Autumn Statement 2016 Briefing Note

Transcription

1 Autumn Statement 2016 Briefing Note Headlines Chancellor Philip Hammond gave first Autumn Statement which he said will ensure economy is matchfit for the transition that will follow Brexit vote OBR downgrade growth forecast by 2.4% as a result of Brexit Borrowing and debt as a percentage of GDP up Government no longer seeking return to surplus by 2019/20 National Living Wage to rise from 7.20 to 7.50 Letting agent fees to be banned 23billion productivity fund to be spent on innovation over five years including 1billion on digital infrastructure 1.4billion to build 40,000 new homes Autumn Statement abolished. Budget moved to Autumn and a new Spring Statement instead Background Exactly five months to the day since the UK voted to leave the European Union, Chancellor Phillip Hammond gave his first set piece speech, the Autumn Statement. This was the first gauge of where the UK economy is following the Brexit vote and the Chancellor had already laid the ground for the outlook with announcement of investment in recent days. Philip Hammond had warned of eye-wateringly large debt, slower growth and higher inflation despite a backdrop of unemployment at an 11-year low and rising consumer confidence. Downing Street hoped his statement would provide a chance to seize control of the domestic agenda and shift the focus away from persistent criticism over the lack of clarity over the Government s strategy for leaving the EU. However, despite the positivity of Theresa May about securing the best deal for Britain when it comes to Brexit, her Chancellor s overall vision for the economy was strikingly different. OBR figures adjusted post-brexit The Chancellor set out revised growth and borrowing figures that revealed for the first time the impact the Office for Budget Responsibility (OBR) believes the nation faces as a result of Brexit, amounting to 58.7bn in total. The scale of Britain s Brexit black hole is far worse than expected and will be at least 122bn even more than the 100bn that the City had feared. The figures reflected the OBR s view that the economy will weaken significantly as Brexit negotiations get under way next year. Growth forecasts were revised downwards with Britain s economy forecast to be 2.4% smaller than if the country had voted to remain in the European Union. Debt is set to rise from 84.2% of GDP last year to a peak of 90.2% in 2017/18 - the highest for 50 years. The Chancellor confirmed that his predecessor George Osborne s promise to balance the books by 2020 was well and truly history. The goal of a surplus has been kicked into the long grass and is not expected to happen until around a decade later than planned. The Just About Managing Despite the bleak figures, the Government had promised help for those households who are Just About Managing (JAMs). There was a rise in the National Living Wage to 7.50 from next April and the fuel duty freeze. And, the Universal Credit taper rate was cut from 65% to 63% at a cost of 700million. But the small cut was far less than some of the Chancellor s colleagues had hoped for and reflected the huge constraints he faces on spending. 1

