On Wednesday 23 November Chancellor Philip Hammond delivered his first Autumn Statement. Government borrowing far exceeded expectations, with predictions to hit £69.2 billion in 2016 and £59 billion in 2017, while economic growth is forecast at 1.4% next year, down from estimates of 2.2%, with the finger of blame pointing to Brexit.
One of the big headlines following the statement was the relief given to the 'Just About Managing' classes, or so-called 'JAMs'. These lower income families who struggle to reach pay day comfortably will now benefit from a freeze in fuel duty, a rise in Living Wage from £7.20 to £7.50 per hour and a ban on the fees letting agents charge tenants when they begin renting a new property. Although Hammond forgot about the promised review to increase money going towards childcare.
But the British Retail Consortium's chief executive, Helen Dickinson doesn't believe these measures will give this demographic more spending power to positively impact the retail industry, especially as the devaluation of the pound and inflation will lead to higher prices.
"The freeze in fuel duty, the abolition of letting fees and the confirmation of the increase in the personal allowance will provide some relief, particularly to families on tight budgets," she said. "However, the measures announced today will do little to offset the overall expected reduction in spending growth."
She added: "The key takeaway from today’s statement is that whilst Brexit has not heralded the economic decline some feared, the Office for Budget Responsibility (OBR) is expecting a significant dent in UK GDP and hence in consumer spending also."
Dickinson concluded: “Whilst the outlook is not as bad as some predicted it could have been in the wake of the EU referendum, the next few years will be challenging for the industry. Whilst shoppers’ spending power is falling, retailers will almost certainly have to absorb some of the underlying cost increases into their margins, rather than fully pass them on. As a result, retailers are likely to see slower volume growth at lower margins next year.
She also welcomed the freeze in fuel duty, but noted that business rates and the increased National Living Wage will absorb this positive addition to the budget.
"If there was one missed opportunity today to help boost growth and investment, it was the absence of further measures to reform the business rates system," she remarked.
Connectivity and infrastructure
Hammond outlined plans to invest an additional £23 billion into the UK's digital infrastructure, with the promise of £2 billion per year by 2020 going towards R&D funding.
The Treasury said: "This will bring faster and more reliable broadband to homes and businesses across the UK, boost the next generation of mobile connectivity and keep the UK in the forefront of the development of the Internet of Things."
Tanuja Randery, president UK & Ireland at Schneider Electric, agreed that this investment would create a strong foundation for the UK to expand its position as an innovation powerhouse.
“Digital is the future and across multiple industries from healthcare, to food and beverage, to water and rail we are seeing our customers invest in connectivity and data analytics to drive their operating costs down and improve efficiency in people, assets and energy consumption," he said. "We need buildings and cities that are smarter, leveraging technology to become more livable, sustainable, secure, safe and connected. Steps towards digitisation are essential for the future of the UK and the growth of our economy."
For retail specifically, Dickinson said this innovation investment would have a positive impact. "Addressing the success of the high street requires consideration of the revolutionary impact of digital technologies – on the behaviour of consumers who might frequent high streets, and the competitiveness of high street retailers," she noted. "Therefore, today’s announcement of [investment] in new digital infrastructure including 5G will be welcome by shop owners and consumers across the UK."
The UK Warehousing Association (UKWA) also welcomed the news on innovation investment. CEO, Peter Ward, said: “Investment on this scale is clearly needed to support a logistics sector which is underpinning the rise of eCommerce."
Part of this £2 billion will benefit UK start-up businesses, many of which will be developing technological advancements for both consumers and businesses.
David Cobb, tax and innovation partner at Deloitte, said the initiative will support the creation of a richer, deeper talent pool of high-skilled workers.
"More than half of CEOs from fast-growing technology start-ups find attracting and recruiting employees with appropriate skills as the single biggest people challenge their company faces," explained Cobb.
"Technology is now pervasive across all industries and sectors. Innovation, particularly around productivity-enhancing technology, is essential to driving future growth. The Treasury’s decision to encourage and incentivise innovation will not only benefit the technology and science sectors, but the positive ripple effects will be seen across the business landscape. The measures outlined today will help more start-up businesses become scale-up businesses."
Hammond also announced this would be the last Autumn Statement as he detailed plans to shake up fiscal announcements going forward. From next year the government will hold its usual spring Budget and then another Autumn Budget before the end of 2017, this will be followed by a reduced spring statement which will begin in 2018. This "long-overdue reform" will allow any changes to tax to be known well before the start of the new tax year.