Budget 2017: Can Hammond reassure UK investors and entrepreneurs?

The Budget announcement is only hours away. Can Phillip Hammond reassure UK entrepreneurs and investors of a more certain future?

In a few short hours, Philip Hammond will stand at the steps of Downing Street with the iconic red budget box to deliver the 2017’s budget after his initial full-year period as Chancellor of the Exchequer.

This is the second budgetary announcement since the vote to leave the European Union on the 23rd June 2016, and with the Article 50 deadline of May 2019 fast approaching, talks in the European Union stalled, and the new homes for both the European Medicines Agency and European Banking Authority decided this week, there’s a lot at riding on this announcement.

For Ethar Alali, CEO of Axelisys, Hammond should use the Budget announcement to assure the public that urgent action is underway to save the UK economy from what he calls a “cliff edge drop”.

“Small businesses and consumers alike, who have seen costs rise as inflation sky-rocketed, without a corresponding increase in wages, are desperate to stem rising raw material and living costs,” he says. “With recent reports of farming stagnation, inflation at 3 pet cent, Bank of England base rate rises for the first time in a decade and continuation of credit-crunch austerity seeing those on welfare hit hardest, consumer confidence is at an all time low.”

According to Alali, UK businesses stand to experience an increase of almost £10 billion in export tariffs on it’s 50 highest trade sector exports with the European Union alone, discounting secondary trade agreements making up 10 times more agreements the UK must [re]negotiate with the rest of the world.

Such costs are not insignificant, will be distributed through economic supply chains and threaten many, key sectors, especially those receiving continental subsidies and reliant on continental staff, he explains.

There are two ways businesses can absorb such costs.

“The first is to simply swallow it. With margins in sectors such as retail and leisure, heavily reliant on volume to cover costs, such increases more than swallow margins. This naturally means that for such sectors, absorption is not possible without shutting down some time in the not too distant future,” says Alali.

This means such businesses have to cover it another way. Cost cutting, which is work reduction in any event or consumer prices have to rise. “Exactly what we saw in the recently reported inflationary figures. This is all despite the fact the UK is still part of the European Union and has not left yet.”

Of course, such effects don’t exist in isolation, he adds. Together with new and used cars, restaurants, pubs and bars are one of many barometers of UK consumer confidence and prosperity.

Like all non-essential activity, leisure activities are highly sensitive to consumer income. The more residual income families have the more people eat out. Leisure activities are the last to increase when an economy recovers and the first to be culled from household budgets when it starts to recess. They also take longest to recover in the event of a recession.

“With a quarter of workers in the hospitality industry coming from the EU and these having little financial room to absorb such costs, the UK stands to lose around 5,500 hospitality businesses in that time. In turn pushing around 55,000 people in to unemployment, 75 per cent of whom are Brits entitled to welfare,” Alali says.

It isn’t the only sector, either. As companies in the The City move operations to European countries like France and Germany, 100,000 jobs in turn, are expected to go.

“Whilst this is a drop in the ocean for the financial services industries that employ almost 4 million people in the square mile, this again has noticeable, knock on effects on small business in the area,” Alali warns.

2.5 per cent of their trade will disappear and do so within working hours. The City is almost empty during weekends, so there is no opportunity to recoup such losses. In turn, having knock on effects on rents, increasing uncertainty and debt burdens.

Considering the post-referendum effects on various sectors, from farming to nursing, as well as the rise in racist attacks, Alali believes the UK’s economy and social fabric has much bigger problems to face.

“Hammond has the chance to at least allay the fears of business and public services, and contribute to their survival. Yet, he has faced calls from hard-line Brexiteers to create a ‘Budget for Brexit’. To flood the market with finances, despite the fact that the Bank of England controls central money flow,” he says.

The reality is that preparations for a ‘no deal’ scenario have now got to be planned in.

“In both business and economic terms, step changes are dangerous beasts. It’s well know that previous Conservative policy killed off entire communities in England and industries in England. Herein lays jeopardy,” says Alali.

Witho competing financial reliance on EU funding totaling over £50 billion a year, Hammond will have to go some way to covering that from a net membership fee of £7 billion.

“For those with a basic grasp of primary school math, that doesn’t go. So, the Chancellor will have to take the lead and present to David Davis’ stalled negotiations and the very creativity Theresa May and David Davis seek from the European Union. If Hammond can make it work, they’d move too,” Alali says. “But it’s a long shot!”

Praseeda Nair

Praseeda Nair

Praseeda was Editor for GrowthBusiness.co.uk from 2016 to 2018.

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