It usually takes a while before the real significance of a Budget or Autumn Statement is clear, and judgments in the immediate aftermath can only give the first impression. Two days after this year’s Autumn Statement was delivered, the overall sense is that the Government has been lucky this time with the way that the public sector borrowing figures have turned out, and that it has also tried hard to deliver a balanced collection of measures, providing some stimulation for growth but also bearing down further on public spending, and on some areas of taxation. But overall it is difficult to avoid a continued sense of real concern for how this is all going to work through for the UK economy over the coming years, and whether UK Government has the tools available to avoid, at best, a very flat picture on growth for years to come (and therefore a continuing large deficit).
This article is not intended to be a full summary of the measures that have been announced in what was in reality a mini-Budget. The tax accountants have been working throughout the last few days to do so and have been producing the sort of detailed analyses needed to understand the tax and spending detail. Rather, it is a chance to reflect on the picture, about half way through the current Parliament, on where we are and the implications for the economy and for those of us involved in transaction work.
The best that can be said at present on these issues is that as an economy we continue to tread a middle path between triumph and disaster. Optimism that there is going to be any really strong recovery in the medium term has really begun to evaporate completely. We are coming to terms with the likely outcome being for a number of years of limited growth, at best. The forces that are creating this environment are so large, affecting so many major economies the UK would usually look to as export markets, or sectors of the economy that would in the past have been the engines for growth, that we are inevitably impacted. The re-positioning of the UK economy that is required so that we can avoid worse damage is a long process. Some might say that it has hardly begun, and it is not at all clear whether it is a process that Government are easily able to engineer, in a free-market economy like the UK rather than a centrally planned one.
But while there are clearly, as the Bank of England would say, some pretty significant “downside risks” for us all, it is important not to get too carried away with the gloom. What is as extraordinary as anything about the last period is the extent to which the UK economy, or a large part of it, has proved so resilient. Employment figures continue to be higher, unemployment lower, than economists can easily currently understand. Technology, the creative industries, service industries generally, and parts of the manufacturing base of the UK have continued in many cases to thrive. Wealth built up in the high times continues to fund transaction demand among corporate and institutional deal-doers. The simple passage of time means owner-managers reach the point in age or other terms where it is right or necessary to sell. As a result there is both the money to fund a reasonable flow of transactions, and a supply of target businesses. And just think how the UK looks from the perspective of Greece, Spain, Italy or even France at the moment, if you want to put things in perspective (particularly if you are a business based in London or the South East of England).
The last thing anyone in this situation would want to be is complacent. All of us need to focus on growing our own businesses’ share of the market, on innovation and efficiency and growing the skills base needed to thrive. There is a chance that a number of the measures announced in the Autumn Statement yesterday might contribute to making that easier. Most striking are those increasing certain capital allowances ten-fold, corporation tax reliefs for the creative sector, a reduction in corporation tax generally (although from 2014) and some measures for the oil and gas sector, including those trying to get shale gas extraction in the UK moving. On the personal tax front, while the measures included some relief for example on personal allowances, overall in an environment of slow or no growth in incomes, the increased focus on anti-avoidance and reduction in such items as pension reliefs leads to a sense of continued belt-tightening, but there is both give and take on this front.
Economically and politically, the Government had an unexpected moment of respite in this Autumn Statement, and is doing what it thinks is right to create the right conditions for growth in the UK. Let us all hope that this positive moment looks, with longer hindsight, like more than just a blip.