Joke's over for 'spreadsheet Phil' as firms demand action

Philip Hammond 
Philip Hammond shifted the Budget to November, and will deliver his tax and spending plans in one month's time Credit: Jose Luis Magana/AP Photo

It was all jokes and laughter last year. “This is my first Autumn Statement as Chancellor. I have decided that it will also be my last,” declared Philip Hammond, to gasps in the House of Commons. Then he delivered the punchline: “Mr Speaker, I am abolishing the Autumn Statement.”

The chamber guffawed – it was all a dramatic prelude to the Chancellor’s plan to shuffle the timings, moving the main annual Budget to November. Hammond’s jest reflected his confidence in a Government in full stride, joking about his own resignation in an era of Conservative dominance and Labour disarray.

What a difference a year makes. In one month’s time Hammond presents his new Budget, but in a much diminished Government. So far this year the Exchequer has borrowed less than expected – a rare treat. But economists have hiked their deficit forecasts for next year to predict borrowing of £46.5bn, almost £6bn more than was forecast in the spring.

There are significant economic bright spots, with unemployment down to a 42-year low. But there are challenges too. Growth has slowed, pay rises are miserly and the Office for Budget Responsibility believes productivity growth will remain sluggish. There is no shortage of demands being sent to Number 11. The OECD called for a more efficient tax system allowing more spending on areas such as education, skills and infrastructure.

“What is going to provide the prosperity, and better wages and competitiveness of the UK economy? That is getting productivity back on its feet,” said Jose Angel Gurria, the OECD’s secretary general.

In total the OECD suggested the Government should spend roughly an extra £24bn. Speaking at the launch of the report, Hammond agreed with the idea of doing more on productivity, but gave few hints on the details.

“We have made good progress on employment and the deficit, but it is by boosting productivity that we can raise living standards further,” he said, noting existing plans to spend more on infrastructure and develop T-levels, more technical qualifications comparable to A-levels.

“The report helpfully identifies areas where we can go further, including improving basic skills and adapting to changing business practices.”

Some of those elements fit in with demands from business groups. The CBI wants to “grow our way out of austerity” with productivity-enhancing policies.

Its list of demands includes protecting per-pupil funding in schools, switching business rate rises from RPI inflation to the lower CPI, and exempting new machinery from business rate calculations.

“Now is the time to be bold,” said Carolyn Fairbairn, the CBI director general, outlining £6bn-worth of spending plans. Unions are battling for pay hikes across the entire public sector, beyond the limited raises for select groups announced so far. 

In the 12 months to August the average public sector worker’s pay rose by 1.4pc, compared with 2.4pc in the private sector and inflation of 2.9pc.

“The Chancellor must ease the pressure on hard-pressed families. That means giving five million public sector workers the pay rise they have earned,” said Frances O’Grady, the TUC’s general secretary. One area where the Chancellor could get some cheaper wins is housebuilding.

The OECD said the green belt should be reviewed overall, for example, with no cost to the taxpayer. The British Property Federation wants residential rents to be zero-rated for VAT, making construction and maintenance easier. It says large-scale investors building rental homes should be exempt from the 3pc stamp duty surcharge too. Most of these moves can sound substantial but they are effectively tinkering with the existing framework.

Some analysts want a much more radical overhaul of the tax and spending system. This would not fit with the Chancellor’s reputation as “spreadsheet Phil”, nor match the minority Government’s constrained political circumstances.

“Despite the political challenges, there should be quite a lot of consensus around this – he could probably afford to be braver and encourage a debate around what would be a good tax regime for Brexit Britain,” says Jonathan Riley, head of tax at Grant Thornton.

“You are never going to have a better chance to have a look at the design of the tax system.” He wants a wholesale review of tax incentives and credits, removing or cutting a swathe of allowances to raise tens or even hundreds of billions of pounds, which could then be used to cut tax rates overall, giving a simpler, more efficient system.

The Institute of Directors wants more radicalism too. “Our overarching concern is that the Brexit process does not become an excuse for delaying much-needed and overdue broad-based reform of both the UK tax system and other key policies to boost UK business,” said its boss Stephen Martin.

Taxes should be revamped to match the increasingly flexible workforce, the IoD said, with business levies kept competitive.  Workers could benefit from reforms too – the Taylor Review’s proposals to reclassify self-employed gig workers as “dependent contractors” could raise tax revenues while helping support workers’ rights.

That could also help maintain the tax base at a time when more workers become self-employed and so are not subject to all of the same levies as employees. There is less room for jokes in this Budget, and more demand for Hammond to roll up his sleeves and come out with something more dramatic. It could even earn him a more exciting nickname.

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