After what can safely be described as one of the most tumultuous years in recent political history, we all waited with baited breath to see how the new staff within government would deal with the implications of the Brexit vote on 23 June.
This is the first Autumn Statement delivered by Philip Hammond under Theresa May’s post-referendum government, and interestingly it will also be his last; it was announced that from 2017 there will be an Autumn Budget well in advance of the new tax year and from Spring 2018 there will be a Spring Statement responding to forecasts from OBR but with no major tax changes.
Speculation has been rife in the lead up to today’s announcements, predictions and rumours have abounded but one thing has been clear; the uncertainty surrounding the UK’s decision to leave the European Union has changed the political landscape significantly and priorities for spending, budgets and cuts will have to change in response.
In the lead up to the Autumn Statement, topics such as the NHS, the triggering of article 50 (to leave the EU) and the impact of potential welfare cuts on the poor and disabled were hot topics in the debate.
Philip Hammond took the podium at 12.40 following a typically heated to-ing and fro-ing between the cabinets and delivered a somewhat low-key statement quite different in style to his predecessor (with a few decent jokes) who sat watching.
Hammond set out his plans to chart a new future for our country, identifying a need to tackle long term weaknesses in our economy such as the housing imbalance and productivity gap. The aim is to build an economy that works for everyone with every corner of the UK partaking our success.
Interestingly, no major tax changes were announced with the main focus relation to fiscal forecasts and economic issues. A summary of the key announcements are set out below, and we will be keeping an eye on the detail to be released in the coming months prior to the 2017 Budget.
- Accordingly to Hammond, the IMF predicts we will have fastest growing economy in the world with the lowest unemployment (2.7m new jobs since 2010 – forecasted to grow annually.) Pleasingly, over the past year, employment grew fastest in the North East.
- Growth is predicted to slow to 1.4% next year due to uncertainty (which is lower than hoped) but still the same as Germany and higher than France.
- Whilst the UK can’t be clear on EU deal at the moment, it is anticipated that GDP will be 2.4% lower than it would have been had the Brexit referendum gone the other way.
- Due to the decision to leave the EU, the government is no longer seeking to deliver a surplus in 2019/20 – instead they want this to be achieved as soon as practicable whist leaving enough flexibility to support the economy in the short term. Balance is to be achieved in next parliament instead.
- Hammond expressed a need to focus on the UK’s productivity if we are to prosper in these difficult and uncertain times. According to him, we lag behind the US and Germany by 30% in productivity meaning that we work longer hours for lower pay. Raising productivity is essential for a high skill, high wage economy which rewards its workers.
- Most policies announced will be funded through tax measure but the productivity gap will be addressed with short term borrowing, leading to increased forecasts for debt in the short term.
- A new national productivity investment fund of £23billion will be formed to be spent over the next five years – to be used on research development and innovation. To keep up with the world’s pace of technology advances we must build on our strengths of science and tech innovation. This is potentially good news for innovative businesses undertaking research and development activity.
- Hammond stressed that economically productive infrastructure is important (roads, housing and transport). A housing white paper is to be released, to address the challenge of delivering affordable housing where it is needed.
- To deal with the biggest objections to development (the impact on local infrastructure) the government will create a £2.3bn housing infrastructure fund for areas in high demand. £1.4bn will be earmarked to deliver 40,000 additional affordable homes.
- There will be a large scale regional pilot of right to buy for Housing association tenants, continued support for help to buy ISA and shared equity homeowner schemes.
- The government will make a £1.1bn investment in English local transport, addressing traffic pinch points, trial digital signalling, squeeze more capacity out of railways, and build on competitive advantage on low emission vehicles.
- Over £1bn will be invested on digital infrastructure and 5G testing.
- Hammond admitted that for too long, growth has been too concentrated in London and the South East. No other major developed economy has such a gap between capital and other cities. A strategy is therefore to be published for addressing productivity barriers in the Northern Powerhouse and devolution remains at heart of approach to supporting local growth.
Now to the tax announcements. There were no major changes announced but a few comments have caused a little concern and we will be paying closeattention to the proposed consultation on how to align taxation for different types of earnings (suggesting the government might be upscaling their attack on dividend income), and the announcement in relation to clamping down on salary sacrifice arrangements.
- The government will continue the increases to the personal allowances. Starting at £6,475 in 2010 and now sitting at £11,000, this will rise to £11,500 in April. Despite challenging fiscal forecasts the government will deliver on raising this to £12,500 and the higher rate threshold to £50,000 by end of parliament. Then will increase in line with inflation with a view from the chancellor annually.
- There are no plans to introduce further welfare savings plans in this government.
- From April 2017 the government will begin the roll out of tax free childcare
- Low interest rates have helped economy recover but have had a substantial impact on savings – a new investment bond will therefore be launched with 3year terms, earning approximately 2.2% gross interest .
- The National living wage is to increase to £7.50 in April from £7.20 (the Shadow Chancellor was less than impressed with this rise).
- From April the government will reduce the universal credit taper rate from 65% to 63% - benefitting those in work on low incomes
- 100% capital allowances will be available on the installation of electric vehicle charging points.
- An effort will be made to shut down inappropriate use of Flat Rate Scheme, abolish tax advantages given by employee shareholder status and introduce new penalties for those who enable use of tax avoidance schemes which are challenged and defeated by HMRC.
- Restriction on corporate interest expenses (previously mentioned at Budget 2016).
- The OBR has highlighted the growing cost of incorporation. The government will therefore consult on how to make taxation of remuneration more fair for different types. This is probably the most concerning announcement given last year’s changes to the taxation of dividends, and suggests that further attacks on legitimate tax planning will be launched.
- The government will look at ensuring that from April 2017 people using Salary Sacrifice schemes will not obtain tax advantages (although some arrangements will be protected).
- Since 2010 the government has driven a business led recovery. Cuts to corporation tax in recent years have sent the message that business is open for business. Many investments in the UK announced by the likes of Glaxo, Google and Nissan. The government will stick to the business tax roadmap set out in March, with Corporation Tax T to fall to 17%.
- Hammond will Increase rural rate relief to 100% - providing a tax break worth up to £2,900 per year.
- From April 2017 an alignment will be made between Employee and Employer national insurance at £157 per week(no cost to employees, just employers).
- IPT is lower than many other European countries, increase from 10% to 12& from next June.
- Legislate to end compensation culture surrounding whiplash claims.
- Due to the pressure on fuel prices due to oil prices and the drop in Stirling fuel duty will be frozen again
- Letting agents currently unregulated and can charge extortionate fees to tenants so the government will ban fees to tenants as soon as possible.
- The government will also look at banning pensions cold calling, which has become an issue since their strategy of unlocking access to pensions.
Some might argue that the Autumn Statement was a somewhat safe set of announcements with better forecasts than perhaps expected in the wake of the EU referendum. However there is no denying that the Economy faces some extreme challenges and it will be interesting to see how we fair in the coming months, especially given Theresa May’s promise to trigger article 50 by the end of March.
As always, if you would like any further advice or assistance with anything mentioned above or indeed, anything else at all, please contact us.