news, you can choose to see the glass as half-full or half-empty. January figures from the Office for National Statistics showed that the UK economy had grown by 0.5% – the biggest increase in monthly output since 2016 and more than double economists’ predictions of 0.2% growth. The service sector returned to growth of 0.3% while manufacturing was up by 0.8%: the construction sector was also up, by an impressive 2.8%.

The consensus among economists is that the UK will grow at 1.3% to 1.4% this year, with inflation in January falling to a two year low of 1.8%. Earlier figures from the ONS showed that 2018 ended with 444,000 more people in work than a year previously, and that 60,000 fewer people were reliant on zero-hours contracts.

Clearly more people in work translates to more tax receipts for the government and borrowing fell to its lowest level since 2001 in January. In the same month, the government collected £21bn in income tax and corporation tax, leaving a surplus of £14.9bn in the month. The government should also be back on track to have a smaller deficit (the amount it needs to borrow to fund spending) in this financial year.

But the continuing confusion over Brexit cannot be helping business, with CBI director-general Carolyn Fairbairn saying that any extension to Article 50 “should be as short as realistically possible and backed by a clear plan.”

Stephen Phipson, chief executive of manufacturers’ group Make UK, was rather more blunt, saying, “It is now essential that Parliament brings the curtain down on this farce and removes the risk of no deal.”

Sentiments the chancellor would unquestionably agree with: so what did he have to say?

Philip Hammond’s introduction

The chancellor – hair freshly cut for the occasion – rose to speak after a Prime Minister’s Questions which featured a slew of jokes about Theresa May’s lost voice.

He wasted no time in making his views on Brexit even better known, and returned to the topic consistently throughout the speech. The economy was “robust” he declared, but there was a “cloud of uncertainty” hanging over it.

Despite this, the news on the economy was good, with nine years of uninterrupted growth, 3.5m new jobs created and the fastest rate of wage growth for ten years. “All,” said the chancellor, “thanks to the hard work of the British people” – provided, of course, that we reach a deal with the European Union.

The economic forecasts

The chancellor unveiled the growth forecasts from the Office for Budget Responsibility: 1.2% this year, followed by 1.4% in 2020, then growth of 1.6% for each of the next three years. Those growth forecasts were better than those for the German economy and would, he said, see the creation of 600,000 new jobs in the UK by 2023. Aiming the first of many barbs at the Labour front bench, the chancellor stressed that 96% of the new jobs created in the UK last year were full-time jobs, and that the OBR expected wage growth of 3% or higher throughout each of the next five years. With the OBR forecasting that inflation would stay close to the target level of 2%, that would mean “real wage growth.”

The public finances

Turning to the public finances, the chancellor stated that government borrowing this year would be 1.1% of GDP – equal to £130bn less than “under the last Labour government.”

Total government borrowing was expected to be £29.3bn in this financial year, falling to £21.2bn next year and falling further to £17.6bn, £14.4bn and then £13.5bn by 2023/24, to give the lowest government borrowing in 22 years.

Total debt as a percentage of GDP would also fall over the same period, from 82.2% next year (having reached a peak of 85.1% in 2016/17) to finally reach 73% of GDP by 23/24. The chancellor stressed that the public finances had continued to improve since the Autumn, with the forecasts for borrowing and debt consistently lower in the Spring Statement than they had been in the Budget.

All this added up to what the chancellor described as a “journey of recovery” from the last Labour government as he gave himself a hearty pat on the back from having had such a clear plan, “since I became chancellor in 2016.” In fact, the chancellor was – given the background to his statement – quite upbeat.

He made much of the “investment” in the public finances – a total of £150bn since 2016 – highlighting the Prime Minister’s announcement of £34 billion of additional funding per year for the NHS. The chancellor then went on to talk of the benefits that could flow from a ‘deal dividend’, assuming that a deal could be reached with the EU. Reaching a deal would, he said, release both a fiscal dividend and would provide a boost to business confidence.

He also gave a very clear indication that his Autumn Budget would be long and complicated, as he announced a comprehensive three year spending review to start before Parliament’s summer recess. By that time, of course, he should know the details of the UK’s departure from the EU. What is less certain, though, is whether he will be in a position to deliver his planned spending review. If Theresa May is not Prime Minister at that point, which seems entirely plausible, then there is very little prospect of Mr Hammond being Chancellor come the Autumn. The mooted spending review and significant Autumn Budget are therefore things to keep an eye on for another day and, potentially, another chancellor.

