In today’s bumper announcement of forecast updates, spending plans and tax measures, the Chancellor has seemingly pulled off the difficult trick of promising a surplus on the public finances by the end of this Parliament and maintaining investment in some key areas that will support productivity and growth across the economy.
Economy and public finances
As expected, the Office for Budget Responsibility (OBR) made only modest revisions to its forecast for the UK economy over the coming years. It expects GDP growth of 2.4% this year and next, with household spending and investment the major contributors. Decent growth and lower debt interest payments also reduced the challenges faced in balancing the Budget over this Spending Review period. Public sector borrowing (PSNB) is expected to fall in every year in this Parliament, moving back into the black in 2019/20.
Spending Review and Autumn Statement measures
There was a lot of meat in the Chancellor’s statement and the accompanying documentation, focused around Government’s four priorities: Improving health and social care; the devolution revolution; addressing social challenges and national security. A lot of the really big numbers centred around the welfare budget, additional resources for defence and security and commitments to the NHS. But there were some pertinent measures for industry, particularly in areas that can help to boost productivity and long term growth. A summary of some of the main measures for manufacturing:
- Commitments to fund the Road Investment Strategy and science capital were confirmed over the parliament.
- The science budget will be maintained in real terms.
- Funding for Innovate UK will be fixed at 2015/16 cash terms. This will include increased funding for Catapults. Some grant funding will move towards alternation methods of funding, in consultation with industry and after piloting.
- The Funding for Lending Scheme will be extended through 2016.
- The Business Rates review will be finalised by Budget 2016. The Chancellor confirmed that the uniform Business Rates will be abolished and local authorities will retain 100% of revenues. City mayors will have the power to levy a business rates premium for local infrastructure projects, provided they have LEP approval.
- UKTI funding will be stable over this Spending Review period and Government will refocus UKTI to enable it to become a world-class export and investment promotion agency.
- The Government will introduce the apprenticeship levy in April 2017. It will be set at a rate of 0.5% of an employer’s paybill and will be paid through PAYE. Each employer will receive an allowance of £15,000 to offset against their levy payment. This means that the levy will only be paid on any paybill in excess of £3 million.
- There will be exemption for Energy Intensive Industries, including the steel industry, from the policy costs of the Renewables Obligation and Feed-in Tariffs.
Key announcements from the Spending Review can be found on the Treasury’s website. EEF has also published its full response.
For more information contact Lee Hopley, Chief Economist
Blogs from this week
23 Nov 2015
A round up of the week's economic events by Lee Hopley
25 Nov 2015
7 questions manufacturers will be seeking answers to as part of the Spending Review and Autumn Statement by Chris Richards