Philip Hammond has delivered his first and last Autumn Statement as chancellor today. Delivering the statement to Parliament, he said the economy had so far “confounded commentators” with its “strength and resilience” and said that he was “focused on preparing and supporting the economy”.
Simon Gibson, director, commented: “As previously suggested, there were no rabbits pulled out of the hat. It was largely affirmation of what we already knew – the statement had been as heavily briefed as it possibly could.”
Below are the high level key points that have been announced. As always, the devil will be in the detail. Our technical teams will be reviewing the Autumn Statement in full and we will be communicating to clients where necessary. For more information on the changes, please do not hesitate to contact us directly.
1. New economic forecast
The UK economy is forecast to be the fastest-growing major economy in 2016. Growth remains positive and employment is expected to rise in each of the next five years, with half a million more people forecast to be in work by 2021.
2. Debt falling by 2020
The government has cut borrowing by nearly two-thirds since 2010, but will no longer aim for a budget surplus (where more tax is raised than is spent) by 2019.
New fiscal targets are needed to provide the flexibility to support the economy and create space for more investment in roads, rail, research, and housing.
The government has therefore set new fiscal targets that aim for 2% underlying deficit and debt falling by 2020, and a balanced budget as soon as possible thereafter.
MW comment: At the last statement there was a surplus being projected, but no surprise given how widely this has been briefed
3. Increasing investment in infrastructure and innovation to improve long-term productivity
- A new National Productivity Investment Fund to provide £23 billion of additional spending, ensuring “the UK’s economy is fit for the future”
- £2.3 billion for a new Housing Infrastructure Fund
- £390 million investment in future transport technology
- A major new investment in transport infrastructure
- £1 billion to invest in full-fibre broadband and trialing 5G networks
- £2 billion more per year in research and development funding by 2020-21
- More money for Scotland, Wales and Northern Ireland, which can be spent on infrastructure projects, with each devolved administration deciding where this will be spent
MW comment: Though not directly linked to the above it is heartening to see that the Exchequer mirrors our own views on infrastructure as an asset in which to invest
4. Salary sacrifice schemes will be taxed “more fairly”
From April 2017, most salary sacrifice schemes will be subject to the same tax as cash income. This will affect types of salary sacrifice schemes differently:
- Pensions, pensions advice, childcare, Cycle to Work and ultra-low emission cars will be exempt
- All arrangements in place before April 2017 will be protected for up to a year, and arrangements in place before April 2017 for cars, accommodation and school fees will be protected for up to four years
MW comment: A response to the recent consultation was expected and the chancellor’s comments come as no surprise; it is reassuring that existing schemes will have an additional year to bring the changes to effect
5. Money purchase annual allowance will reduce
The government will reduce the MPAA to £4,000 with effect from April 2017; the government is consulting on the detail as to how this is implemented.
The chancellor made specific reference to ‘recycling’ – saying it goes against the spirit of the tax system.
6. A new three-year NS&I investment bond available from spring 2017 for a maximum of £3,000
To support savers, NS&I will offer a new three-year investment bond with an indicative rate of 2.2% from spring 2017. The bond will offer the flexibility to put away between £100 and £3,000 and be available to those aged 16 or over.
Alex Brown, wealth management director, commented: “With interest rates remaining low, and concerns now over inflation, any savings product that offers an enhanced return on cash is welcome. I would expect that there will be a significant take-up of this product, with the only frustration likely to be the individual limit”
7. Recommitting to raise the personal allowance to £12,500 and the higher rate threshold to £50,000 by 2020-21
The personal allowance is currently £11,000 this year, and will rise to £11,500 in 2017-18. The point at which you pay the higher rate of income tax will increase from £43,000 this year, to £45,000 in 2017-18. Once the personal allowance reaches £12,500, it will increase in line with inflation.
8. Alignment of employee and employer National Insurance threshold from April 2017
Employees and employers will start to pay NI on weekly earnings above £157.
9. The National Living Wage and the National Minimum Wage will increase from April 2017
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:
- For 21 to 24 year olds – from £6.95 per hour to £7.05
- For 18 to 20 year olds – from £5.55 per hour to £5.60
- For 16 to 17 year olds – from £4.00 per hour to £4.05
- For apprentices – from £3.40 per hour to £3.50
And £4.3 million will be spent on:
- Helping small businesses to understand the rules
- Cracking down on employers who are breaking the law by not paying the minimum wage
10. The Universal Credit taper will be reduced from 65% to 63% from April 2017
In Universal Credit, as a person’s income increases, their benefit payments are gradually reduced. The taper rate calculates the reduction in benefits as a person’s salary increases.
Currently, for every £1 earned after tax above an income threshold, a person receiving Universal Credit has their benefit award reduced by 65p and keeps 35p. They will now keep 37p for every £1, from April 2017.
MW comment: The so called Grey Chancellor proved that though his statement had little entertainment value, he is more colourful than we imagined.
11. A ban on letting agents charging fees to renters
Letting agents will no longer be able to charge renters fees, for example when they sign a new tenancy agreement. This will stop tenants being hit with fees averaging £223 per tenancy.
12. Cracking down on pensions scams
A consultation before Christmas will look at ways to tackle pensions scams, including banning businesses from cold calling someone about their pension. This includes scammers targeting people who inadvertently ‘opt-in’ to receiving third-party communications.
13. Over £102 million of LIBOR banking fines to support armed forces and emergency services charities
14. Recommitting to cutting corporation tax to 17% by 2020
The main rate of corporation tax has already been cut from 28% in 2010 to 20%, and will be cut again to 17% by 2020, by far the lowest in the G20 and benefiting over one million businesses.
George Houston, senior technical and development manager, commented: “The reference to some work being carried out to look at the taxation of different business structures, particularly mentioning incorporation, was an interesting development. Tax policy itself has understandably driven business owners’ choices in the past – the Chancellor seems to be keen to narrow the tax differences between business structures and this will be in many clients’ thoughts in the coming months. Quite how this may be achieved is difficult to envisage at this time and we look forward to seeing how this evolves”
15. £400 million through the British Business Bank to invest in growing innovative firms
The funds will be invested in innovative small businesses with potential for growth, to provide the finance they need to expand. This will support up to £1 billion of new investment.
16. Rural rate relief will increase to 100%
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:
- The only village shop or post office with a rateable value of up to £8,500, or
- The only public house or petrol station with a rateable value of up to £12,500
17. Cracking down on tax avoiders and those who help them
18. Insurance premium tax will increase by 20% from 1 June 2017
Insurance premium tax (IPT) will increase from 10% to 12%. IPT is a tax on insurers and it is up to them whether and how to pass on costs to customers.
MW comment: This will clearly have an impact on costs for PMI and property insurance