Autumn Budget 2017

Hammond

Autumn Budget 2017

INTRODUCTION

On Wednesday 22 November 2017, the Chancellor of the Exchequer, the Rt Hon Philip Hammond MP, delivered his second budget to Parliament.

Below is a summary of the Chancellor’s key announcements, with analysis and comment from the principal Opposition parties and key stakeholders.

 

OUR ANALYSIS

The Chancellor stood up today to an (implied) drumroll of Brexit-infused excitement – expectation on his own Benches who needed to see the delivery of a Home Run for the Government and quiet, clinical appraisal by a Loyal Opposition that had already tried to set the political bar giddily high in the hopes that he would be unable to vault it.

To some particularly mischievous Westminster wags in the Lobby, the alternative narrative was one of Brexiteering colleagues yearning for the Chancellor to fail and a Prime Minister willing him to succeed so as to salvage her credibility enough to sack him.

In truth, Philip Hammond’s second Budget in 2017 may have lacked some of the gimcrack, fizz and sparkle of his predecessor George Osborne.  But whatever today’s Budget might have lacked in political pyrotechnics, it more than made up for in solid, fiscally responsible, policy judgement, and some shrewd political calculation too.

Against the chilly backdrop of a significant, Brexit-related downgrade in the OBR’s growth forecast (in addition to a further productivity downgrade), the Chancellor’s room for manoeuvre looked, at first blush, slight. The OBR now predicts GDP growth to be just 1.5% in 2017, falling back to just 1.3% in 2019 and 2020, and not even reaching 2% by 2022, the end of current forecast period. On the other hand, the Chancellor was able to confirm that debt would peak this year at 86.5% of GDP and then, finally, begin its downward trajectory – representing the first sustained decline in debt in 17 years. Another encouraging sign was the fact that public borrowing, at £49.9 billion in 2017, is £8.4 billion lower than forecast in March.

There were some strategic allocations of significant new cash for infrastructure spending and investment in R&D, including Artificial Intelligence, 5G and electrification of the economy.

There was more money for schools, and more money for the UK home countries and regions.

But, as the speculation had widely suggested, the keystone of the Autumn Budget turned out to be government support for housebuilding and home-owning. With appropriate billing, the Chancellor unveiled an eye-watering £44 billion commitment of capital funding, loans and guarantees to support the housing market. This, said the Chancellor, would fund the biggest increase in housing supply since 1970.

If the Conservatives have two potentially exposed flanks, which Labour and its Momentum activists have made much of since the General Election, then they are probably the NHS and social services. With a careful blend of compassion and calculation, the Government decisively demonstrated its desire to address both issues, with thoughtfulness and sensitivity. Thus, it was that the Chancellor announced an additional £10 billion of capital investment in the NHS over the course of the parliament; on top of this, he pledged extra resource funding of £2.8 billion to the NHS in England (out with the Spending Review process). And the performance of Universal Credit, which has come in for plenty of criticism, was substantially overhauled, ironing out the operational glitches that has made its introduction challenging for many people and families in financial difficulty. Needless to say, this fusillade of announcements was greeted with stony silence from the Opposition benches.

Perhaps the biggest surprise – which galvanised his own Benches and left Labour in further, sullen silence – was when Hammond announced he would abolish Stamp Duty for first-time buyers on properties worth up to £300,000 (and on the first £300,000 of first purchase properties worth up to £500,000 in high price areas like London). Taken together with his commitment to provide 4.5 million young people with discounted railcard travel, the Chancellor can fairly be thought to have done the right thing by Generation Y.

All told, this was a thoroughly sensible, steady-as-she-goes kind of Budget. The Chancellor was walking a tightrope between demonstrating continued fiscal responsibility, so as not to spook the markets, and easing the effects of (Brexit-conflated) austerity, in order to make the lives of ordinary Britons just a little bit easier in the run-up to Christmas. It looks like he achieved his goal.

This may not be remembered as a highly memorable Budget.  But it certainly looks like a supremely competent one.

