The new Chancellor of the Exchequer, Philip Hammond, acknowledged ‘sharp challenges ahead’ for the economy as he presented his first major fiscal statement, exactly five months after the UK’s historic vote to leave the European Union.
The latest forecasts from the Office for Budget Responsibility confirmed an increase in borrowing, which is now forecast to reach £68.2bn this year. Economic growth is expected to slow over the next two years,
initially rising marginally to 2.1% for 2016, but then reducing to 1.4% in 2017. Overall, the ‘Brexit effect’ is expected to impact on economic growth to the tune of 2.4%.
Having paid tribute to his predecessor, Mr Hammond then proceeded to sweep away George Osborne’s fiscal targets, announcing a new draft Charter for Budget Responsibility. This replaces the aim of balancing the books by 2020 with a pledge to deliver a surplus ‘as early as practicable’ in the next Parliament, and an emphasis on allowing sufficient flexibility to build a resilient economy.
The Chancellor proposes to do this by prioritising investment in UK infrastructure and innovation, and
announced the creation of a new £23bn National Productivity Investment Fund (NPIF) which will provide additional funding in four areas: transport, digital communications, research and development, and housing.
The Statement included a number of other significant measures for businesses, including confirmation that corporation tax will be reduced to 17% by 2020 as planned, together with the implementation of the
business rates reduction package. In other announcements, from April 2017 employee and employer
national insurance thresholds will be aligned, and salary sacrifice schemes will be scaled back, with most schemes being subject to the same tax as cash income, although some exemptions will apply.
Emphasising the government’s stated commitment to low and middle income workers, the Chancellor
announced that from April 2017 the Universal Credit taper rate will be reduced from 65p to 63p for every pound of net earnings. The National Living Wage and National Minimum Wage will also rise with effect from April 2017. The government’s plans to raise the income tax personal allowance to £12,500 and the higher rate income tax threshold to £50,000 by 2020/21 were also confirmed, while a new NS&I Investment Bond will be launched for savers.
Other announcements included further measures to counter tax avoidance, an increase in insurance
premium tax from 1 June 2017, and a freeze on fuel duty for the seventh consecutive year.
In a final flourish, and marking a major change to policy-making processes, the Chancellor announced that his first Autumn Statement would also be his last. 2017 will see the final Spring Budget, as from that point on the main Budget will be held in the Autumn.