2 Described as a modest giveaway by some and tiny by the Liberal Democrats, the spending on infrastructure investment was lower than many had hoped for. In contrast to his predecessor, the Chancellor delivered a largely gimmick-free Autumn Statement, with most of the positive news such as the 1.4bn for affordable homes and the cancellation of the fuel duty rise flagged in advance. However, there was the gimmick of his announcement of the abolition of the Autumn Statement which has effectively become a budget in all but name. It will be replaced next year with a real Budget with a Spring Statement replacing the Budget. Tax and fiscal outlook Reflecting the Chancellor s expectation of a lower tax take, Hammond move to grab revenue back by stopping tax savings enjoyed on salary sacrifice and benefits in kind with exceptions for ultra-low emission cars, pensions, childcare and cycling. There was also more than a hint that, in future, the Chancellor could look at the triple lock on pensions to ease the strain on the welfare budget of coping with an older population. There was good news for taxpayers with the raising of the tax thresholds and a confirmation that the personal allowance would be raised to 12,500 by The Chancellor showed his concern about UK s shocking productivity gap with other countries by announcing a new 23bn national productivity investment fund. Effect of Brexit The vast majority of the Chancellor s measures were aimed at efforts to cushion the impact of a so-called hard Brexit that could see Britain s balance of trade badly hit. Five months after the EU vote, Labour said the statement showed the Government was still unprepared and ill- equipped for Brexit and condemned the Conservatives six wasted years. The Chancellor s statement might not have shed much light on the Government s future negotiations over the nature of Britain s departure from the EU. But he did reveal his attempt to give himself some fiscal headroom for a possible stimulus to the economy should one be needed - after Article 50 is triggered next year. Fitting for Hammond s sober style, his statement will not be remembered for any flashy gimmicks or grand promises. He painted a picture of higher borrowing, slower growth, rising inflation, growing debt and did little to lift the uncertainty surrounding the impact of Brexit. Earlier this year, the Chancellor warned the UK economy would be on a rollercoaster over the departure from the EU and his statement signaled that it could be a very rocky ride indeed. Summary of key measures Spending/tax Spending plans set out in the Spending Review last Autumn will remain in place Departmental expenditure in will grow in line with inflation. 3.5bn of savings to be delivered through the Efficiency Review announced at the Budget. Allow up to 1bn of the savings found by the efficiency review in 19/20 to be reinvested in priority areas. Abolishing the tax advantages linked to Employee Shareholder Status Business National Living Wage to rise from 7.20 to 7.50 Removing the tax benefits of disguised earnings for self-employed and employers From April, will introduce 100% business rates relief on new fibre infrastructure UK Export Finance capacity will be doubled Funding for a Charlie Mayfield's business-led initiative to boost management skills An additional 400m will be injected into venture capital funds through the British Business Bank The Rural rate relief for small businesses in rural areas will be raised to 100%, giving a tax break of 2,900 a year 2

3 Welfare A welfare spending cap will be set by the Government but there are no plans to introduce further- welfare savings beyond those announced Welfare spending within the cap would be 68.2bn this year 59.2 next year Education The adult skills budget will be devolved to London Defence 102m of LIBOR bank fines to armed forces and emergency services charities were announced, including 20m to support the Defence and National Rehabilitation Centre at Stanford Hall in Nottinghamshire Energy Carbon price support will continue to be capped until 2020 Government will look carefully at the functioning of retail energy market over the coming months Cancelling the fuel duty rise. Devolution/City Deals Funding through the Barnett formula including over 250m to the Northern Ireland Executive; 400m to the Welsh Government and 800m to the Scottish Government Allocation of 1.8bn from the Local Growth Fund to the English regions, including 556m to Local Enterprise Partnerships in the North of England, 542m to the Midlands and East of England, and 683m to LEPs in the South West, South East and London Directly-elected mayors will be provided with "new borrowing powers to reflect their new responsibilities" Negotiations on a city deal for Stirling are due to begin Planning and Housing A new 2.3bn Housing Infrastructure Fund to deliver infrastructure for up to 100,000 new homes in areas of high demand Further 1.4bn to deliver 40,000 additional affordable homes as well as to relax restrictions on government grant to allow a wider range of housing-types Large-scale regional pilot of Right to Buy for Housing Association tenants was confirmed Health 3m from tampon tax will be released via Comic Relief to a range of women's charities Transport A 100 per cent first year capital allowance for the installation of electric vehicle charging An additional 1.1bn of investment in local transport networks, this will include: 220 million to address traffic pinch points; 459m to trial digital signalling on railways; and; 390m to build competitive advantage in low emission vehicles. The Treasury will be providing funding for the evaluation study for the Midlands Rail hub Infrastructure Creation of a National Productivity Investment Fund of 23bn to address productivity through infrastructure and innovation over the next five years Announced 740m for the development of 5G and the further roll out of fibre connections Culture, Media and Sport A 7.6m grant towards urgent repairs in order to protect Wentworth Woodhouse will be made available The new museums and galleries tax relief will be expanded to include permanent exhibitions. Up to 15 million towards the costs of hosting the 2021 Rugby League World Cup, and 10 million towards legacy infrastructure 9 million towards the cost of hosting the Cycling Road World Championships in Yorkshire in 2019, and 15 million towards a legacy fund to pay for cycling infrastructure 3

