Is the UK Treasury Falling Behind?
UK Treasury Concerned about Subdued Increases in Tax Revenues
For the first 6 months of the fiscal year, revenues increased by 3.6% in the UK. However, during September 2016, an increase of just 2.6% took place (compared to September 2015). Unemployment figures and tax receipts in the UK remain flat.
This is deeply concerning to economists who are worried about the full impact of a Brexit on the economy. Lower increases in tax revenue fall short of the guidance issued by official government agencies. For the second half of 2016, the OPR is anticipating receipts to grow at a much healthier pace. For October through April, a figure of 8% growth has been bandied about.
UK ministers are dismayed by the deteriorating conditions. The Chancellor of the Exchequer, Philip Hammond announced that net borrowing during the month of September rose by £1.2 billion. This brings the total public sector net borrowing to £10.6 billion. Deficit-reduction initiatives are coming under increasing pressure with slowing tax receipts. In November, the UK Treasury will release its Autumn Statement. The economic data provided by the services sector and retail sales appears to be at odds with the receipts at the Treasury. Public borrowing declined precipitously between 2008 and 2010.
No Major Shakeups Expected with Chancellor Phillip Hammond
When the UK Treasury meets on 23 November 2016, it is likely that the Chancellor will provide plenty more latitude in the budget. Year-on-year, borrowing is £2.2 billion higher (between September 2016 and September 2015). To balance the budget, that figure would have to be £10.2 billion less. However, Philip Hammond is unlikely to go on a spending spree for fears that debt is too high. The ONS is standing firmly behind the BOE Term Funding Scheme. This is designed to lower interest rates for bank clients. Overall, public debt could be increased by up to £100 billion through 2021/2022.
EU Leans on May for Brexit & Banks Cringe
Prime Minister Theresa May recently attended a Summit in Brussels to discuss Britain’s divorce from the European Union. May charged that the road ahead would be difficult and that significant give-and-take would be required. EU leaders are nonetheless dismayed that Theresa May has not pushed to invoke Article 50 of the Lisbon Treaty yet. Many European Union leaders are willing to go toe to toe with May if she drives the Brexit issue hard.
Britain’s staunchest allies in the EU including Dutch Prime Minister, Mark Rutte believe there is no room for negotiation prior to official proceedings being launched. For her part, Prime Minister Theresa May has been conciliatory. She wants to lay out a blueprint for Britain’s partnership with the European Union before a Brexit is invoked. The maintenance of economic ties remains a key priority for Britain.
Meanwhile, several major banks in the UK are considering leaving for greener pastures. During the first few months of 2017, leading banks are seeking to abandon the City of London as their centre of operations. At stake is the issue of Passporting Rights – how banks can freely offer their services to all EU countries without let or hindrance. The UK government has attempted to assuage the concerns of the financial sector.
The issue at stake is whether May will opt for a hard Brexit from the single market or a soft Brexit. Small banks and big banks are now considering their options before Theresa May pulls the trigger. Goldman Sachs is one such bank that is making waves. It was reported in September that GS Vice Chairman – Michael Sherwood – will consider leaving London. Some 2,000 employees would abandon the country if the UK is no longer part of the single market.
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About Brett Chatz
Brett Chatz is a graduate of the University of South Africa, and holds a Bachelor of Commerce degree, with Economics and Strategic management as his major subjects. Nowadays Brett contributes from his vast expertise in online trading for spreadbettingreview.co.uk.