For weeks now, senior figures from the world of business have been at pains to point out just how important this year’s Autumn Statement will be.
The new Chancellor, Philip Hammond, stepped up to the despatch box to give his most significant speech since he took charge of the Treasury during the summer.
If his predecessor George Osborne, now watching from the backbenches, had come to be defined by his ongoing battle to balance the books in the wake of a financial crisis, the start of Mr Hammond’s tenure was always going to be overshadowed by one word. Brexit.
Businesses across the UK – and indeed overseas – were watching closely to see how the Government intends to steady the economy ahead of the UK beginning the formal process of leaving the European Union.
In his opening remarks, Mr Hammond laid out his stall.
“We will maintain our commitment to fiscal discipline, while recognising the need for investment to drive productivity,” he said.
- Economic overview
- Business and Enterprise
- Transport and infrastructure
- Personal tax
- Pensions and savings
- Tax evasion, avoidance and aggressive tax planning
- End of the Autumn Statement
The Chancellor will have been acutely aware, as he rose to address the Commons, that many headlines tomorrow would be dominated by the economic outlook and in particular the fall in growth forecasts.
He sought to extenuate the positives, pointing out that employment levels were at a record high, the deficit was falling as a share of GDP and that the economy had shown resilience in the wake of the summer’s referendum.
But he also acknowledged that the Brexit vote meant it was more imperative than ever to tackle any frailties in the nation’s finances, adding that the Government was committed to tackling these challenges head-on.
Growth is expected to be 2.4 per cent lower over the forecast period as a result of the uncertainty arising from the referendum result.
The Office for Budget Responsibility (OBR) has calculated that growth will be 2.1 per cent this year, falling to 1.4 per cent in 2017.
“That is lower than we would like, but still higher than many of our European neighbours,” said Mr Hammond.
Borrowing, meanwhile, will be 3.5 per cent this year, dropping to 0.7 per cent by 2021-22.
While acknowledging that the Government no longer expected to balance the books by the end of the decade, the Chancellor announced three new fiscal rules: to achieve a surplus in the next Parliament and reduce borrowing to two per cent by the end of this one, to get net debt falling by 2020 and to ensure welfare spending is kept within a cap set by the Government.
Business and Enterprise
The Chancellor was unequivocal that he wanted the UK to retain its reputation as a top destination for businesses.
He reiterated his predecessor’s commitment to reduce Corporation Tax to 17 per cent, although speculation that he may announce a further reduction (perhaps to 15 per cent) proved to be wide of the mark.
There was news of a two per cent reduction in the transitional relief cap, which will be overseen by the Communities Secretary, and Rural Rate Relief will increase to 100 per cent. This will be worth up to £2,900 for eligible firms.
Conversely, employers will have to make preparations for another increase in the National Living Wage next year. The statutory wage floor will increase from £7.20 an hour to £7.50 as of April 2017.
As part of efforts to make the UK a “world leader” in 5G broadband, ministers will also be offering 100 per cent business rates relief on new fibre infrastructure from April next year.
Finally, £400million will be pumped into venture capital funds, via the British Business Bank, to help unlock £1billion in finance for expanding businesses.
Transport and infrastructure
Mr Hammond said that the Government was committed to high-value investment in the nation’s infrastructure and that all of the UK would feel the benefit, acknowledging that too much onus had been placed on London in the past.
At the core of proposals are plans for a new national productivity investment fund, a £23billion pot which will be used to fund innovation and infrastructure.
There was also a commitment that investment in research and development will increase by £2billion annually by 2020, a £1billion digital infrastructure fund (with an emphasis on improved broadband) and the promise of a £1.1billion in additional spending on England’s transport network.
As had been widely trailed before the speech, Mr Hammond confirmed that he would be banning fees charged by letting agents to tenants.
The move, which had actually been Labour policy at the last General Election, was designed to address the fact that fees were continuing to spiral upwards despite the efforts to regulate them. It had nonetheless attracted criticism in some quarters as another “assault” on landlords.
Mr Hammond admitted that a large section of the population continued to struggle to get a foot on the property ladder and said that the Government would shortly be publishing a new white paper to address some of the pressing issues relating to housing.
The Chancellor also confirmed plans for a £2.3billion Housing Infrastructure Fund, which will lay the ground for the construction of 100,000 new homes. In addition, there will be a £1.4billion investment to deliver 40,000 additional affordable homes.
As part of ongoing efforts to increase home ownership, there will be a “large-scale regional pilot” of Right to Buy for housing association tenants.
There was welcome news for many taxpayers in the form of an increase to the personal allowance. This will rise from its current level of £11,000 to £11,500 from April 2017. And Mr Hammond said that the Government remained committed to raising it still further (to £12,500) by the end of this Parliament.
Meanwhile, the 40p rate will increase to £50,000 over the course of the same period.
As regards National Insurance (NI), from next April the employee and employer thresholds will be aligned at £157 a week.
There was good news for the nation’s motorists, with the announcement that the Treasury would be cancelling the proposed rise in fuel duty for the seventh year running. On average this is calculated to save car drivers £130 a year and van drivers £350.
However, insurance premium tax will rise to 12 per cent (up from 10 per cent) which some have suggested is likely to wipe out any savings arising from the crackdown on fraudulent whiplash claims.
Tax savings relating to salary sacrifice and benefits in kind are also to come to an end, although exceptions will be made for pensions, childcare, cycling and ultra-low emission vehicles.
Pensions and savings
There were comparatively few announcements on pensions, although Mr Hammond did confirm that the Government would usher in a ban on pension cold-calling.
The Chancellor said that the Government was also committed to helping the nation’s savers and set out plans for a three-year investment bond, offering a 2.2 per cent interest rate on deposits of up to £3,000.
Tax evasion, avoidance and aggressive tax planning
Mr Hammond said the Government had a proud record of tackling tax avoidance and evasion and that the tax gap was one of the lowest in the world.
As part of the ongoing drive to ensure that businesses pay their fair share, he outlined plans for a new penalty for those who enable tax avoidance, which HMRC later challenges and defeats.
Overall it is calculated that the various anti-tax avoidance measures will raise in the region of £2billion over the forecast period.
End of the Autumn Statement
One of the biggest surprises was the news that this year’s Autumn Statement would be the last.
Next year will be the last time that the Budget takes place in the spring. After that it will be moved to the autumn, and while there will be a Spring Statement, this will be used principally to respond to OBR forecasts rather than as a platform for any major announcements.
Mr Hammond said that having just one financial announcement each year would bring the UK in line with the IMF’s best practice.
Ahead of today’s speech, the Chancellor seemed to play down the prospect of any dramatic new policy announcements, instead placing emphasis on a tax and spending plan which would prioritise prudence and stability.
Certainly, this wasn’t a delivery sprinkled with giveaways and perhaps the biggest surprise – given that the media had been briefed in advance about many of the headline announcements – was that Mr Hammond’s first Autumn Statement would also be his last.
The decision to condense all the major tax and spending plans into one annual summary is partly designed to give businesses greater stability and this may well be welcomed in the current climate.
Mr Hammond is unlikely to get away from the fact that uncertainty surrounding Britain’s departure from the EU is calculated to have created a £122billion black hole in the national finances.