Autumn blows in a breezy statement…
Chancellor Philip Hammond delivered his first Autumn Statement on 23rd November, following The Office for Budget Responsibility’s (OBR) update on the public finances, the first major fiscal event since Brexit in June.
The Chancellor commenced by praising an economy which the IMF predicts will be the fastest growing major advanced economy in the world, one which has bounced back from the depths of recession this year with employment at a record high and unemployment at an 11-year low. But initially positivity quickly turned to uncertainty as Hammond referenced Brexit, a decision that had been taken exactly 5 months previously which will undoubtedly “change the course of Britain’s history”
Getting the economy “match-fit for the transition that will follow” as the Chancellor puts it, is now top of the agenda whilst maintaining a commitment to his predecessor’s fiscal discipline. This is no small task; the OBR predicts that growth of the next 5 years will be 2.4 percentage points lower than it would otherwise have been. Official forecast plunges the country £122bn deeper into the red, half of which can be blamed on Brexit due to anticipated lower productivity and loss of tax receipts from those no longer able to work in the UK.
Productivity, it seems, was the watchword of the Statement with investments in infrastructure and innovation being identified as the main drivers. The productivity gap between the UK Capital and it’s 2nd & 3rd cities represents the largest such gulf of all major global economies – we lag the US and Germany by some 30 percentage points, France by over 20 and Italy by 8, which means in the real world, it takes a German worker 4 days to produce what we make in 5. By injecting an additional £400m into venture capital funds through the British Business Bank, and unlocking £1 billion of new finance for growing firms, the Government intends to support funding for growth businesses with high up-scale potential, helping to avoid the loss of some of our best companies overseas. In addition, a National Productivity Investment Fund of £23 billion was announced over the next five years
In terms of infrastructure, a £1.1 billion was promised in investment in local transport networks to address traffic pinch points on strategic roads, trial digital railway signalling, squeeze more capacity out of the existing rail infrastructure and build on competitive advantage in low emission vehicles – a clear intent to keep the nation moving.
Since 2010 the government has cut corporation tax from 28% to 20%, and to reinforce the message that “Britain is open for business” Hammond confirmed the plan to decrease further to 17%, by far the lowest overall rate of corporate tax in the G20.
But savings has to be made elsewhere; From April 2017, employee and employer National Insurance thresholds will be aligned at £157 per week – at no cost to employees, and at a maximum cost to business will of an annual £7.18 per employee. Insurance premium tax – currently lower than in many other European countries, will rise from 10% currently to 12% from next June.
The Flat Rate Scheme will be subject to greater scrutiny, with the government bringing in a new 16.5% rate from 1 April 2017 for businesses with limited costs – this maintains the accounting simplification for the small businesses that use the scheme as intended but for those businesses affected, it will mean paying more, and will generate the public purse more than £100m a year extra.
There was also a sting for those who obtain “work perks” like free parking, healthcare, gym membership or mobile phones – from April 2017 employers and employees who use these Benefit In Kind (BIK) schemes will pay the same rate of tax on them as everyone else, although following consultation with stakeholders, ultra-low emission cars, pensions saving, childcare and the cycle to work scheme will be excluded from this change.
On a positive note however, fuel duty remains frozen for the seventh year in a row (the longest freeze for 40 years) saving the average car driver £130 a year and the average van driver £350 a year.
Low and middle earners received a boost with the news that the tax-free personal allowance will rise to £11,500 in April, with a further commitment to raising the allowance to £12,500 – and the higher rate threshold to £50,000 – by the end of this Parliament. Effectively, since 2010 the tax bill of someone with a salary of £15,000 has been halved to £800 and 4 million people have been taken out of income tax altogether.
The National Living Wage will rise to £7.50 an hour, meaning a pay rise for 1.3 million working people equating to an extra £500 for the average full time worker, and for those beyond the working age, there was confirmation of the “triple lock” pledge that guarantees that the state pension goes up by the greater of the growth in average earnings, the growth of CPI inflation or 2.5% – so in effect no change from the status quo, but only for the current Parliament with a review on the affordability of the guarantee being ordered.
Whether these measures go far enough to help the so called JAMs – the Just About Managing families is debatable. Some economists predict that the assistance outlined above will be quickly swallowed up by the inflation-fired rises in food, energy and fuel; in fact, the economic think-tank, the Resolution Foundation indicated that the biggest losers between now and 2020 will be lower income families, with the poorest third likely to see incomes drop. There was however some welcome news for working families – the 15 hours a week of free childcare introduced for all 3 and 4 year olds will double from September.
For many, the goal of home ownership remains out of reach, and in this regard a number of new measures were announced, including a new £2.3 billion Housing Infrastructure Fund to support 100,000 new homes in areas of high demand, a £1.4billion plan to provide another 40,000 “affordable” homes in the next five years, a large-scale regional pilot of Right to Buy for Housing Association tenants, and continued support for home ownership through the Help to Buy: Equity Loan scheme and the Help to Buy ISA. The rental market was also in the spotlight, with a ban on tenants’ fees to stop letting agents charging unregulated fees to tenants which often amount to hundreds of pounds.
The outlook for Wales…
From a local perspective, Alun Cairns, Secretary of State for Wales felt that the Chancellor’s Autumn Statement was good news for Wales. “Not only does it help build an economy that works for everyone across Wales and the rest of the UK, it provides a significant over £400m uplift in the Welsh Government’s capital budget ….which will allow the Welsh Government to make decisions that will help people across Wales.”
READ THE FULL ARTICLE IN THE LATEST ISSUE OF INSIGHT MAGAZINE HERE: autumn-statement