Written Ministerial Statement

At this point in his speech, the chancellor made a fleeting reference to a “WMS”. Given the state of the Commons over Brexit, you could be forgiven for thinking that might refer to Weapons of Mass Speculation. Sadly, the answer was rather more sober: it was a Written Ministerial Statement which, effectively, sat alongside the statement the chancellor delivered in the Commons, much like the full Budget document does during the chancellor’s more significant Autumn Budget.

This confirmed all of the points the chancellor made in his speech, along with further commitment to crack down on offshore tax havens and measures to curb the abuse of research and development relief by small and medium sized firms.

There was also a further step on the road to ‘making tax digital,’ with digital record keeping for VAT now mandatory from April 1st. More details on the most salient points from the WMS are included below, although it is worth noting that there is scant detail to back up most of these announcements.

Personal taxation and allowances

What Child Trust Funds (CTFs).
When To be published in the coming months.
Comment The chancellor announced a consultation on maturing CTFs, designed to ensure that CTF accounts can retain their tax-free status after maturity.


What CGT private residence relief consultation.
When To be published in the coming months.
Comment Following on from the announcement at Budget 2018, this consultation will look at the changes to lettings relief and the final period exemption.


What Enterprise Investment Scheme (EIS): approved funds guidelines.
When To be published in the coming months.
Comment This forthcoming document will contain guidelines stating HMRC’s proposed approach to setting appropriate conditions and approving EIS funds.

Business and business taxation

What The government has announced a further crackdown on offshore tax evaders and their advisers as part of an initiative called No Safe Havens 2019.
When Strategy document published March 2019.
Comment In a document published alongside the chancellor’s Spring Statement, HMRC outlined their strategy for cutting down overseas tax evasion.

What Smaller businesses’ energy bills and carbon emissions.
When Immediately.
Comment The chancellor announced plans to help small businesses reduce their energy bills and carbon emissions. The government will launch a call for evidence on a ‘business energy efficiency scheme’ to explore how it can support investment in energy efficiency measures.

What Preventing the abuse of the R&D tax relief for small or medium sized enterprises.
When In the coming months.
Comment As part of the wider tax avoidance review, this specific measure will look at R&D tax relief, particularly examining how to stop false claims whilst keeping it available for genuine business claims.

What Making Tax Digital (MTD) – mandatory digital record keeping for VAT for businesses over the VAT threshold.
When From April 1st 2019.
Comment The MTD scheme is broadly the modernisation of the tax system. This important first step comes into force in April.

What Structures and buildings allowance.
When The draft legislation is available for comment now.
Comment As announced at Budget 2018, the structures and buildings allowance is about introducing a new, permanent allowance for investments in non-residential structures and buildings. The idea is intended as part of wider measures to create a competitive tax regime for businesses.


What The apprenticeship levy announced during Budget 2018.
When From April 2019.
Comment The apprenticeship levy announced in last year’s Budget has been brought forward to April this year. This will see the ‘co-investment rate’ paid by employers cut by half from 10% to 5%.


Plans for a ‘no deal’ Brexit

Despite the details contained in the WMS and covered above, the Spring Statement was never going to feature a large number of specific announcements on taxation or spending. When he became chancellor, Hammond announced that he wanted a once-a-year Budget. The chancellor has been successful in ushering in this new regime of fiscal announcements, to the point where the BBC actually dismissed the Spring Statement as ‘not a major fiscal event’ in their introduction.

It was, however, very clearly a political event, with the chancellor following the public finances with yet another attack on the possibility of a ‘no deal’ Brexit. Eventually, though, he conceded that the government had made some plans for the possibility of leaving the EU without a deal, with both border regulations and a temporary tariff schedule having been put in place. There was, though, “no fix” for no deal: fortunately, Hammond said he was confident of an eventual deal that would remove the “spectre of uncertainty” which seemed to haunt the entire speech.

Spending plans

As Philip Hammond always does, he listed a raft of spending commitments or money that had already been invested on the national infrastructure. £37bn on the national productivity fund via investments in road, rail and the still painfully slow investment in fibre broadband.

There was up to £260m for the ‘Borderlands’ growth deal (for the England/Scotland border region), £100m for Carlisle from the Housing Infrastructure Fund and potential further investment in mid-Wales, Derry and Londonderry.

The chancellor congratulated himself on having ended Labour’s Private Finance Initiative – and then talked about private investment in the UK’s infrastructure which, to the seasoned political observer, might sound like much the same thing.

The UK as an open economy

The next section of the speech dealt with the UK as an open economy and the chancellor announced moves to ensure that the UK could still attract skilled people from around the world. He stated that from June 2019, citizens of the US, Canada, South Korea, Singapore, Japan, Australia and New Zealand would be able to use e-gates at UK airports and Eurostar terminals and that paper landing cards will start to be abolished from the same date. In addition, jobs requiring PhD level qualifications would be exempt from the visa cap rules.

