“Phil the accountant” has deployed all his talent to set the economic forecasts and budget orientations of the UK government, without knowing the outcome of negotiations on the Brexit scheduled for late March, which are bogged down between London and Brussels.

In our opinion, the budget is a good omen because public finances are healthier. The fiscal deficit for the 2018-2019 fiscal year could be well below the 1.8% of GDP projected so far, which would provide a valuable pot to fund the additional spending promised by the Conservatives.

This good news, however, will not be enough to bail out Hammond, who has to find 20 billion pounds a year to cover investments in the public health service (NHS). It will also have to offset the cost of continuing the fuel tax freeze and measures to encourage the construction of social housing.
He has already planned tax cuts of 900 million pounds to support the highstreet, downtown businesses, in a state of collapse due the the tendency for people to purchase items online. He has identified a “digital service tax” tax, which will target the larger online businesses with revenues of at least GBP 500 Mio in online sales.

Hammond has suggested, however, that other taxes may increase, without specifying which ones to date, depending how Brexit negotiations progress. The minister is divided between two contradictory commitments from his government, to find a balanced budget by the mid-2020s, while gradually loosening the purse strings, as desired by Theresa May, in order to support her pledge to end austerity. For the well-respected independent Institute for Tax Studies (IFS), restoring fiscal balance and ending austerity are promises “very hard to match” except to raise taxes or hope for dynamic growth.

“Once we have a good agreement with the European Union and a smooth exit from the EU, we will be able to show the British that the fruits of their hard work will soon be harvested,” the minister said. In the case of a “no deal”, it will require “a new budget,” Mr Hammond warned in an earlier statement. We will “take appropriate fiscal measures to protect the economy.” On the other hand, Mr Hammond said he was convinced that an agreement would ensure his country a “Brexit dividend”, which would give a welcome boost to growth that has been on the decline since the 2016 referendum.

Other announcements were in line with expectations including a GBP 160 Mio allocation to counter terrorism, a GBP 400 Mio cash infusion for schools and a GBP 10 Mio for air ambulance services. A focus on infrustructure spending was highlighted and we noticed that hydrogen powered trains (manufactured in Germany) will replace diesel powered trains shortly in certain rural parts of the UK.

HMRC will be a preferred creditor in the case of a bankruptcy, which is meant to ensure HMRC gets paid, while the abolishment of stamp duty tax for 1st time buyers, including for shared ownership, unto GBP 500’000.- is maintained.

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