Ahead of the Spring Statement on Wednesday (13 March), PwC experts share their thoughts on what to expect.
Economy
John Hawksworth, chief economist at PwC, commented:
“There has been increasing evidence since the last OBR forecast in late October that Brexit-related uncertainty has dampened business investment and caused a marked slowdown in the economy. GDP growth was just 0.2% in the fourth quarter of 2018 and could be even lower in the first quarter of this year.
“If an orderly Brexit can be achieved, growth could pick up later in the year as business investment comes back on stream. GDP might still only rise by around 1% for 2019 as a whole, but could pick back up to around 1.5% or more next year. In the event of a less orderly Brexit, the OBR is likely to warn of serious downside risks.
“The latest public finance data suggests the budget deficit could come in close to £20 billion in 2018/19, down from £25.5 billion as forecast by the OBR last October. This reflects bumper self-assessment tax receipts in January and, more generally, the fact that economic growth has been focused recently on more ‘tax rich’ areas such as income from employment and consumer spending, rather than business investment.
“It remains to be seen if the OBR will push forward this short term borrowing undershoot into future years, or if they will make more cautious assumptions on future revenue growth given the uncertainties around Brexit.
“The Chancellor is not likely to be in a hurry to spend any windfall until the fog of uncertainty over Brexit has cleared.”
Tax
Stella Amiss, head of tax policy at PwC, said:
“With the Spring Statement potentially the filling in a sandwich of Brexit votes, a large scale fiscal event with significant funding announcements and tax changes appears to be off the table. More probable is a summer ‘Brexit Budget’ when a clearer picture of the UK’s future relationship with the EU should allow the Chancellor to set out something of a future economic roadmap. Given all the other ongoing Government business it’s unlikely we will see a firm announcement to set a date at this stage.
“As the Chancellor promised, last year’s Spring Statement didn’t contain any new immediate tax changes but it did prove to be the launching pad for a series of updates and consultations. We can expect similar again on Wednesday.
“That’s likely to mean some form of update on the areas of tax that continue to be of significant interest. We expect a nod to last week’s consultation on the taxation of off-payroll workers. Environmental taxes are also still high on the agenda. The Chancellor may take the opportunity to reaffirm his commitment to a new UK Digital Services Tax (DST) especially as the wider OECD discussions on taxing the digital economy continue.
“Finally, with the deadline for making tax digital for VAT looming we should also expect a status update on the readiness of both business and HMRC to deal with the new filing requirements. ”
Business outlook
Kevin Burrowes, managing partner for clients and markets at PwC, commented:
“With the Spring Statement taking place in the midst of three crucial votes on Brexit, it's difficult to imagine any major new measures will be brought to the table. Businesses want certainty, which is crucial to stimulate investment. Anything the Chancellor can do to pave a clear path forward will be well received.”