Chancellor Jeremy Hunt, the ‘affable lummox’, rose to his feet in the House of Commons last week and delivered what is almost certain to be the last budget before the next election. Usually, finance ministers take that opportunity to crank open the spending taps, but alas they ran dry a long time ago so it turned out to be something of a fiscal non-event.
To be fair, Hunt had a difficult hand to play. He was under pressure from inside his own party to deliver tax cuts, something the IMF explicitly warned against in January. In the end, he presented it as a tax-cutting budget while increasing the tax burden, so everybody was happy although it was hard to see the point of it all.
Paul Johnson, the economic guru from the Institute of Fiscal Studies, said nothing the chancellor did on Thursday “changes anything very significantly”, least of all presumably in South West Surrey where Hunt is forecast to be relieved of his seat by the LibDems.
Boris Johnson won the 2019 election promising to “Get Brexit Done and Unleash Britain’s Potential” but amazingly disposable incomes will be lower in 2024-25 than they were when he came to power. According to The Resolution Foundation’s post budget briefing it’s the first time in modern history such a decline has happened. This is Johnson’s legacy, make no mistake.
The political editor of the Daily Telegraph, Ben Riley Smith, picked out a telling if totally dispiriting statistic from the briefing:
Let me pick out a few more:
“Just under a third of [the 2p reduction in NI contributions] has been funded by new tax rises totalling £6.6 billion in 2028-29.”
“However, borrowing takes most of the strain, funding two-thirds of the tax cuts.”
“Those tax rises mean this will be the greatest tax-raising Parliament since the Second World War.”
“The tax take is set to rise further to 37.1% [of GDP] in 2028-29 (the highest since 1948) with the rise since 2019-20 amounting to £3,900 per household.”
“All 8 million taxpaying pensioners will see their taxes increase, by an average of £1,000 – an £8 billion collective hit.”
The last item is described as “a staggering turnaround from the approach of Conservative governments since 2010.”
Note the chancellor didn’t even mention Brexit once in his 7,297 word speech as if it’s become an unmentionable embarrassment. Fortunately, the OBR were not so reticent, reaffirming that:
“Overall, our assumptions about the impact of Brexit appear to be broadly on track and recently published studies are also broadly consistent with these estimates.”
The OBR estimates, as Hunt well knows, are for a reduction of 15% in trade (exports and imports) leading to a 4% hit to GDP.
The UK’s GDP is going to struggle to £3.18tn (that’s TRILLION) in 2028-29, by which time 4% will be worth £127bn. And the 37.1% of this taken in tax would amount to around £47bn a year in lost revenue and hence foregone public spending. No wonder Hunt didn’t want to talk about it.
By far the best commentary came from former banker Gary Stevenson in The Guardian: Take it from a former banker: the budget is for ordinary people. The mega-rich look on and laugh.
This is how it works, according to Stevenson, and it’s hard to disagree:
“And the traders, traders like me, we sit in skyscrapers and we laugh. Because we know that Jeremy Hunt and Rishi Sunak, who are multimillionaires just like we are, will never tax us. We know that we will get richer and you will get poorer, and our lives will get better, and yours will get worse year after year after year. And each of us are paid millions of pounds every year to bet on it. To bet on it, instead of telling you.”
This week 14 downsides were added:
The post-Brexit economy
The Financial Times did an analysis on Britain’s external trade using ONS figures which revealed the largest five-year decline since comparable records began in 1997. The ONS reported that the volume of imports fell 3.8% compared with 2018. Exports fell 4.6% year on year, with substantial drops in exports to both EU and non-EU countries. Over five years, export volumes (adjusted for inflation) have fallen by 12.4% well on the way to the 15% by 2030 estimated by the OBR, which they confirmed again this week.
John Springford, of the Centre for European Reform think-tank, said most countries saw an increase in goods trade after the pandemic, but not the UK: “The obvious culprit is Brexit,” he added.
Manufacturing
The government has quietly admitted that requiring UK pressure vessel makers to conform with UKCA standards is creating ‘supply chain issues, extra costs and administrative burdens‘ and reducing the ability of UK businesses and consumers to purchase pressure equipment required for domestic industries, workplaces, and homes.
Ministers have been forced into a U-turn. Certification bodies based in the European Economic Area (EEA) will now be able approve British permanent joining (welding), non-destructive testing personnel, and manufacturers’ quality assurance systems. Needless to say, UK organisations won’t be able to certify EU systems.