Whilst the chancellor was on the subject of technology he spent some more money: £79m for a super-computer in Edinburgh, £45m on genomics research and £81m on state-of-the-art laser technology in Oxfordshire. “Cutting edge investment, Mr Speaker,” he quipped and Tory backbenchers duly convulsed with laughter.

Having announced the Digital Services Tax in his last Budget, the chancellor announced further measures to protect the consumer in the digital economy, and that the Competition and Markets Authority would be looking at digital advertising. Inevitably this lead to the chancellor’s oft-repeated claim that the ‘digital giants’ will pay their fair share of tax.

Housing and the environment

The chancellor announced that he would end his speech with remarks on housing and the environment and, once again, confirmed his commitment to “fix the broken housing market,” with the government on track to deliver 300,000 new homes a year. There would be an investment of £717m to ‘unlock’ 37,000 new homes in London, Cheshire and in the Oxford/Cambridge Arc. In addition, the government would guarantee up to £3bn of borrowing by housing associations, to support the delivery of around 30,000 affordable homes.

On the environment – “clean growth” as the chancellor termed it – the government would take steps to help small businesses reduce their energy bills and carbon emissions and also give people the option to travel ‘zero carbon.’ At the moment, this is more of a promise than a reality, but it appears that the government wants to take steps to help consumers understand the carbon impact of their journeys, and look at whether travel providers should be required to provide carbon offsets to their customers.

There was also a commitment to make sure that wildlife was not compromised in delivering new infrastructure projects, with the government mandating that new developments in England should deliver a ‘net gain’ for biodiversity.

One last thing…

Of course, when he said he’d finished, the chancellor didn’t actually mean that and finally finished with three more announcements. Firstly, that from the next school year, the government would fund the provision of sanitary wear for girls, ending the ‘period poverty’ which so many MPs had campaigned against.

There were also some warm words on speeding up payments for small and medium sized businesses and lastly an immediate £100m to police forces in England, specifically to pay for overtime to tackle knife crime.

“There was,” said the chancellor, “a huge opportunity ahead for the UK. We are the fifth largest economy in the world… with no limit to our ambition.” Provided, of course, in the chancellor’s view, that Brexit proceeds in as orderly a fashion as possible from this point.

Whether he will still be chancellor when the Autumn Budget comes around is anyone’s guess. As we have written above, his continued occupation of 11 Downing Street is almost wholly dependent on Theresa May remaining his next door neighbour. Depending on what happens with Brexit, it is entirely possible that Hammond – or his successor – could be making another Statement well before the planned Autumn Budget.

We are obviously in uncharted waters and there will inevitably be many twists and turns in the road ahead. It may even be that some of the comments written here on Wednesday afternoon are out of date by the time you receive this report.

More than ever, we would stress that if you have any questions at all on what we have written above then please do not hesitate to contact us. We are never more than a phone call or an email away and we appreciate that many clients will want some reassurance in these challenging times.

AE policy adds pensions for 10 million workers…

The Department for Work and Pensions has hit its target of bringing 10 million workers into occupational pensions, a year ahead of schedule.

To give that figure a sense of perspective, 10 million is pretty much the entire population of Sweden.

The final stages of the programme’s roll out concluded last year, with contributions to an individual’s pension pot rising to 5%.

April 2019 will see that contribution rise further to 8%, including a 5% minimum employee contribution.

Auto-enrolment began in 2012 when the proportion of private sector workers opted into a pension was at a low of 42%. That figure has almost doubled to 81%, a dramatic cultural sea change for which AE is being credited.

Speaking to Professional Pensions, pensions and financial inclusion minister Guy Opperman said: “Ultimately, our ambition is to bring earnings thresholds down so that people can start saving from their first pound earned. Together, we’re building a more secure financial future for Britain and I’m proud to be at the heart of it.”

Challenges remain

However, stepping back we still have 9.2 million workers not enrolled into a pension scheme. Michelle Highman, chief executive of The Money Charity, says: ‘If we’re honest, none of us spend as much time planning for our futures as we should. But there’s a clear problem in working hard and being comfortable now if we’ll then leave ourselves in trouble later in life. Those are the years when the majority of us will hope to be most comfortable, as well as when we may most need help.

‘That’s why the successes of auto-enrolment and the plans for the pensions dashboard are to be wholeheartedly welcomed, with strong crossover with our message of financial capability. However, clearly there is still much to be done, ensuring people do not fall through the gaps in pensions provision, as well as engaging people with being financially capable in planning for all times and circumstances of life.’