 

KEY ANNOUNCEMENTS

 

The State of The Economy

  • The Office for National Statistics (ONS) estimates, that the UK economy grew by 1.8% in real terms in 2016 and by 1.0% on a per capita basis.
  • The Office for Budget Responsibility (OBR) now expects to see slower GDP growth over the forecast period:
    • It revised down its forecast for GDP growth by 0.5% to 1.5% in 2017, slowing to 1.4% in 2018 and 1.3% in 2019 and 2020, before rising to 1.5% in 2021 and finally 1.6% in 2022.
    • The annual rate of CPI Inflation is expected to peak at 3% this quarter (Q4 2017), before falling back to the 2% target over the next year.
    • It expects the Government will meet its 2% structural deficit rule for 2020-21, two years before target, in 2018‑19, and with £14.8 billion of headroom in the target year.
    • Debt is forecast to peak at 86.5% of GDP in 2017-18, and is forecast to fall in every year thereafter to 79.1% of GDP in 2022-23 - the first sustained declined debt in 17 years.
    • Borrowing is forecast to be £49.9 billion this year (8.4 billion lower than forecast at the spring budget), falling in every year of the forecast from £39.5 billion in 2018 to £25.6 billion in 2022-23 – its lowest level in 20 years.
  • Public sector current receipts are expected to be about £769 billion in 2018-2019.
  • Total Managed Expenditure (TME) is expected to be around £809 billion in 2018-2019.
  • The OBR forecasts there will be another 600,000 people in work by 2022. Employment has risen by 3 million since 2010 (1.4 million currently unemployed).
  • Household spending continues gradually to grow due to higher inflation caused by the depreciation of Sterling post-Brexit, up 2.8% in 2016.
    • The OBR has revised down Household Consumption in each year of the forecast, suggesting it will slow from 1.5% in 2017 to 0.8% in 2018, before increasing gradually to 1.6% in 2022.
  • Business investment has grown moderately over the last 12 months, at 2.5% in Q2 2017.
  • Net trade has started to contribute positively to GDP in the first two quarters of 2017.
  • In 2016, UK output per hour grew by 0.2%, close to its average since 2008 of 0.1% but well below its pre-crisis trend of 2.1% in the decade before. Productivity has remained subdued this year, falling in the first two quarters, but rising in Q3, pushed up by lower total hours worked.

 

Brexit

  • The Chancellor announced he was setting aside a further £3 billion to prepare for exiting the EU and ensuring a smooth transition in any circumstance.
  • The government confirmed £1.5 billion of additional funding will be made available in each of 2018-19 and 2019-20.

 

Taxation

 

Business tax

  • The government announced that over the next 5 years the government will provide a further £2.3 billion of support to businesses and improve the fairness of the system in England.
  • The Chancellor announced the government will bring forward the planned switch from RPI to CPI by two years, to April 2018 (worth £2.3 billion to businesses over the next five years).
    • He also announced the five year revaluation system will be reduced after the next valuation period to a three year system.
  • The Chancellor announced the government will change the law to ensure that where a business has been impacted by the Supreme Court ruling it can have its original bill reinstated if it chooses, and backdated.
  • The Chancellor announced the government will extend the £1,000 discount for pubs with a rateable value of less than £100,000 for one more year to March 2019.
  • The Chancellor announced he will NOT be reducing the UK’s VAT threshold below the current £85,000, but will consult with SMEs on whether its design could better incentivise growth.
  • The government announced that, from April 2018, there will be no benefit in kind charge on electricity that employers provide to charge employees’ electric vehicles.

 

Personal taxation

  • One of the Chancellor’s keystone announcements was, “with effect immediately”, that he will abolish Stamp Duty for all first-time buyer purchases on properties valued up to £300,000. This will also be available on the first £300,000 of the purchase price on properties up to £500,000 in high-cost areas (an effective reduction of £5,000).
  • The Chancellor announced from April 2018, the government will increase the personal allowance to £11,850 and the higher rate threshold to £46,350, in line with inflation.
  • The government reconfirmed that it will delay implementing a series of NICs policies by one year. These are the abolition of Class 2 NICs, reforms to the NICs treatment of termination payments, and changes to the NICs treatment of sporting testimonials.
  • The government announced an income tax and NICs exemption will be introduced for certain allowances paid to Armed Forces personnel for renting or maintaining accommodation in the UK private market. This will support the Ministry of Defence’s aim to provide a more flexible, attractive and better value-for-money approach to accommodation. 

