Commentators are already suggesting this Autumn Statement is “seriously bad fiscal news”.
The headlines will undoubtedly focus on the prediction by the Office of Budget Responsibility (OBR) that growth will be 2.4% lower in the next five years because of Brexit and the higher degree of uncertainty. That said, the chancellor did not want it to appear all doom and gloom, he stressed that the forecast for 2017 was still equal to the International Monetary Fund’s prediction for the German economy. According to the OBR, growth is 2.1% for 2016 which is higher than forecast with it reducing to 1.4% in 2017 and then rising ultimately to 2.1% in 2020.
Mr Osborne, the former chancellor, spent many a time at the dispatch box discussing the deficit and the target for returning to surplus in 2019/2020, the end of the current parliament. Mr Hammond announced at the start of his tenure that the government did not intend to stick to that target and this was reiterated by him on 23 November. Debt is now predicted to rise and peak at 90.2% of GDP in 2017/18.
There was a significant focus on investment and infrastructure with numerous projects announced to plug the productivity gap. Specifically £220 million is committed to reduce traffic ‘pinch’ points and £110 million for East West Rail to support the Oxford to Cambridge Expressway.
Many of these commitments will be funded by increasing the Insurance Premium Tax to 12% from 10% in June 2017.
As predicted there were no significant changes to the tax regime or any hints of abolishing the 3% additional rate of Stamp Duty Land Tax that many had hoped for.
There was a commitment to corporation tax reducing to 17% with a new National Productivity Investment fund offering £23 billion over the next five years.
UK export funding is to be doubled and £400 million placed into venture capital funds through the British Business Bank. These funds are largely targeted at tech start-ups.
Income tax and welfare
The income tax threshold will be raised, as anticipated, to £11,500 in April 2017. The higher-rate income tax threshold is to rise to £50,000 by the end of the parliament. Once the personal allowance reaches £12,500 it will rise in line with the consumer price index (CPI).
Most notably, tax savings on salary sacrifice schemes and benefits in kind are to be stopped so they are subject to the same tax as cash income. The only exception to this includes pensions, childcare and Cycle to Work schemes. For those in receipt of private healthcare or job-related accommodation through their employer, this may have a significant impact.
National Insurance thresholds are to be equalised for both employers and employees at £157 per week from April 2017.
The National Living Wage is to increase from April 2017 to £7.50 per hour from £7.20. No further welfare cuts are planned during the course of the parliament and Universal Credit taper relief is to be cut to 63%.
Behind the headlines
The government continued their commitment to ending the non-domiciled tax status from April 2017. Those non-domiciled individuals will be deemed UK-domiciled for tax purposes if they have been a UK resident for 15 out of 20 tax years or if they were born in the UK with a UK domicile of origin.
Inheritance tax will be charged on UK residential property when held indirectly by a non-domiciled individual through an offshore structure, such as a company or trust. The government intends to change the rules for Business Investment Relief (BIR) so that it will be easier for non-domiciled individuals to bring offshore money into the UK for the purposes of investing in UK businesses.
The Individual Savings Accounts (ISA) limit will increase from £15,240 to £20,000 in April 2017 and a new three year National Savings & Investments (NS&I) Bond will be available from Spring 2017 offering a savings rate of 2.2% on savings up to £3,000.
The big headline
The chancellor finished his statement by stating this was “his first and last Autumn Statement” – everyone fell silent waiting for the big shock resignation speech. Has anyone resigned whilst giving a Budget statement?
Alas, this was to be the last Autumn Statement with a new Spring Statement from 2018. That will be an update from the OBR but no tax changes and the ‘main’ Budget now moves to Autumn next year. For now, Mr Hammond intends to be the one making those statements.
How does the Autumn Statement affect you?