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Chancellor Philip Hammond, confirmed that he would not balance the books by the end of the Parliament, previously promised by his predecessor George Osborne. Instead, in preparation for economic uncertainty and a period of adjustment following the UK’s referendum result and Brexit, Hammond has outlined three new rules as part of his fiscal framework:
An overarching theme to the Chancellor’s statement, was his desire for flexibility. Foreshadowing turbulent and uncertain economic times, it is clear that the Chancellor wants room for manoeuvre on policies and spending.
Hammond also came through on rumours that he would abolish the Autumn Statement. He commented:
“Mr Speaker I am abolishing the Autumn Statement.
“No other major economy makes hundreds of tax changes twice a year, and neither should we.
“So the spring Budget in a few months will be the final spring Budget.
“Starting in autumn 2017, Britain will have an autumn Budget, announcing tax changes well in advance of the start of the tax year.”
However, this does not necessarily mean that there will be no oral or written second statement in the future. The Office for Budget Responsibility (OBR) is required to provide bi-annual statements. As such, “from 2018 there will be a Spring Statement, responding to the forecast from the OBR, but no major fiscal event.”
The Chancellor’s aim is to allow for better scrutiny over Budget policy.
The UK is forecast to be the fastest growing country in the G7 in 2016 and economic activity grew 2.3% in the year to Q3 2016. The employment rate is at a record high of 74.5%, and between 2009-10 and 2015-16 the deficit was reduced by almost two-thirds from 10.1% to 4.0% of GDP.
The UK is likely to face a period of uncertainty, followed by adjustment. Reflecting this, the OBR forecasts that:
A comment on pricing is made in the full Autumn Statement document. Consumer price growth has slowed in recent years, with the Consumer Prices Index (CPI) measure of inflation falling from a peak of 5.2% in September 2011. Falling fuel and food prices through 2014 and 2015 contributed to unusually low inflation, with CPI inflation averaging 0.0% in 2015, supporting real income growth and household spending. Inflation has risen in recent months, as fuel prices have started to increase internationally, and reached 1.0% in September 2016 before falling back to 0.9% in October. The post-referendum sterling depreciation has amplified the effect of global oil price rises, increasing the contribution of the energy and transport components to CPI inflation.
The weaker exchange rate has a material effect on the OBR’s forecast for consumer prices. The depreciation is expected to put upward pressure on inflation, coupled in the short term with higher fuel prices and the drag from past falls in fuel and food prices falling out of the annual comparison. The OBR forecasts CPI inflation of 2.3% in 2017, 2.5% in 2018, 2.1% in 2019 and 2.0% in 2020 and 2021.
The employment rate has been rising since 2010 and stood at a record high of 74.5% in the three months to September 2016. The number of people in employment has also reached its highest ever level in recent months, and there are now over 2.7 million more people in work than in Q1 2010. Over the same period, average hours worked have increased 1.6% to 32.1 hours per week, with full-time workers accounting for 72% of employment growth. The unemployment rate was 4.8% in the three months to September 2016, its lowest in 11 years
The global economy remains subdued, posing continued challenges for the UK economy. Global growth was 3.2% in 2015, the slowest pace since the financial crisis, and the International Monetary Fund (IMF) forecasts that global growth will remain modest, at 3.1% in 2016 and 3.4% in 2017. Advanced economies grew 2.1% in 2015, while emerging economies grew 4.0%, the fifth consecutive year of slowing emerging economy growth. China’s growth has slowed, as policymakers seek to move to a more sustainable growth path, but, like in India, growth remains well above the global average.
National Living Wage breakdown
The National Living Wage for those aged 25 and over will increase from £7.20 per hour to £7.50 per hour.
The National Minimum Wage will also increase:
£4.3 million will be spent on:
Investment in future transport technology and transport infrastructure
The National Productivity Investment Fund (NPIF) will invest £390 million to future transport technology, including driverless cars, renewable fuels and energy efficient transport. This will be introduced by 2020-21 supporting ultra-low emission vehicles (ULEVs), renewable fuels, and connected and autonomous vehicles.
There will also be £1.1 billion to reduce congestion and upgrade local roads and public transport by 2020-21:
Rural rate relief detail
Rural rate relief will increase from 50 to 100% in April 2017, saving a business up to £2900 a year. This business rate relief is available to businesses in rural areas with a population under 3,000, where that business is:
Competition and consumers: whiplash reform and consumer insurance market
Whiplash reform: The Ministry of Justice is consulting on proposals which will reduce the unacceptably high number of whiplash claims and allow insurers to cut premiums. The government will bring forward supporting legislation in the Justice Bill and expects insurers to pass on savings which average around £40 for drivers in England and Wales, worth a total of £1 billion.
Consumer insurance market: New FCA rules on consumer insurance policy renewals, being introduced in April 2017, aim to encourage consumers to shop around instead of renewing their policy automatically. The FCA will monitor the effect of the rules and the government will ask the FCA to consider further intervention if necessary
Additional business and infrastructure policies
During the Autumn Statement speech, the Chancellor stated:
“In return for our competitive rates, the tax base must be sustainable.
“From April 2017 we will align the employee and employer National Insurance thresholds at £157 per week.
“There will be no cost to employees, and the maximum cost to business will be an annual £7.18 per employee.
National Insurance threshold: As recommended by the Office of Tax Simplification (OTS), the National Insurance secondary (employer) threshold and the National Insurance primary (employee) threshold will be aligned from April 2017, meaning that both employees and employers will start paying National Insurance on weekly earnings above £157. Government has stated that this will simplify the payment of National Insurance for employers.
Class 2 NICs: as announced at Budget 2016, Class 2 NICs will be abolished from April 2018, simplifying National Insurance for the self-employed. The Autumn Statement confirms that, following the abolition of Class 2 NICs, self-employed contributory benefit entitlement will be accessed through Class 3 and Class 4 NICs. All self-employed women will continue to be able to access the standard rate of Maternity Allowance. Self-employed people with profits below the Small Profits Limit will be able to access Contributory Employment and Support Allowance through Class 3 NICs. There will be provision to support self-employed individuals with low profits during the transition.
Salary sacrifice: following consultation, the tax and employer National Insurance advantages of salary sacrifice schemes will be removed from April 2017, except for arrangements relating to pensions (including advice), childcare, Cycle to Work and ultralow emission cars.
This will mean that employees swapping salary for benefits will pay the same tax as the vast majority of individuals who buy them out of their post-tax income. Arrangements in place before April 2017 will be protected until April 2018, and arrangements for cars, accommodation and school fees will be protected until April 2021.
Valuation of benefits in kind: the government will consider how benefits in kind are valued for tax purposes, publishing a consultation on employer-provided living accommodation and a call for evidence on the valuation of all other benefits in kind at Budget 2017.
Employee business expenses: the government will publish a call for evidence at Budget 2017 on the use of the income tax relief for employees’ business expenses, including those that are not reimbursed by their employer.
Company Car Tax (CCT) bands and rates for 2020-21 – To provide stronger incentives for the purchase of ULEVs, new, lower bands will be introduced for the lowest emitting cars. The appropriate percentage for cars emitting greater than 90g CO2 /km will rise by 1 percentage point.