Today was UK Chancellor Philip Hammonds’s first Autumn Statement, and it was also his last. But more on that later.
This was the first major economic announcement since the UK voted to leave the European Union, which made this usually mediocre yearly affair little more tasty than usual. Much of it was leaked to the media in the days leading up to the statement. Still, detail has been added to the “leaks”, and it has impacts on the UK glazing sector, which is what I will attempt to explore in this post.
The main points
The mainstream media has quickly picked up on these points:
Debt in proportion to GDP
Debt in relation to GDP is expected to rise in the next couple of years. This is down to an increase in borrowing in the period up to March 2021 of £122bn. Not great figures. Borrowing to spend to try and boost growth is a risky business. However it is worth pointing out that Shadow Chancellor John McDonnell wants to spend a whopping £500bn. There are no plans on how this is going to be paid for. So between the two, I’d rather go with Philip Hammond’s figures.
There has also been some revisions to GDP growth over the next few years…
GDP up to 2021
Up from 2%
Down from 2.2%
Down from 2.1%
Unchanged at 2.1%
Unchanged at 2.1%
Unchanged at 2%
On the face of it, not great news from the Chancellor today. 2016 growth is going to be slightly better than forecast, which should be welcome. But then it tails off during 2017, dropping from a predicted 2.2% to 1.4%. That’s a drop of 0.8%. It recovers a tad in 2018 to 1.7%, down slightly from a predicted 2.1%. Then we’re back up to previously predicted levels. No drop is ever good, but lets take some perspective.
1.4% in 2017 and 1.7% in 2018 are still solid and steady numbers when you consider the list of predictions that stated the UK was going to enter recession even just for voting to leave the EU. It hasn’t materialised, and these figures suggest that we’re a long way off from that. This is good news. Then it’s worth considering that we’ll be growing stronger than all of the main Euro-area economies during these years, including Germany. Lastly, economic forecasts are often wrong. The past couple of years has seen real GDP data outperform quarterly predictions on a regular basis. So it’s likely that 2017 and 2018 figures could be better than expected, given previous form. So long as there are no global shocks to throw us off course, which cannot be accounted for. It’s also worth pointing out that the OBR, the body responsible for these figures, has taken the Brexit effect into account.
The Government has scrapped it’s pledge to achieve a budget surplus by the end of this Parliament, but will maintain a path to that end goal, in a slightly longer time frame.
Right, that’s some of the boring stat stuff out of the way. Time for some good bits and the stuff that matters to us.
Tax, wages and glazing matters
The National Living Wage is to rise next April to £7.50 per hour from £7.20. Good news for those on minimum wage. I bet businesses will have mixed feelings upon the matter. At our place, our staff are well above that, so it’s not something that would effect us.
Employee and employer National Insurance thresholds will be equalised at £157 per week from April 2017. Something for businesses to consider.
Better news for everyone, next April the income tax threshold is being raised to £11,500, up from £11k right now. It should reach £12,500 by the end of the Parliament. This should give home owners more saving and spending power. A factor that is important for the glazing sector as ours is a big ticket industry that requires funds often saved up over times. The threshold for the higher rate of income tax is to also rise to £50k by the end of the Parliament. All fairly good and solid news for glazing businesses and consumers alike there.
More good news came on the fuel front, as the planned 2p rise in duty was scrapped. The Chancellor described this as a tax cut. Nice spin, but you actually have to add a cost to be able to cut it in the future. This was a £850m tax prevention. Still, it stops the yearly car fuel bill going up £130 per year and van bill by £350. The Government is also going to crack down on false whiplash claims, which should have the effect of knocking our average premiums down £40 per year. About time!
Here’s the really good stuff for the glazing guys. £2.3bn has been announced to help provide 100,000 new homes in high demand areas. £1.3bn has also been announced to help build 40,000 new affordable homes. More homes means more windows and doors to be made to go into those homes. Good news for the glazing sector. The Government also announced the scrapping of letting fees in the rented property market, handing back a few hundred pounds per year for people and families that live in rented accommodation.
Productivity was also a focus for the Chancellor, as he pointed out that it takes German workers to produce in four days what it takes us in five. Something I don’t think we should be proud about.
To tackle this, and to help keep the UK economy moving forward, he announced £23bn in new funds aimed specifically at innovation and infrastructure projects. £1bn of that has been earmarked with the aim of making Great Britain a leader in 5G connectivity. The technology is currently undergoing testing, with the hopes it will be deployed commercially by 2020. £2bn has been set aside for research and development projects. £220m to relieve traffic hot-spots, which I personally believe is nowhere near enough. £1.8bn will go to the Local Growth Fund for English regions.
So these are the best bits of the Autumn Statement that bear any relevance on our sector. So what are my thoughts?
Not a disaster, but nothing to shout about
Firstly, the GDP figures don’t worry me. The predicted growth figures are still decent compared to the rest of the world, and we’re miles away from a recession. Growth is growth, and if you read many of the longer term economic forecasts, the UK economy has a very good chance of storming ahead once we have left the EU, which will make up for any short term dips we’re going to see in the next couple of years. Plus, it wouldn’t surprise me to see the UK economy outperform these predictions, as it so often does.
The rise in the National Living Wage and thresholds for tax was welcome news, although it was old news thanks to all the “leaks” in the lead up to the statement. More pounds in people’s pockets is always a good thing. In the long term it might help nudge a few home owners towards a big ticket item purchase or two. If it does, that’s something our industry might benefit from.
Housing was my main focus in this statement. I wanted to see what sort of funds the Chancellor was going to allocate to help boost home construction. £2.3bn is OK, but it’s not mega bucks. It will help build 100k new homes over the next Parliament. Unfortunately, this is nowhere near enough. I read somewhere on Wednesday morning that the UK needs to build 365 new homes per day just to keep up with demand. We all know that as a country, we’re not building anywhere near that. This matters for the glazing sector as more homes equates to more windows and doors being installed. We need this part of the market to do well. 100,000 new homes will be welcome business for us, but we’d have liked to have seen a much larger number than that.
I also want to mention this quite vital point that may have slipped most people’s radars. Not too long ago, just a few weeks even, the Bank of England predicted that inflation would soar as a result of Brexit and the drop in value of Sterling. They were talking about figures north of 4%, which is indeed a very big jump, and would have quite serious consequences. However, today the OBR and ONS announced that inflation is forecast to rise at it’s highest to only 2.5% by 2018, dropping back to it’s 2% target in 2019 and 2020. That’s quite some soggy chips the BoE has now. And I do start to worry about their increasingly wild predictions being quickly debunked by other forecasting and real-terms GDP data. 2% is the Government target by the way, that’s not high in general terms, and wouldn’t be a bad thing if we got there in the end.
Finally, this will be the last Autumn Statement as the Chancellor is crapping it, in favour of a yearly Autumn Budget and a smaller Spring Statement in reply to any OBR or ONS information. Probably best. Not sure why we needed two major financial statements in the first place.
Overall, this was a typically unexciting affair. A reconfirmation that the UK has to be fiscally tight in the face of uncertain global economic headwinds and Brexit, which will become more clear in the months to come. For the glazing industry, there’s probably very little to get excited about. It’s a case of heads down and making the most of a solid UK economy that despite the lack of spare cash, is still growing and should still be able to ride out anything that tried to throw it off course.
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