The March of Brexit and Budget
Friday, February 3, 2017
March will be a month to remember, with the last March Budget announced early in the month, followed by the Brexit deadline at the end. The first month of Spring will be bookended by two significant moments, and we look at what you can expect.
Philip Hammond has announced that the Government will publish the Budget on Wednesday 8th March 2017, which will be the last Spring Budget, with the main Budget now moving to the Autumn. The Chancellor will set out the tax changes to take effect during the year and the Finance Bill will be put to parliament the following month.
"Delivered as Brexit is being debated in parliament and only weeks before the March deadline for triggering Article 50, it is safe to assume this will be a Budget with Brexit at its heart."
The switch in timings is designed to mean less frequent changes to the tax system, which the Government says will give more stability and certainty. It also wants to make sure Finance Bills, outlining the legislative changes to the tax system, get Royal Assent in time for the new tax year. This all sounds relatively sensible until you remember that there will be another Budget before the end of the year to switch to the new timetable.
Delivered as Brexit is being debated in parliament and only weeks before the March deadline for triggering Article 50, it is safe to assume this will be a Budget with Brexit at its heart. At such a politically sensitive time, it is unlikely that it will contain anything too startling – nor anything that reveals Britain’s hand before the all-important Brexit negotiations happen.
There are very few Budget predictions or rumours currently circulating, with the Chancellor keeping his cards close to his chest. He has floated the idea that corporate taxes could be slashed to bring more business to the UK if negotiations with the EU don’t play to the UK’s advantage. Yet economists have rebutted this, saying Britain cannot afford to become a tax haven – and in fact the notion it exorbitantly expensive at a point when the Government has a large budget deficit.
There are likely to be mixed messages around growth – better than expected in 2016 but potentially rocky this year. The Office for National Statistics indicating the UK economy grew by 0.6 per cent in the final three months of 2016, matching the expansion in the previous quarter. Yet in Davos this January, Philip Hammond claimed consumer demand would decline this year as inflation made British prices more expensive than those in Europe, which would hurt economic growth.
Borrowing is likely to be an area the Chancellor is more positive about. A 5 per cent fall in Government borrowing in December plus a lower revision of November’s borrowing figures means Mr Hammond will have hit his borrowing target for 2016. Consequently, the budget deficit looks likely to be slightly smaller this year than the Office for Budget Responsibility predicted in November.
March then moves on to its next big challenge: exiting the EU. There is still an air of uncertainty around the next couple of months, given that this January Supreme Court justices ruled that the Prime Minister cannot circumvent MPs and peers by using the royal prerogative to trigger Article 50 – it must go to a vote in the House of Commons and House of Lords. Somewhat of a blow to Theresa May, she nonetheless remains determined to hit her 31st March deadline to notify the European Council of Britain’s intention to leave the EU, and bid farewell to the Single Market.
"Symbolic as it is, nothing would happen overnight if Article 50 was to be triggered by 31st March"
Brexit Secretary David Davis has since explained that Parliament will get a series of votes, ending with the Government asking MPs to accept or reject a new deal with the European Union. A final binding vote will occur in February and both the Conservatives and Labour have ordered their MPs to vote in favour of the legislation.
Symbolic as it is, nothing would happen overnight if Article 50 was to be triggered by 31st March, it would simply set the clock ticking on negotiations with a deadline of two years before the UK's membership of the EU ends (unless EU member states vote to give us more time). One date for the diary, however, is September 2018, the point at which the EU’s chief Brexit negotiator, Michel Barnier, wants to wrap up terms of Britain’s exit.
We will be sure to keep you updated over the coming weeks.