Where is the dashboard?

The next big step in reforming how we all think about our finances is bound to be the roll out of the pensions dashboard. This is still listed as a ‘prototype project’ since the government asked the Association of British Insurers to lead the dashboard’s development in Spring 2017. Updates can be found on their website:

The launch has been earmarked for some time in 2019; we will update as soon as we can.

A snapshot of average weekly household spending…

In January, the Office for National Statistics (ONS) released their latest Family Spending Survey, revealing the intimate details of British spending habits. In its 61st year, the report provides an insight into family spending habits, as well as showing how they differ between areas of the country.

The average British household spent £572.60 per week in the financial year ending March 2018. After adjustments for inflation, this was the highest weekly expenditure since 2005. Increases in transport and housing costs were chiefly responsible for this rise in expenditure.

Households are spending £18.40 more than they did a year ago, despite splashing out less on dining out and buying fewer clothes than they did 12 months ago.

Transport was the category with the highest average weekly spend. Brits spent £80.80 a week on transport, 14% of their total expenditure. This was followed by spending on fuel, power and housing, which came to £76.80 per week.

Other expenditures have fallen. As a nation, we are drinking far less than we did in the past. This is reflected in our expenditure. 10 years ago, the average amount we spent on alcoholic drinks “away from home” was £10.90 a week. Adjusted for inflation, this has fallen to £8 a week.

Good news for our liver, bad news for pubs. In fact, more than a quarter of British pubs have closed their doors since 2001.

Younger people tend to spend far more on takeaways than the elderly. Households headed by someone under 30 spend on average £7.80 a week on takeaways. By contrast, over 75s spend just £1.80 on takeaways a week.

Northern Irish families, however, spent the most on takeaways. An average of £8.60 per household. Analysts suggest that this is likely to be because families in Northern Ireland are larger than elsewhere in the UK.

Overall spending, too, varies regionally. The average weekly household spending was highest in London, at £658.30, while in the North East of England it was more than £200 less at £457.50. In Wales, the average weekly spend was £470.40 and the Scots spent an average £492.20. The ONS survey paints a diverse picture of the UK’s spending habits that are just as varied as its people.

Revealed – the top 5 destinations for British pensioners…

Many British pensioners choose to move abroad, often in search of warmer climes and a more comfortable retirement.

The stereotypical idea of retiring abroad often involves moving to a mediterranean country. However, only one mediterranean country featured among the top 5 countries from which British expat pensioners claimed their state pension. This indicates that things might be changing…

Here are the top 5, in descending order:

5) Spain – 106,420 retirees

The Iberian nation has long been a retirement favourite for Brits, so we were surprised when it only came in fifth. The amount of British pensioners who spend much of the year in Spain is likely to be much higher, with many owning second homes whilst drawing their pension from the UK. Overall 16.7% of registered Spanish property belongs to UK citizens.

Spain is the only non-English speaking nation among the top 5. However, English is widely spoken in major cities and areas with a large number of tourists and expats, like the Costa Brava and Costa Del Sol.

4) Republic of Ireland – 132,650 retirees

Lush rolling scenery and cheap house prices outside of Dublin make the ‘Emerald Isle’ an attractive destination for British retirees. Although the weather may be a little on the damp side, its scenic countryside, dotted with stone castles and slower way of life have encouraged many to retire across the Irish sea.

The large quantity of Irish people living in the UK is also likely to be a factor, with many moving closer to their family after retiring.

3) Canada – 133,310 retirees

Great scenery, kind people and a low crime rate make Canada an ideal retirement destination. Canadians are famously welcoming, meaning settling in is very easy for retirees.

What’s more, Canada has excellent healthcare. There are no fees for medical treatment, doctors’ appointments and dental visits. Even eye tests come free of charge. It’s unsurprising that it’s just a hair behind it’s much more populous neighbour when it comes to the number British retirees settled here.

2) USA – 134,130 retirees

Despite coming in at second on our list, retiring in the US for non-citizens is tough. If you don’t have a job Stateside or a family member to sponsor you, your only option is the Green Card lottery. This is a lengthy and costly process.

All this said, the USA offers some great retirement options. Warm climates in southern areas, wild scenery and the allure of the American lifestyle can prompt Brits to retire across the pond.

1) Australia – 234,880 retirees

Warm weather, barbies on the beach and a high standard of living. It’s easy to see why Australia is the number one destination for British retirees.

However, retiring here does mean having a sizeable pension pot. Australia is a relatively expensive country, reflecting the much higher salaries people generally earn Down Under. House prices are expensive and food bills can leave you reeling.