4 Reaction Shadow Chancellor, John McDonnell MP: Today s Autumn Statement places on record the abject failure of the last six wasted years and offers little hope for the future Stewart Hosie, SNP Westminster Economy Spokesperson (via Twitter): This was an Autumn Statement which ignored Brexit, perpetuated austerity, embedded inequality and failed to tackle any of the underlying causes of our productivity problem. Carolyn Fairbairn, CBI Director-General, said: The Chancellor has prioritised a pragmatic down payment on future productivity growth. His emphasis on R&D, housing and local infrastructure will help businesses in all corners of the UK to invest with greater confidence for the long-term, during turbulent times. This will be warmly welcomed. These measures must now be translated into action. That means tarmac, tracks and telecoms being laid, and clear, deliverable timetables for major projects only then will they act as a catalyst for investment, jobs and growth. Reducing the frequency of fiscal events along with the commitment to stick with the tax roadmap will provide stability for businesses. Institute of Directors, Simon Walker Director General said: This was a sensible and sober Autumn Statement. The Chancellors attempts to increase productivity by investing in transport infrastructure, broadband and housing are welcome, but businesses would also have liked to have seen measures to encourage them to invest now. The OBR predicts that next year will be the low point for growth, so we are surprised that amidst all of the political and economic uncertainty there weren t many measures to help just managing businesses now. The Government will be borrowing heavily over the next few years, so it s a shame that they couldn t use more of the fiscal headroom to encourage investment through measures such as raising the Annual Investment Allowance, which could deliver productivity. Frances O Grady (General Secretary of TUC) said: In the details of Philip Hammond s Autumn Statement came a worrying confirmation for those of us campaigning for a pay rise for Britain s workforce. This is yet another blow to ordinary working people s standard of living. And far from being focused on just about managing families, this shows up the government s plans as inadequate. The rise to the national minimum wage is welcome but under-25s will still miss out on the full amount under the new national living wage rate. And the partial restoration of major cuts to Universal Credit isn t anywhere near the help just about managing families need. These are political choices. Today Programme presenter and former BBC Political Editor, Nick Robinson: No wonder so many of Hammond s announcements briefed in advance. Would have been drowned out by huge increase in borrowing John O'Connell, Chief Executive of the TaxPayers' Alliance, said: "Despite the incessant talk of austerity in the last six years, the truth is that spending has barely been trimmed. The Chancellor s decision to slow the pace of deficit reduction means that we will run into two decades of living beyond our means, which is a frightening prospect. If economic headwinds are so turbulent that the Chancellor felt he had no other choice, then he should have delivered a major package of tax cuts to ease the pressure on families and business, not made new spending pledges with money we simply don t have. As hard-pressed taxpayers struggle under rising bills, politicians continue to ignore the staggering levels of debt we're passing on to our children through irresponsible spending and a failure to find necessary savings." Market reaction: The FTSE 100 fell into the red, reversing gains the index was enjoying ahead of the speech, dropping 27 points, or 0.4%, while the Pound dropped 0.4% to $1.237 against the Dollar. 4

5 OBR figures The table below sets out the OBR s first post-brexit forecasts for the UK economy: Growth Public Sector net debt as % Public Sector net borrowing Deficit as % of GDP of GDP as % of GDP 2016: 2.1 % : 87.3% : 3.5% : 1.4% 2017: 1.4% : 90.2% : 2.9% : 0.5% 2018: 1.7% : 89.7% : 2.2% : -0.1% 2019: 2.1% : 88.0% : 1.0% : -1.1% 2020: 2.1% : 84.8% : 0.9% : -1.5% 2021: 2% : 81.6% : 0.7% : -1.6% 5