What was the purpose of Rachel Reeves’s Spring Statement?
A budget overview by Robert Salter, a director at leading audit, tax and business advisory firm, Blick Rothenberg
The government had been keen to ‘downplay’ the significance of the Spring Statement in the run-up to this afternoon’s announcements. At one stage it had even been suggested that the statement would be delivered by a more junior member of the Treasury Team rather than the Chancellor, Rachel Reeves herself.
Given the unquantifiable impact of the conflict in the Gulf, it is questionable whether there was any meaningful value for either businesses or the general public from today’s speech.
Though there is often much to recommend that any government following a ‘steady as she goes’ approach to the economy and taxation. In some ways it is positive that Ms Reeves hasn’t announced any specific tax changes, but many of the areas that Rachel Reeves focussed on during her speech are perhaps problematic from a wider perspective given recent world developments.
While Rachel Reeves suggested that the government’s recent policies were helping ‘win the battle on inflation’, the recent drop in inflation to 3.0% still comfortably above the government’s official target of 2.0% was driven by a sharp fall in fuel costs.
This isn’t something which is really controlled by the government and there is a clear expectation that petrol prices will shoot up over the coming weeks, given the recent developments in the gulf region, with a consequent increase in inflation is quite probable. Moreover, if inflation does increase, it is difficult to see the Bank of England Monetary Committee being able to reduce interest rates in the short-term.
While Rachel Reeves’s forecasts suggested reasonable economic growth, real wage growth and a fall in the number of unemployed in the coming years, one has to question whether one can place any value on the validity of these estimates. While any growth and financial estimates are clearly subject to many variables, one has to suspect that the conflict in the Gulf would have totally undermined the assumptions behind these new government forecasts.
Finally, while it is clear that Rachel Reeves has placed some value on areas such as the ca. £820m in additional training being made available to train young people, though this policy decision had been previously announced by the government, it is questionable whether this extra investment will overcome the negative impact of changes such as the increase in employer’s National Insurance Contributions (NICs) and the share increase in the National Minimum Wage, especially for younger workers, which appear to be at least partly response for the significant increase in youth unemployment over the past 20 months.
Given that the Spring Statement would have been a good opportunity to announce much needed changes to the Apprentice Levy, which employers consistently argue isn’t ‘fit for purpose’, this is perhaps another opportunity that the government has missed from an employment and training perspective.