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Philip Hammond’s first fiscal event

Monday 28th November 2016

With scary borrowing figures, and a Brexit back-drop, Philip Hammond’s first fiscal event was always going to mark a change.

Having prompted a spread of preserve-related acronyms, the teasers for the Autumn Statement were all about treats for the UK’s JAMs – those who are ‘just about managing’ – such as a ban on letting fees to tenants and an increase in the living wage. However, he didn’t completely chime with Theresa May’s commitment to help struggling families. The Autumn Statement he said was ‘focused on preparing and supporting the economy as we begin writing a new chapter in our country’s history.’

Arguably the biggest announcement came at the end with the revelation that his first Autumn Statement would be his last. Not because he was resigning but because the spring 2017 Budget will also be the last and that autumn 2017 will mark the start of a single Budget each year. A spring statement will follow that will be a response to the Office for Budget Responsibility’s (OBR) economic forecasts, and will contain no announcements. The Chancellor said moving the Budget to the autumn allowed for ‘greater Parliamentary scrutiny of Budget measures ahead of their implementation’ in a new tax year.

With a reputation as being ‘Captain Cautious’ he was never expected to pull a rabbit out of his hat but with a few positives leaked in advance many were left wondering perhaps he might. Well there were certainly some dramatic changes, not necessarily in individual announcements but in the confirmation that plans to have a budget surplus by 2019/20, announced just a few months ago, had been abandoned – although he did announce that he and the Prime Minister were committed to returning the finances to surplus ‘as soon as is practicable … as early as possible in the next Parliament’. Which revealed that he’s certainly not going to announce himself into a corner like his predecessor.

Initially we heard that the International Monetary Fund (IMF) had forecast that the UK would be the fastest growing major economy this year. This was followed by the adjusted OBR forecasts, which showed a dramatic drop in growth for 2017 to 1.4% attributed to lower investment, weaker consumer demand and a drop in the value of sterling – and the vote for Brexit being behind the overall greater economic uncertainty. However, it was also pointed out that this growth figure matched the IMF’s forecast for Germany and was higher than those for France and Italy.

Among other confirmed announcements there was a commitment to spending on infrastructure, particularly the unlocking of a £2.3bn housing infrastructure fund for areas of high demand, and £1.1bn for English local transport networks, reiterating his belief that an unaffordable housing affected productivity and raising productivity was essential to delivering higher living standards.
Fuel duty, pensions, the national living wage and the personal tax allowance – all were mentioned in dispatches, as was a ‘whiplash tax’ in the form of an increased insurance premium tax.

So, in an Autumn Statement of only 64 pages (half what it was in 2013), and one that spent many of those pages confirming previously announced measures, it still managed to pack a punch. Here’s our summary of the key points:

  • OBR growth forecast upgraded from 2.0% to 2.1% in 2016 – then downgraded to 1.4% in 2017. Then 1.7% in 2018, 2.1% in 19/20 and 2.0% in 20/21
    The effect of the Brexit vote will knock 2.4% off UK growth, according to the OBR
  • Debt will rise from 84.2% of GDP last year to 83.7% this year and to 90.2 in 17/18
  • New draft Charter for Budget Responsibility with three key rules: public finances should be returned to surplus as soon as possible in the next Parliament and cyclically-adjusted interim borrowing should be below 2% by the end of this Parliament; public sector net debt as a share of GDP must be falling by the end of this Parliament; public spending must be within a cap set by the government and monitored by the OBR
  • OBR forecasts for borrowing: £68.2bn in 16/17; £59bn in 17/18; £46.5bn 18/19; £21.9bn in 19/20; £20.7bn 20/21; £17.2bn in 21/22
  • Public spending this year to be 40% of GDP
  • Commitment to protect budgets for key public services, defence, overseas aids, and the pension triple lock, until 2020
  • Departmental spending plans set out in the 2015 spending review to remain in place. But extra funding for Ministry of Justice to provide 2,500 more prison officers – to tackle prison safety
  • Confirmed income tax threshold to be raised to £11,500 (from £11,000) from April 2017 and to £12,500 by 2020
  • Higher rate income tax threshold to rise to £50,000 by the end of this Parliament
  • Corporation tax drop confirmed – from 20% to 17% from April 2017
  • Crack down on tax avoidance schemes – including targeting the Flat Rate VAT scheme and use of employee shareholder status
  • Business rates reduction package confirmed and increase in rural rate relief to 100%
  • National Living Wage to rise to £7.50/hr (from £7.20/hr) from April 2017
  • New NS&I three-year bond to be announced in spring Budget. Will offer 2.2% interest rate
  • Salary sacrifice schemes to be scaled back but some eg pension savings, low emissions and cycle to work schemes will be protected
  • Fuel duty cancelled for the seventh consecutive year
  • Employer and employee National Insurance thresholds to be equalised at £157/week from April 2017
  • Insurance Premium tax to rise from 10% to 12% from April 2017
  • Universal Credit taper rate to be cut from 65% to 63% from April 2017. No further plans for welfare savings this Parliament
  • Tax-free child care to be rolled out in 2017
  • Pensions: money purchase allowance on defined contribution schemes reduced from £10,000 to £4000 from April 2017. Targeted to stop inappropriate use of double tax relief
  • Ban on upfront fees charged by letting agents in England to tenants ‘as soon as possible
  • Close eye on functioning of key markets such as retail energy firms
  • Ban on pensions cold-calling
  • White paper to be published on housing – land to be unlocked for housing
  • £2.3bn housing infrastructure fund to help provide 100,000 new homes in high-demand areas
  • £1.4bn to deliver 40,000 extra affordable homes
  • Pilot of right-to-buy to be extended to housing association tenants
  • £1.1bn for English local transport networks
  • £200m for traffic pinch points
  • £450m for trialing digital signalling on trains
  • £390m for low emission vehicles
  • 100% business rate relief on new fibre infrastructure for five years
  • £1bn investment for broadband from April 2017
  • Double export finance capacity
  • Additional £400m to venture capital funds through the British Business Bank to unlock £1bn for growing firms
  • £2bn/year by 2020 for research and development funding
  • £110m for East West Rail and commitment to deliver Oxford to Cambridge Express way
  • £1.8bn from Local Growth Fund to English regions