George Osborne threatened an ‘emergency budget’ after Brexit. This didn’t happen, but the Autumn Statement did not make cheerful reading.
The continued strength of the UK economy has confounded many forecasters' expectations. The Office of Budget Responsibility however does not expect this to continue. We are only in the foothills of negotiating even the timing of our negotiations to exit the European Union. Predictions of growth are difficult at the best of times, but uncertainties have multiplied since the referendum. This will affect the confidence of the Chancellor, and businesses and ultimately households too, and the urgency with which we face the challenges of our exit.
Political arguments will continue to rage about whether the OBR’s forecasts of a near £60bn ‘cost of Brexit’ are too optimistic or pessimistic. Our national debt will soon approach £2tn and over 90% of GDP – a level that our former Chancellor said would lead to a ‘permanent loss in potential output’. Philip Hammond has to reassure markets, investors and voters that there is a path to long-term prosperity, even if in the short term there are obstacles. Philip Hammond has given himself more room for manoeuvre, pushing out the target for what he called a ”fiscal balance” well into the next Parliament.
The threat of a hit to growth from Brexit has led to calls for big infrastructure spend. Our new chancellor – a.k.a. ‘Spreadsheet Phil’ – has been more sceptical than his predecessor about the long-term benefits of super-scale projects and has demanded more time to consider spending commitments. Shorter-term fillips have however been proposed on a more local level to boost growth more rapidly and more spending on roads and affordable homes has been announced.
Productivity – or the lack of it – has been keeping our wages and growth rates down, despite our low levels of unemployment. This needs investment in ‘soft’ infrastructure such as education and skills and technology as well as traditional physical infrastructure, such as roads and railways. Mr Hammond’s announcement of a £23bn Productivity Investment Fund will aim to address that, but the devil will be in the detail and delivery, as always, as each region faces its own challenges and demands.
Bonds have continued their sell-off in response to the statement, as the Chancellor confirms that borrowing will exceed initial expectations. Equities provide a more nuanced picture. Beneficiaries of infrastructure spending have been strong for some time as these moves were well flagged, and estate agencies have been hit by the ban on letting agent fees, which boosted their margins.
Key takeaways
- The Chancellor honoured the manifesto commitment to increase the personal tax-free allowance to £12,500 and the higher-rate tax threshold to £50,000 by 2020.
- Launch of a new NS&I savings bond at about 2.2% gross interest to be confirmed in the spring.
- Some salary sacrifice arrangements will lose their tax advantages from April 2017.
- The commitment to reduce Corporation Tax to 17% by 2020 was reconfirmed.
Known changes taking effect from 6 April 2017
- Phased removal of higher-rate tax relief for mortgage interest for buy-to-let investors.
- ISA limit increased to £20,000 in April 2017. Lifetime ISAs were not specifically mentioned but the April 2017 implementation date is expected to be met.
- New £1,000 allowances for low-level property and trading income.
- Introduction of a main residence inheritance tax nil-rate band.
- Significant changes to the taxation of non-domiciled individuals. Draft legislation expected on 5 December.
- UK residential property to be subject to UK inheritance tax regardless of ownership structure.
Upcoming consultations
The government intends to consult on:
- The valuation of taxable benefits including employer-provided living accommodation.
- The use of income tax relief for employees’ business expenses, including those not reimbursed by their employer.
- Bringing all non-resident companies receiving taxable income from the UK into the corporation tax regime.
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