Philip Hammond’s Autumn Statement, underscored by the Brexit vote earlier this year, pledges a more “prudent” and “balanced” approach to the running of Britain’s economy. This revision of the Tory financial strategy identifies a significant departure from the benefit cuts experienced under David Cameron, placing an emphasis on helping those families, who Theresa May points out are: ‘just about managing’.
So, in a complete reversal (and to some extent undoing the work of the previous Tory Chancellor) Philip Hammond’s Autumn Statement aims to inject money back into infrastructure, business and development of the country, in order to ease the impact of the cuts imposed by his predecessor, and to cope with the effects of leaving the EU. Ultimately, the need for more ‘fiscal headroom’ is terribly apparent.
However, as Hammond adopts new rules in regards to fiscal borrowing, economists believe that his revisions could deter growth in 2017 – and indeed – this was a point echoed and confirmed by the OBR, as they forecast a growth of 1.4%, 0.8 points down from their previous forecast of 2.2%, for 2017.
The chancellor did attribute the lower growth forecast to the Brexit vote, higher inflation and economic uncertainty, and did reiterate his aim of fiscal balancing whilst considering the economic necessities through the Brexit transition. Even though the 2020 surplus goal has been abandoned entirely.
So, what do you need to be aware of following this year’s Autumn Statement?
Hammond’s established three new fiscal rules, which are:
- Returning public finances to balance as soon as possible in the next Parliament;
- Debt as a percentage of GDP must be falling by the end of this Parliament;
- And a cap on welfare spending, which is to be monitored by the OBR.
But here are some of the key aspects outlined in this year’s Autumn Statement.
Borrowing, spending, infrastructure … and more debt
Outlined in the Autumn Statement, debt will rise from 84.2% of GDP last year, to 87.3% this year – eventually peaking at 90.2% in 2017-18. While this borrowing will undo the work of his predecessor, the chancellor maintained that in order to bolster productivity, address imbalance in growth and prosperity in the country, the government needs to reinvest in the people and infrastructure. To this end, Mr Hammond will prioritise ‘high value investment’ – particularly in infrastructure and innovation - as well as announcing a new ‘national productivity investment fund’ of £23bn for ‘innovation and infrastructure’ over the next five years. One of the problems he highlighted in this regard, was the performance of regional cities in comparison to London. So, to enhance and improve growth across the entirety of England, he pledged £1.8billion from the Local Growth Fund, split across these regions:
- £556 million to Local Enterprise Partnerships in the North of England;
- £542 million to the Midlands and East of England;
- £683 million to LEPs in the South West, South East and London.
The aim, Hammond says is a: ‘high-wage, high-skill economy…’ and to ensure the UK remains an attractive place for new business, there will be an investment of 2bn per year by 2020-2021 in innovative research in the fields of robotics and artificial intelligence.
The chancellor reiterated that the current departmental spending plans will ‘remain in place’ – but also wants the treasury to be an enabler for good spending across government.
Housing and tenants
As the goal of ownership for many aspiring home owners remains out of reach, Mr Hammond hopes to alleviate this issue by injecting a sum of £7.2bn to support the construction of new homes. In addition, Mr Hammond has pledged that a new £2.3bn housing infrastructure fund will be established to develop homes in ‘high-demand’ areas and a further £1.4bn to construct 40,000 affordable homes.
There’s also to be a relaxing of restrictions on government grants to allow providers to give a wider range of housing types and the ‘Help to Buy’ equity loan scheme and the ‘Help to Buy ISA’ will remain in place.
Through these methods, the government hopes to double annual spending on housing and increase the supply of homes for sale and for rent.
For tenants, letting agents’ fees charged to them (which at the moment, adds as much as £500 to the renting of a home) are to be banned.
To further enhance business productivity and to keep pace with the changing technologically orientated world, Mr Hammond will direct £1bn towards hyper-fast, fibre optic broadband and 5G endeavours. Whilst in April 2017, the government will provide businesses with a 100% business rate relief on new fibre infrastructure for a five-year period.
Tax penalties, restrictions and tax relief
Mr Hammond starts well, asserting that he wants Britain to remain as the number one destination for businesses. To this end – and to encourage further business coming to the UK – he has announced that corporation tax will fall to 17%.
To reduce costs for small businesses in rural areas, there will be a tax break of up to £2,900 per year.
A further tax benefit is that taxpayers’ wallets will be a little heavier next year, as Mr Hammond announces that the commitment to raise the tax-free personal allowance to £12,500 by the end of this parliament and the higher-rate tax threshold to £50,000.
On the other hand, for tax avoiders, the chancellor announced that new penalties would be imposed. In a similar vein, rules governing ‘salary sacrifice’ (which is using your pre-tax income to buy items or services via your company) are to be tightened – and will pay the same tax as everyone else.
Additionally, the government will shut down inappropriate use of the VAT flat rate scheme which was initially put in place to help small businesses, and abolish the tax advantages linked to ‘employee shareholder status’, as there was evidence that it was being used for tax planning purposes.
Mr Hammond hopes that these tax clamping methods will raise around £2bn over the five-year period.
Pay and welfare
For workers who earn the minimum wage, the chancellor confirmed that the current national living wage will increase from its current level of £7.20, to £7.50 in April next year, worth £500 a year to a full time worker.
Mr Hammond stated clearly that there are no plans for further welfare cuts or welfare savings measures in this parliament other than those previously announced.
From April next year, the Universal Credit taper rate will be reduced from its current 65% to 63% - and this, what Mr Hammond describes as, ‘targeted tax cut worth £700m’ will encourage work progression, work incentives and assist ‘3 million households’ across Britain.
Business and exports
There’s to be a doubling in UK export finance capacity to make it easier for British businesses to export. Mr Hammond also intends to inject £400m into venture capital funds to tackle the long standing problem of start-up tech firms being snapped up and instead, provide them with the opportunity to scale up.
Also, the government is going to action Sir Charlie Mayfield’s review of business productivity and provide an additional £13m to help businesses improve their management skills.
Goodbye Autumn Statement
No more Autumn Statement. It was after ‘careful consideration’ that Mr Hammond decided that abolishing the Autumn Statement would be the most appropriate course of action. The Spring Budget in a few months will also be the final Spring Budget. Instead, starting from autumn 2017, tax announcements and changes will be made well in advance of the start of the tax year and from 2018, there will be a Spring Statement, responding to the forecast from OBR. Though, as Mr Hammond states; ‘If any unexpected changes require it, then I will, of course, announce actions at the Spring Statement, but I won’t make significant changes twice a year just for the sake of it.’