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The Chancellor of the Exchequer, Philip Hammond yesterday announced what was in effect an interim Budget. He had very little room for manoeuvre but evidently wanted to try and boost the economy as well as people’s spirits by sending out positive messages to our households and businesses in the region.
For businesses, the Budget focussed very much on traditional businesses which is good news for many key industries in the South West including agriculture and leisure and tourism. There wasn’t the focus that George Osborne had on big business but instead it was on much smaller businesses and rather than being focussed towards hi-tech manufacturing or web based businesses the capital allowances changes and the business rates reduction will boost shops, pubs, farm buildings and hotels across the South West.
The Chancellor also took action to try and help maintain consumer spending as we go beyond Brexit day on 30 March next year. He reversed a number of the cuts that George Osborne was making to benefits being paid through Universal Credit and has accelerated by a year the Government’s manifesto commitment to increase the personal allowance to £12,500 and the higher rate threshold to £50,000, both of which will push a bit more money into pay packets but whether it is enough to encourage them to keep spending remains to be seen.
On that theme, the increases in the National Minimum Wage and the National Living Wage that were announced are a double edged sword in that whilst they will push up pay packets in the South West and so in turn boost consumer spending, they will squeeze the profits of many of the businesses paying them, particularly retailers. The coming six months or so looks particularly tough for our High Streets but given the good weather last summer, the current level of Sterling against foreign currencies and the scare stories about going on holiday to Europe next summer, then that should all boost the 2019 summer season in the South West.
The extra public spending feeding on the NHS and the MoD in particular are good for the South West as many of our higher earners work for those public sector bodies. Certainly the easing up on austerity should boost the economy but prudence rather seems to have gone out the window. The big issue is what happens on interest rates as so long as they remain at their historically very low levels then personal finances should remain robust. However the current wobbles in global stock markets are driven by a feeling that this period of exceptionally low interest rates is now coming to an end and that interest rates are starting to normalise. The other possible threat on the horizon is inflation and it is of course possible that that could increase – especially if there is a very disorderly Brexit.
John Endacott, Head of Tax at PKF Francis Clark said “Overall, this budget does provide a slight boost to our economy in the South West, but the big difficulty is the political uncertainty caused by Brexit which is making it hard for businesses to plan with certainty into the future. Philip Hammond made it clear that there may be a full Budget next March and so the position could change even before the tax changes announced in this Budget have taken effect. There are also mutterings of another General Election. This Budget certainly seemed designed to try and help the Conservatives should they have to hold a General Election next spring.”.