A chancellor with a spring in his step?

Today the chancellor presented his first spring statement since the government decided to move to one major fiscal event a year. With major tax and spending announcements reserved for the autumn budget, it’s hoped that less frequent changes to the tax system will create stability for people and businesses trying to plan their finances. It’s also an attempt to address the short-termism that often hampers good policy.

In keeping with this new fiscal format, today’s speech was a relatively low-key affair, and for the time being at least, Mr Hammond has stuck to the script and resisted the temptation to announce any headline grabbing tax announcements or flashy vote-winning giveaways. Even the red box was gone, swapped for a red envelope containing a print out of the Office for Budget Responsibility’s (OBR) newest set of forecasts for the economy and for the public finances.

After winter, must come spring?

As if to complement the change in season, the OBR has delivered a slightly sunnier forecast for the UK economy due to stronger than expected tax receipts. As a result, public borrowing has fallen to £45.2bn, lower than the £49.9bn projected by the OBR last November. The OBR now predicts that in 2018-19 the UK will be running a surplus on its current account.

Before we break out the champagne, however, charities should note that this doesn’t mean the chancellor is about to abandon his fiscal discipline, despite growing calls from both sides of the Commons to turn on the spending taps.

Growth continues to disappoint, while the cost of Brexit weighs heavy on the mind of the exchequer. Mr Hammond is also wary that another recession might not be that far off and a series of rises to the Bank of England base rate over the next couple of years will make the servicing of UK’s substantial level of existing debt costlier.

Addressing long-term challenges

In keeping with the government’s intention that spring statements only be used to ‘consider longer-term fiscal challenges and start consultations on how they can be addressed’, the chancellor used today’s speech to announce several consultations that will be of interest to the sector and its beneficiaries.

The environment

Mr Hammond said he will publish a call for evidence on whether the tax relief for agricultural diesel contributes to air pollution and will consult on tax cuts for low-emission vans.

As widely trailed, he also announced plans to consult on what can be done to reduce the use of single-use plastics in an attempt to tackle Britain’s mountain of plastic waste. Alongside this, he announced a £20m fund to help universities develop technological solutions for eco-friendly packaging.

VAT

Responding to an Office of Tax Simplification (OTS) review last year which found the VAT registration threshold may be dis-incentivising small businesses from growing their business, the chancellor announced plans to launch a call for evidence which will explore the effect of the current threshold on small businesses. In our response to the OTS review, we raised concerns that lowering the VAT threshold would begin to encompass an increasing number of small and medium sized charities within the registration requirement, many of whom have seen significant falls in income from various sources since the recession and recovery.

Mr Hammond also said that he will consult on a new VAT collection mechanism for online payments and how to encourage digital payments.

Business rates

Also published was the government’s response to its recent consultation on the frequency of business rates revaluation, which is being brought forward to every three years instead of five, starting from 2021. Charities with property typically pay a maximum of 20% of their rates bill, although rates still represent a significant cost. Rate payers will see a smoothing of their rate bills as a result of the more frequent revaluations, although they are more likely to be affected by rate rises as they primarily operate in urban areas where property price growth tends to be highest.

Cash and digital payments in the new economy

To better understand the role of cash and digital payments in the new economy, the government has launched a call for evidence which floats the idea of phasing out 1p and 2p coins. Giving loose change remains a popular way to give to charity. Therefore, as society moves from cash to digital payments, we’ll need to ensure small charities are fully prepared for the transition from cash to digital payments.

Are we there yet?

Public borrowing may have fallen short of the OBR’s forecast last November, but it’s worth noting that austerity is by no means over, with cuts to public spending and benefits set to continue.

While many public services found efficiency savings in the early years of austerity, many are now showing signs of deterioration, and even failure. Many hospital trusts are operating a deficit while spending by the Ministry of Justice is intended to fall by 16% which is likely to compound the growing problems within prisons. And as highlighted by the shadow chancellor in his response to Mr Hammond’s statement, councils across the country continue to face significant funding pressures.

We are also now entering the third year of the four-year freeze to most working age benefits. While more than 1.5 million workers are set to get a 4.4% pay rise when the national living wage increases from £7.50 to £7.83 at the start of April, the Resolution Foundation predicts this will be overshadowed by £2.5bn worth of cuts to working-age benefits. This will likely place significant pressure on the household budgets of many beneficiaries.

The chancellor may then have dodged the bullet this time around with the lack of wiggle room a parred down Spring Statement provides, but it’s difficult to see how answers to these public spending pressures will wait until the Spending Review scheduled for late 2019. Indeed, Mr Hammond stated today that if in the autumn the public finances continue to reflect the improvements today’s OBR report suggests, he will be able to increase public spending. Eyes are already firmly on the autumn budget in November.

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Paul Winyard Paul joined NCVO over seven years ago after working for a leading public affairs agency. Since then he’s led our policy work on a variety of issues, including welfare-to-work reforms, volunteering, the Compact, public service commissioning and procurement regulations. He now leads our work on funding and finance with a particular focus on charity tax relief and safeguarding EU funding post-Brexit.

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