The last Autumn Statement was not the display of fiscal pyrotechnics that we have come use to from the George Osborn chancellorship. All flash, bang, wallop today and then dissipating into chaos and mist on the following day.
It was a rather dull affair with some laboured jokes. I can’t see Hammond being invited to host “Have I Got New for You” in the near future. But it was a steadier affair considering that there were some real difficult messages for backbenchers and opposition parties to hear. Obviously, the focus today, especially by the more excitable element of the media is going to be on the financial impact of Brexit.
Forecasting is a difficult job. Forecasters always expect that some or even all of their predictions will be wrong. The degree that forecasts will be incorrect depends on the amount and quality of the information that was available, in the first instance.
Forecasters are always praised as wise soothsayers when they get it right and condemned as madmen and imbeciles when they get it wrong. National treasures can soon become fool’s gold overnight. While Brexitiers seem to believe that all forecasters who say that there could be some difficulties on the road ahead are enemies of the state, because it should be jam today and jam tomorrow. So on that point how did the Jams fare yesterday?
- Universal Credit taper rate to be cut from 65% to 63% from April at a cost of £700m
Three million families UK will be better off thanks to cuts to Universal Credit ‘taper rate’ – how quickly the benefit is withdrawn as recipients earn more – reduced from 65% to 63% – this means claimants will be able to hold on to an additional 2p for every pound they earn in employment. The changes will soften the impact of harsh welfare cuts introduced by George Osborne but not by much.
Estimates suggest that households on universal credit may be better off by £300 – £500 by 2020. However, studies from Policy in Practice suggest that household on UC would be worse off by £2,500 by 2020. This study took into account mitigating factors such as known increases in the Living Wage. Former DWP Secretary of State, Iain Duncan Smith said he considered this a down payment.
Osborne previously cut the “work allowance” threshold at which Universal Credit begins from the initial £222 per month for a couple with children and £263 for a single parent to £192, in an attempt to save £3 billion in welfare payments.
With the risk of high losses to the public purse as a result of Brexit it is unlikely that the Government would be inclined towards further adjustment to previously announced welfare reforms.
- No plans for further welfare savings in this Parliament
- Triple Lock
Until now, benefits for the elderly have been exempt from reductions and the Chancellor confirmed during his Autumn Statement today that the state pension would continue to rise until at least 2020. However, the Chancellor suggested that after that, changes may be needed in order to “tackle the challenge of rising longevity” – the growing financial costs of people living longer.
Income and Tax
- National Living Wage to rise by 4% from £7.20 an hour to £7.50 from April next year
Earners up to £500 per annum better off. But, experts say that rate should be more than £2 higher in London at £9.75, or £8.45 across the UK. Osborne’s vision, was to get it to £9 by 2020.
- Personal allowance tax threshold to be raised to £11,500 in April, from £11,000 now. However, it will rise to £12,500 by the end of the Parliament.
This was not a new announcement since it was part of the 2016 Spring Budget when it rose from £10,600 to £11,000 from 6 April 2016 and then to £11,500 on 6 April 2017. The estimate was that the typical basic-rate taxpayer will pay £1,000 less in tax each year than they did in 2010/11, when the personal allowance was £6,475.
- Higher-rate, 40%, income tax threshold will rise to £45,000 and to £50,000 by the end of the Parliament
- Tax savings on salary sacrifice and benefits in kind to be stopped, with exceptions
Salary sacrifice schemes are provided by many employers to save staff money and help spread costs. You give up part of your salary, and your employer gives you a non-cash benefit – crucially, this comes out of your pre-tax pay, so you’re spared paying tax and national insurance (NI) on it.
Many of these benefits which are currently tax-free will soon be taxed – though some major schemes including pension contributions, childcare vouchers and cycle-to-work will be exempt and continue to offer worthwhile tax savings.
If you’re already on a scheme which is set to be axed – or you join one by next March – you may be able to keep the tax benefits until April 2018 or even April 2021.
- Employee and employer National Insurance thresholds to be equalised at £157 per week from April 2017
This measure limits the increase in the weekly employer NICs secondary threshold to £1 in 2017-18. The secondary threshold is the point from which employer NICs is charged and, as a result of CPI indexation, was due to increase by £2 per week from 2017-18. Now, the secondary threshold for employer NICs will be equalised with the primary threshold for employee NICs at £157 per week in 2017-18.
Experts say that It is unlikely that this will be a barrier to employment, but the largest employers will pay the most and they may not the most profitable businesses.
