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Budget 2018: Reaction

Tuesday 30 October 2018

AS CHANCELLOR Phil Hammond announces his budget, experts from the University of Salford Business School give their take on the measures announced.

Dr Jonathan Owens, Lecturer in Operations Management at the University of Salford Business School, and expert in supply chains, said:

“Overall I feel there were a lot of sticking plasters announced in this budget and it was disappointing. 

“£420m to tackle potholes on our roads is only a fire fighting approach to this national transportation problem. 

“Since 2014, councils in England have paid over £43m in compensation for damaged vehicles.  However, this is dwarfed by the £1.7bn each year fixing damaged caused by potholes.  Recent data from the AA have found the number of claims from January to April is £1m a month.  

“So, how much of the £420m will actually see repairs to the road, but really ring fenced by councils to pay compensation and legal bill for the increased amount of broken vehicles?”       

“Is £650m going to be enough to stop the downward spiral on the UK high street? The main advantage of this extra money seems to favour small retailers and not the large. Shoppers are often drawn to the city and town centres by the large retailer and the smaller ones feed off the opportunity buys.  

“Also, the old rates system still needs to be reviewed for this rapidly changing retail environment.  If this does not happen when the stimulus runs out, we will almost certainly return to the current issues. 

“The current number of retailers in financial difficulty has increased since 2017, in real terms there are around 30,000 businesses which are in serious financial distress.  The chancellor recognised that reversing the high street problem is a long term problem but Mr Hammond doesn't have any suggestions as yet on how to address shop leases. This is a big issue for the recent House Fraser and Debenhams announcements.  In general, a bit of ‘sticking plaster’ that will soon be used and there appears no plans for long term growth.

“£695m for apprenticeships levies with smaller companies will be reduced from 10% to 5%.  Allocation of money to support training for the young people is always a positive asset, however despite the extra £80m allocated in the spring budget, many companies; especially small companies;  have struggled to get to grips with the new system.  

“Therefore, the hope that the levy would help fix the skills shortage has not really resulted, because many companies have struggled to understand the new system and have simply just given up.  Unless, this is addressed the levy could become a failure for industry, but a success for government, as it can keep the unspent money, in this case up to £695m.”

Dr Tony Syme, expert in macroeconomics and international finance at the University of Salford Business School, comments on the budget.

“This was supposed to be the budget to signal the end of austerity and the 5% increase in the personal tax allowance and 8% increase in the Higher Rate Threshold certainly exceed the rate of inflation, so there are reasons to be happy for 32 million taxpayers. 

“But there are two reasons to wary. First, what about Brexit? Only yesterday, Philip Hammond said that a new Budget would need to be set if there was a no-deal Brexit. 

“Yet, following the intervention of No. 10 earlier today which dismissed that suggestion, there was hardly a mention of Brexit in today’s Budget speech. The elephant is still firmly in the room. Second, the OBR’s forecast for economic growth to not exceed 1.6% over the next five years means that, for all today’s promises of £30.5 billion additional spending over that period, there is a serious problem of how to pay for this in the future. Unless the economy grows sufficiently, any increase in government funds needed to pay for these proposals will not materialise. 

“Of all the EU countries, only Denmark has a lower growth rate, but it is still forecast to grow faster than the UK over the next few years. Without economic growth, austerity cannot end. Here is the nub of the problem. Recent growth within the UK economy has been fuelled by consumer expenditure. The household savings rate is currently 4.4%, but the average since 2000 is 8% and across the 1980 and 1990s, it averaged over 11%. There was capacity within household budgets to spend more and so boost the economy. 

“However, that capacity is almost exhausted now and, despite the tax cuts announced today, the Budget should really have focussed on policies to increase productivity. With higher levels of productivity growth, both Treasury and household incomes can rise and debt be reduced. Without policies to increase productivity, austerity is not going away any time soon.”

And Gordon Fletcher, retail expert from the University of Salford Business School said: “Hammond tested his stand up comedy routine this afternoon but in his last budget before Brexit he is still 'spreadsheet' Phil - just a little less austere. 

“The uncertainty of Brexit meant that few long term spending promises were made that could not be later reversed. Similarly, many of the details that might be expected - and that might be less popular - were deferred to the spending review next year. Despite the confirmation of the continuation of Universal Credit many of the statements felt like a pre-election budget. Money was on offer for the NHS, to fill potholes, to keep beer, cider and spirit excises fixed, support council services and help first time home buyers.

“A surprising announcement was the plan to revitalise the high street by converting under-used retail space into new residential properties. The thinking being that the new residents will increase footfall and shop locally.

“In a budget that primarily spent money rather than gathering it in, the Digital Services Tax was a notable exception. This exception does make it difficult to spot how the promised increases in spending can all be paid for. In the spirit of the Halloween period, Hammond targeted the FAANG (Facebook, Amazon, Apple, Netflix, Google) companies in a way that he stressed would not be an online VAT. How this tax will not be passed on to consumers is somewhat unclear. The budget also focused on tax avoidance and tackling business services outsourced to off-shore companies. 

“The budget appeared to lack vision as it gave money out to tick various boxes without recognising the opportunities of linking some of the thinking together. Entrepreneurship, small business, revitalising the high street, reducing waste, improving mental health and improving productivity are not isolated problems that can be fixed with individual increases in funding - as welcome as those injections may be. More joined up thinking is required to bring the budget into the 21st Century as Hammond promises."


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Sam Wood

0161 295 5361