The Autumn Budget: will it be strong and stable or weak and feeble?

Hoggett Bowers recently hosted a lunch event for CFOs and Finance Directors, with guests from a wide range of sectors. Our after lunch discussion centred around the question “What does Philip Hammond have to do at the Autumn Budget, not just to win back lost voters but for the good of your businesses, the sectors you work in and the economy as a whole?”

 

In recent weeks it's been muted in the press that "Philip Hammond's survival depends on the success of his Autumn Budget".

Hammond needs a successful Budget. It would seem that the hardline Brexiteers are out to get him, not because of his stewardship of the economy, but because he is a realist pursuing a soft Brexit to cushion its impact. 

Theresa May agrees, in theory, but practice may prove different. She is being urged by allies to carry out a Cabinet reshuffle and if his Budget causes a widely negative reaction like his first one in March, May will be under pressure to oust him in order to placate her Europhobic back-benchers.

There has already been a lot of pressure from senior figures at the top of Government to create “face saving” measures in the forthcoming Budget.

“This Budget needs to capture the imaginations of the electorate.”

One of our guests felt that this budget should not rock the boat, but was needed to give certainty. The feeling amongst our CFO guests was that they were all fed up with reading about what may or may not happen.

Moving on from this, it was agreed that in addition to certainty, clarity was needed. The main hurdle facing the country is Brexit. We need to get through this first and foremost. We need a vision of the future.

The upside of the disastrous Conservative performance in the general election, is that we now have a government that is being held to account by a stronger opposition. 

“The shock election result was good for democracy as it led to a government that has to justify everything that it does”

One recent report said that the Chancellor wants to “restack the deck for the next generation”. In other words, he wants to increase tax on the older generation to fund tax breaks for the younger people. This 'tax on age' was seen as too simplistic, pitting one generation against another, and politically very dangerous. 

“People would be more willing to pay more taxes if they felt the money was being spent wisely”

One CFO was feeling particularly despondent. They felt that on the current course, with all the in-fighting going on in government that the eye has been taken off the ball. Too much talk is about “knee-gate”. He felt that the Chancellor would create a political budget to save his own skin and therefore, he may come up with gimmicks to counteract Corbyn, such as freebies for students. This would be a disaster. As a country we seem incapable of moving on from Brexit and getting it done. It's like a Shakespearean tragedy. We have all seen this movie before.

“In order for this budget to work, it should be 'steady as she goes' but with a few baubles left on the Christmas tree”

Could the Chancellor aim to win the younger generation? The student contingent have been busy signing up to follow Corbyn at their university Fresher's Fairs.

People need to be reminded of how the economy was in the 70s. The populous have short memories or little experience of this. May and Hammond are ineloquent at getting the message across to the people. There seems to be a destabilised Conservative Party, with lots of infighting. There needs to be clear communication about what the Conservatives stand for and what the Labour party might lead the country into if in power.

Another guest felt that this communication has to be done in “Sweets and Soundbites” as this is how it works in the modern world. A great example of how this works was Corbyn's promise to abolish student university fees.

“It is not the first time that a government has seen people's retirement savings as low hanging fruit to help bolster its coffers”

Again to help bring the younger generation over to the side of the government and to promote “inter-generational fairness”, there are reports that the Chancellor could scrap stamp duty for first-time buyers. In addition, it looks like he is set to give over £10 billion to boost the “Help to Buy” scheme. This might boost the house building industry, but would have a serious effect on the new regulations that the Conservative Conference promised to look at for the Green Belt.

In addition to the younger generation, the budget should woo the quiet majority of Middle Britain who are looking for regional investment and support to help the High Street survive.

As we are an open market, investment in the UK is needed right now without delay, to stimulate lending to SME businesses like retailers and making inward investment into the UK as attractive as possible.

Contrary to this, The Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) have both been placed under review this year. The EIS has been a useful source of finance for start-ups, however, it is also seen as a way for the wealthy to avoid tax. It has been predicted by one of the large tax and audit firms, that the tax relief could be reduced from 30% to 20%.

“Brexit means Brexit but this still doesn't actually mean anything. We need to know exactly what Brexit does mean”

Not enough is being addressed with regards to productivity. There needs to be something in the budget to create a productive environment. This issue is exacerbated by the gap in salary between the high and the lower paid workers. The UK is slipping and other countries within Europe are doing better than we are.

Several guests pointed out that the budget needs to be kept simple. Over the years there has been a lot of complexity added.  One example of this is the Apprenticeship Levy. In principle, the idea is a good one, however, it appears confusing to the average voter.

“He should look at three clear messages that are believable and make it simple”

It is necessary to work on the fundamental issues. Tinkering around the edges will only make things worse. 

There is too much political gamesmanship, so the budget could end up pandering to a small political group. One particular CFO stated that he is looking for an apolitical budget another important subject that was brought up was the workforce. The government needs to focus on Graduate employment and investments in technical colleges for those who do not go to university. This would increase our productivity and the competitiveness of our workforce, especially in light of Brexit. Again clarity was called for over the movement of products and people after Brexit.

The CFO from a global IT company suggested that as the USA draws back from its global leadership role, there is an opportunity for the UK to fill some of the void and this should be to our advantage, but we need a niche, something we are really good at like education.

The UK has some of the finest education institutions in the World. We can now take the lead with other aspects such as the climate debate. There is also scope and upside for the UK to continue to act as the bridge into Europe. 

In conclusion….

 

Our business leaders want the government to stop the in-fighting, put knee-gate to one side and focus on delivering a strong budget to bring stability to the country and create a solid platform for economic growth.