Chancellor Philip Hammond presented his Autumn Statement today which he focused on helping individuals who are ‘just about managing’ (JAM) against a backdrop of a deteriorating economic outlook post-Brexit vote. He announced eye-catching infrastructure spending to target medium-term productivity growth and faster investment from spending on housing, roads, research and development and digital infrastructure. There will be a new system of Autumn budgets and Spring statements to avoid tax policy changes throughout the year.
Growth Forecasts Cut – Brexit Uncertainty
As expected, the Chancellor downgraded the UK economic outlook with a sober assessment of Brexit uncertainty.
Growth forecasts have been cut to 1.4% from 2.2% for 2017 and to 1.7% from 2.1% for 2018 (Office of Budget Responsibility figures). Sterling has fallen 12% against a basket of major currencies post-Brexit vote in June. Higher import prices and uncertainties regarding Brexit are expected to hit consumer spending and corporate investment in 2017.
The cost of Brexit is estimated at 2.4% of GDP over 5 years from a fall in trade, investment and migration. The OBR assumes an EU exit in April 2019, allowing for 2 years’ notice after triggering Article 50 of the Treaty of Lisbon in March 2017.
Borrowing and Debt Forecasts Increased
Public borrowing is set to increase by £122b (£59b attributable to Brexit) by 2021 as a result of weaker than expected tax revenues. This represents a deterioration of £30b pa until 2020. The forecast is for public sector debt to rise to 90% of national income by 2017/18 before falling from 2018/19. Chancellor Hammond has abandoned the target of delivering a surplus of £11b by 2020/21, instead forecasting net borrowing of £20b in 2020/21.
The Chancellor announced three new fiscal rules to ensure he has greater ‘headroom’ to deal with uncertainties: balance public finances as early as possible in the next parliament whilst keeping the cyclically adjusted deficit below 2% national income; public sector debt should start to fall by the end of this parliament; new cap on welfare spending.
The cost of bailing out the banks has risen by £9b to £27b due to falls in bank share prices.
Recycling of pension savings by over 55s to be curtailed from £10,000 pa to £4,000 pa (Money Purchase Annual Allowance) to prevent double-tax relief, subject to a consultation. There was no change announced to the tapered annual allowance which restricts pension contributions for high earners.
The taxation in the UK of foreign pensions to be aligned with UK pensions to restrict opportunities for escaping UK tax on both lump sums and pension income.
The ‘triple lock’ on state pensions to be retained. This increases the state pension each year by the higher of inflation, average earnings or 2.5%.
Pension scams to be tackled with measures to include a ban on cold-calling, greater powers to block suspicious transfers and tighter rules regarding Small Self-Administered Schemes (SSAS) pensions.
Personal Finance and Investments
New ‘market-leading’ savings bond to be launched by NS&I next Spring. The term is to be 3 years with a gross interest rate of 2.2%, subject to a maximum deposit of £3,000.
No change to the proposed increase in the ISA allowance to £20,000 and the introduction of the Lifetime ISA (LISA) from April 2017.
Letting agents’ fees for tenants of rental properties for services such as administration and referencing to be banned.
Measures introduced to reduce whiplash claims to help lower motor insurance policy costs by an estimated average £40 per driver.
Insurance premium tax to increase from 10% to 12% from June 2017.
Tax and Welfare Changes
Personal income tax allowance to rise to £12,500 and the higher rate tax threshold to rise to £50,000 by the end of the parliament.
National Insurance thresholds for employees and employers to be aligned at £157 pw. Class II National Insurance contributions for the self-employed to be abolished from April 2018.
Salary sacrifice tax-break on employee’s benefits in kind to be removed from April 2017, but pensions, childcare, ultra-low emission cars and cycle to work schemes unaffected.
Corporation tax to be cut as previously announced to 17% by 2020 and small business rates to be cut by £6b.
No change to Stamp Duty – tax revenue is expected to rise from £11b to £16b by 2021/22.
Crackdown on tax avoidance, in particular ‘employee shareholder’ status to target £2b tax revenue over 5 years.
Fuel duty rises postponed for seventh successive year saving an average driver £130pa compared with pre-2010 plans.
National Living Wage increased to £7.50ph from April 2017 and reduction in the taper rate of universal credit from 65p to 63p per £1 of net earnings.
£23b national productivity investment fund to spend on infrastructure and innovation over the next 5 years.
£1.3b allocated to build 40,000 new affordable homes, plus 100,000 new homes in areas of high demand, funded by £2.3b housing infrastructure fund. London to receive £3.15b to build 90,000 affordable homes.