 

Consumer taxes (Fuel, alcohol, tobacco, gambling)

  • The Chancellor announced an additional 1% duty on hand rolling tobacco will come into effect in 2018, and that the minimum excise duty on cigarettes will rise to £280.15 per 1,000 cigarettes.
  • The Chancellor announced the government will legislate to increase the duty on high strength, low quality alcoholic products (eg white ciders) from 2019. However, he also announced that duties on other alcoholic goods (ciders, wines, spirits and beers) will be frozen.
  • The Chancellor announced, from April 2018, the first year VED rate for diesel cars that do not meet the latest standards will go up by one band, and the existing diesel supplement in the Company Car Tax regime will increase by 1%.
    • These measures will only apply to cars, not vans.
    • He announced the levy will be used to fund a £220 million Clean Air Fund to support the implementation of local air quality plans.
  • The Chancellor announced the fuel duty rise for both petrol and diesel cars scheduled for April 2018 will be cancelled for the eighth consecutive year. Fuel duty has now been frozen for the longest period in 40 years.
  • The Chancellor announced that, from April 2019, he will freeze short-haul Air Passenger Duty rates and will also freeze long-haul economy rates; paid for by an increase on premium class tickets and on private jets.
  • The Chancellor announced a new railcard for those aged 26-30, cutting fares by 1/3 for 4.5 million more young people.

 

Corporate tax and avoidance

  • The Chancellor announced the UK has secured £160 billion in additional tax revenue, and these actions have also helped the UK achieve one of the lowest tax gaps in the world at 6.0% in 2015-16. 
  • The Chancellor announced a package of measures that is forecast to raise £4.8 billion by 2022-23:
    • He announced the freeze of the indexation allowance for Capital Gains Tax so that companies receive relief for inflation up to January 2018, but not thereafter.
    • He announced that, for multinational digital businesses paying billions of pounds in royalties to jurisdictions where they are not taxed, from April 2019, in accordance with the UK’s international obligations, the government will apply income tax to royalties relating to UK sales when those royalties are paid to a low tax jurisdiction, even if they do not fall to be taxed in the UK under current rules, raising about £200 million a year.
    • He announced the government will be making all online marketplaces jointly liable for VAT payments of their sellers.
    • The government announced HMRC will require upfront security from employers with a history of avoiding paying NICs by using offshore arrangements from 2018.
  • The government announced it is investing a further £155 million in additional resources and new technology for HMRC.
  • The government announced an increase in the time limits for HMRC assessments of offshore tax non-compliance, and the Chancellor reaffirmed the UK’s support for new global rules to force the disclosure of certain offshore structures to tax authorities.
  • The government confirmed that it will not reintroduce the Stamp Duty and Stamp Duty Reserve Tax 1.5% charge on the issue of shares (and transfers integral to capital raising) into overseas clearance services and depository receipt systems following the UK’s exit from the EU. 
  • The government announced it will provide the CMA with an extra £2.8 million a year, so it can take on more cases against companies that are acting unfairly, and will allow the CMA to use more of the fines it collects to meet the legal costs of defending its decisions.

 

Backing Business

 

Business rates

  • The government has committed to providing a further £2.3 billion of support to businesses to reduce the burden of business rates.
  • The Chancellor reconfirmed the government will be piloting 100% business rates retention in London in 2018-19.

 

SMEs

  • The Chancellor announced a new fund in the British Business Bank (with the intention to float or sell once it has established a track record), seeded with £2.5 billion of public money, facilitating pension fund access to long term investments and doubling EIS investment limits for knowledge intensive companies, unlocking a total of £7.5 billion of investment.

 

Jobs and apprenticeships

  • The Chancellor announced the National Living Wage will rise in April 2018 from £7.50 to £7.83, up 4.4%, handing workers a further £600 pay increase and taking their total pay rise since the NLW’s introduction in 2016 to over £2,000.

 

Pensions and Savings

 

Pensions

  • The government announced the lifetime allowance for pension savings will increase in line with CPI, rising to £1,030,000 for 2018-19. 
  • The government announced the basic State Pension will be increased by the triple lock. The rise in April 2018 will be 3%, a cash increase of £3.65 per week for the full basic State Pension. 

 

Savings

  • The government announced employees on maternity and parental leave will be able to take up to a 12 month pause from saving into their Save As You Earn employee share scheme, increased from 6 months currently, effective from April 2018.

 

Capital Investment

 

The Chancellor announced he would extend the National Productivity Fund (announced last Autumn to provide additional investment in housing, infrastructure, and research and development) for a further year to 2023 and to increase the size of the fund from £23 billion to £31 billion.