- Insurance premium tax to rise from 10% to 12% next June
The standard rate of insurance premium tax, which applies to most general insurance policies purchased in the UK, rose to 10% in October after being increased by the previous Chancellor George Osborne in the Budget earlier this year. This follows a previous rise from 6% to 9.5% which came into effect at the beginning of November last year, meaning the tax itself has risen by more than 66% in less than a year.
BIBA feels this will affect those areas where there are households are on low incomes there will be fewer people with appropriate insurance.
- Ban on upfront fees charged by letting agents in England “as soon as possible”
The announcement was leaked ahead of the Autumn Statement. There will be a consultation before any legislation is brought to parliament, but it looks like landlords will be forced to foot the fees instead of tenants.
There are 4.3 million renting households in England, and 76% of them have lived in their home for fewer than five years, suggesting many move often, paying fees each time. Many renters complain that they are hit with extortionate fees by letting agents for all sorts of administration and service costs. And often these will come out of the blue at the last minute, while the tenancy hangs in the balance. Not capitulating to the fees can mean losing a potential home and starting the search again. Some people are forced to borrow money just to pay the fees for things such as inventory checks, arranging a tenancy agreement, the renewal of an existing tenancy, or simply changing a name on some paperwork.
- £2.3bn housing infrastructure fund to help provide 100,000 new homes in high-demand areas
In October, the communities’ secretary Sajid Javid launched the £3bn Home Building Fund to deliver over 200,000 homes and up to £2bn to speed up construction on public sector land.
However, the Chancellor said the UK must go further, stating that the communities’ secretary will bring forward a housing white paper to address the long-term challenges in house construction.
Experts however, felt the announcement came as a disappointment as it fell short of the previous proposed £5bn to deal with the housing shortage.
- £1.4bn to deliver 40,000 extra affordable homes
Experts felt that 40,000 homes were just a drop in the ocean when the target was to build one million by 2020. According to a recent survey there would have to 685 new homes built every day to meet the current shortfall of 915,000; with existing delivery rates at 475 per day mean that the construction industry is nowhere near the target.
- Office for Budget Responsibility growth forecast upgraded to 2.1% in 2016, then downgraded to 1.4% in 2017. Followed by 1.7% in 2018, 2.1% in 2019 and 2020 and 2% in 2021
In 2016 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.
However, the UK is likely to face a period of uncertainty, followed by adjustment, thus giving us the figure from the Office of Budgetary Responsibility for growth in future years. The OBR expects lower business investment and household spending to weigh on GDP in the near term. Lower business investment is expected to exacerbate the long-standing weakness in UK productivity. The OBR highlights that there is a higher than usual degree of uncertainty in these forecasts.
- More than £1bn for digital infrastructure
The view is that the investment could mean two million more businesses and households could receive “full-fibre” broadband, which the Treasury describes as the “gold standard” of internet connections. It includes:
- a £400m contribution to the Digital Infrastructure Investment Fund to increase access to finance for smaller fibre broadband providers, with the Government expecting that figure to be matched by the private sector.
- £740m to support a programme of trials for 5G mobile connections and the rolling out of fibre broadband across the country.
- 100% business rates relief on new fibre infrastructure
The Autumn Statement confirms the arrangements for the Northern Powerhouse Investment Fund and Midlands Engine Investment Fund and the British Business Bank will make its first investments from the Northern Powerhouse Investment Fund in early 2017 to support local SMEs and its first investments from the Midlands Engine Investment Fund shortly after.
In Scotland the government will work with local partners and the Scottish Government towards a city deal for Stirling. The government has confirmed funding for city deals in Aberdeen and Inverness, is making progress towards a deal with Edinburgh, and will consider proposals for a deal with the Tay cities once they are brought forward, meaning all Scottish cities have the opportunity to agree a city deal. The government is also continuing to work with the Scottish Government to implement the Scottish Government’s fiscal framework and new powers set out in the Scotland Act 2016. (37)
In Wales the government is “making good progress in discussions with local partners and the Welsh Government on a city deal for the Swansea Bay City Region”. It will also consider options for a growth deal in north Wales and looks forward to receiving proposals from local partners. The government is also continuing to support the implementation of the £1.2bn city deal for the Cardiff Capital Region, which was agreed in March.
In Northern Ireland the government is continuing to work closely with the Northern Ireland Executive towards the introduction of a Northern Ireland rate of Corporation Tax, subject to the Northern Ireland Executive demonstrating it has placed its finances on a sustainable footing.
- Rural Rate Relief to be increased to 100%
This will give small businesses a tax break worth up to £2,900. This tends to be pubs or shops in a village of less than 3000 people. But I assume it might mean small manufacturing businesses too.