The spectre of the Brexit has loomed heavily within the hearts of investors since it first became a reality and many firmly believed that the economy of the United Kingdom would be irreparably harmed as a result. However, this doom-and-gloom scenario has not come to pass (as of yet). The reason that this observation is significant is that Chancellor of the Exchequer Philip Hammond is soon to deliver his budget outline. What can we expect to hear, are there any surprises in store and will this news impact the overall economic outlook of the United Kingdom?

Better Than Expected

It is first important to note that the overall budget deficit is now predicted to fall to £56 billion pounds; down from last year’s rather dubious level of £71.7 billion pounds. In other words, the chancellor will be in a much better position than was initially anticipated. It is thought that this drop is primarily the result of improved tax receipts.

However, there is another side to this coin which reflects basic economics. The government of the United Kingdom is spending more capital then it is generating through tax revenue. Therefore, the national debt of £1.8 billion pounds will continue to rise. Still, the Office for Budget Responsibility will have to revise its overall economic outlook to reflect a surprisingly improved budget deficit. The same should also hold true for unemployment figures.

The Conservative Variable

Conservative governments tend to embrace low levels of taxation combined with increased tax thresholds. These same policies are likely to be highlighted in the upcoming budget briefing. In particular, the question of tax relief may come into play. There is currently a large disparity between high-earning individuals and those who fall within basic thresholds (40 per cent and 20 per cent respectively). Could we possible witness the beginnings of a flat rate being introduced across the boards?

Business rates are especially relevant, as these have fallen within certain areas of London while the property values have simultaneously risen. It is not unreasonable to imagine that measures could be taken to mitigate such effects and bring some relief to those who have been facing the largest increases.

The Social Care Conundrum

This is a question which both the chancellor and the Prime Minister herself will be forced to face, and an ageing population could once again involve the government being forced to generate more revenue. Analyst Michael Hewson notes:

The crisis in social care remains the thorniest issue for the government and will continue to be so for successive governments over the next few decades, given the increasing burdens an ageing population will put on the NHS.”

Other Variables

Many feel that the rate of corporation tax will not be reduced further considering that it has dropped from 26 per cent (2011) to 19 per cent (2017). Additionally, we could see an increased focus upon major infrastructure projects such as Hinckley Point and the expansion of Heathrow Airport. Theresa May should continue to stress these and other options.

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