This doesn’t help the chemicals industry which has its own issues with UK regulations.
The MD of Robinson Brothers, a West Midlands chemical manufacturer, has highlighted the steep costs and hurdles of UKReach compliance. Adrian Hanrahan claims his company faces a hefty financial burden re-registering all of its chemicals in the UK with estimates reaching up to £1mn for a single product. EU companies are said to be reconsidering their partnerships with UK firms, fearing non-compliance with EU standards and unnecessary costs.
It’s hard to see how any of this duplication is helping boost business investment which is simply diverting money away from improving productivity.
And the Society of Motor Manufacturers and Traders (SMMT), have warned that unless the trade secretary restarts talks with Ottawa very quickly there will be a reintroduction of import tariffs by Canada, resulting in an average price hike of more than £3,000 per car.
From January 2024 EU vehicles have been exported to Canada tariff-free under the CETA deal agreed in 2016. UK manufacturers have benefitted briefly from this but that is set to expire on 1 April.
Government
The devolved administration in Wales has admitted that Irish agri-food products being shipped to Great Britain are unlikely to face physical checks until next year, rather than this October as planned. After five previous delays, the Welsh government says it is “difficult to see how physical checks can be implemented before spring 2025”. Welsh economy minister, Vaughan Gething, claims there were still “issues to be resolved” between the Welsh and UK governments.
According to The New Scientist, Britain has rejected the chance to participate in the EU’s International Thermonuclear Experimental Reactor (ITER) project having lost access following Brexit. ITER, the world’s largest fusion experiment, is under construction in France and is expected to be completed in 2025. The project is being funded by a huge international collaboration including China, India, Japan, Russia, South Korea, the US and the EU.
Sovereign Britain plans to go it alone.
Northern Ireland
Northern Ireland’s equine industry continue to protest about what they have called “a continuing Irish Sea border”. The owner of a horse and pony business in Co Fermanagh, said new regulations introduced under the Northern Ireland Protocol (NIP) in January 2021 have been “decimating”. Felim Crane added:
“We would have bought a lot of animals in Great Britain and brought them home to Northern Ireland. We can no longer do that due to blood tests which are required for animals travelling from Great Britain to Northern Ireland.”
The government seems to concede it is still constrained by the EU. The modest £5,000 increase in the VAT threshold announced in the budget would have been more had it not been for the NIP.
According to The Guardian, the chancellor has privately admitted that he didn’t want there to be different VAT rules in Great Britain and Northern Ireland, which still operates under EU regulations for VAT purposes because of the Windsor framework.
Financial services
The business editor of The Evening Standard, says the London Stock Exchange’s crisis is only getting worse. The decline of London as a world-leading share trading centre are put down to a complex mix of the cultural, regulatory and political. Jonathan Prynn said:
“Britain’s global reputation as a place to invest, particularly in its equity markets, took a terrible hit with the Brexit referendum in 2016, and has never really recovered.”
Since the referendum nearly £80bn has been pulled from UK equity funds, according to data from analysts Morningstar.
Food
The Daily Express has told its increasingly befuddled readers that the Food and Drink Federation (FDF), representing more than 1,000 UK businesses, has warned the cost to the industry of implementing ‘Not for EU’ labelling rules “is likely to run into hundreds of millions of pounds.”
Manufacturers say they will be forced to re-label products every time EU and UK food law diverges and they want ministers to scrap plans to impose the rules on goods that never leave the UK mainland.
Transport
France is being blamed for proposing too few kiosks at London’s St Pancras station to handle the the EU’s new Entry-Exit System (EES), due to come into force in October. The owners of the high-speed line have again warned this will lead to long queues and could result in a further reduction in services and passenger numbers.
The company has added 65 pre-check-in kiosks in terminals at St Pancras in London and Gare du Nord in Paris, with additional manual booths and electronic gates at both stations, at a cost of €10mn.
Post-Brexit border checks
The government has confirmed that all central grant funding for checks for illegal meat imports at Dover will be withdrawn at the end of April. After that date, it will be up to the local Port Health Authority (PHA) to fund the checks by charging offenders to recover costs. Biosecurity minister Lord Douglas-Miller told the chair of the Environment, Food and Rural Affairs (EFRA) committee that the budget for such spot checks was only ever intended as a temporary measure.
There were no upsides reported.