 

Science and Innovation

  • The Chancellor announced a further £2.3 billion investment for R&D, and to increase the main R&D tax credit to 12%.
    • The government committed £170 million of this funding for innovation to transform productivity in the construction sector.
  • The government announced it will create a a new Centre for Data Ethics and Innovation to enable and ensure safe, ethical and ground-breaking innovation in AI and data‑driven technologies.
    • The advisory body will work with government, regulators and industry to lay the foundations for AI adoption.
    • The government proposes then to invest over £75 million to take forward key recommendations of the independent review on AI, including exploratory work to facilitate data access through ‘data trusts’, and to create new AI fellowships, and initially fund 450 PhD researchers, to secure the UK’s leading position in the global AI market.
  • The government committed to establishing a new Regulators’ Pioneer Fund to develop innovative approaches aimed at getting new products and services to market.
  • The government announced it will invest £21 million over the next 4 years to expand Tech City UK’s reach – to become ‘Tech Nation’ -  to roll out a dedicated sector programme for leading UK tech specialisms, including AI and FinTech.
    • Regional hubs will be located in: Cambridge, Bristol and Bath, Manchester, Newcastle, Leeds and Sheffield, Reading, Birmingham, Edinburgh and Glasgow, Belfast, and Cardiff.

 

Infrastructure and Transport

  • The Chancellor announced a new £1.7 billion Transforming Cities Fund, half of which will be shared between the six areas with elected mayors for local transport (with the remainder open to competition by other cities in England).
    • He reaffirmed the £300 million investment to ensure HS2 can accommodate future Northern powerhouse and Midlands Engine rail improvements.
    • He announced £30 million to trial new solutions to provide mobile and digital connectivity on trains on the Transpennine route.
    • He announced a second devolution deal with Andy Street in the West Midlands and a new devolution deal with North of Tyne to fund the replacement of the 40-year old stock on Tyne and Wear Metro with a £337 million investment.
    • He announced an investment of £123 million in the Redcar Steelworks site
    • In London, the Chancellor reaffirmed the government will continue to work with TFL to fund and finance Crossrail 2.
  • The government announced a commitment to invest £385 million to projects to develop next generation 5G mobile and full-fibre broadband networks, both funded from the NPIF.
  • The Chancellor announced a new £400 million charging infrastructure fund for electric vehicles (£200 million public funds matched by £200 million private investment), £100 million for a Plug-In-Car Grant and £40 million for further electric charging R&D.
    • The government also committed to electrify 25% of cars in central government department fleets by 2022.
  • The Chancellor announced the government will clarify the law so that people who charge their electric vehicles at work will not face a benefit-in-kind charge from next year.

 

Housing

  • The Chancellor announced he will invest £28 million in three new “Housing First” Pilots in the West Midlands, Manchester and Liverpool, and establish a homelessness taskforce as part of a commitment to halving rough sleeping by 2022, and eliminating it by 2027.
  • The Chancellor announced the government will give power to the local authorities to charge a 100% council tax premium on empty properties.
  • The Chancellor announced the government’s commitment over the next five years to invest £15.3 billion (bringing the total up to at least £44 billion) of capital funding, loans and guarantees to support the housing market and to deliver 300,000 net additional homes a year on average by the mid-2020s. This will include:
    • New money for the Home Builders Fund to get SME housebuilders building again.
    • A £630 million small sites fund to unstick the delivery of 40,000 homes.
    • A further £2.7 billion to more than double the Housing Infrastructure Fund.
    • £400 million for estate regeneration.
    • A £1.1 billion fund to unlock strategic sites, including new settlements and urban regeneration schemes.
    • A lifting of HRA caps for councils in high demand areas to get them building again.
    • £8 billion of new financial guarantees to support private housebuilding and the purpose-built private rented sector.
    • And an additional £34 million to develop construction skills across the country.
  • The Chancellor announced he is establishing an urgent Review to look at the gap between planning permissions and housing starts, to provide an interim report in time for the 2018 Spring Statement.
  • The Chancellor said the Homes and Communities Agency will expand to become “Homes England”, bringing together money, expertise, and planning & compulsory purchase powers, with a clear remit to facilitate delivery of sufficient new homes, where they are most needed, to deliver a sustained improvement in affordability.
  • He also confirmed the government will use New Town Development Corporations to kick-start 5 new locally agreed Garden Towns in areas of demand pressure.
  • The Chancellor announced he will increase Targeted Affordability funding by £125 million over the next two years, benefiting 140,000 people.
  • The government announced it will provide £1.1 billion for a new Land Assembly Fund, funded from the NPIF and enabling Homes England to work alongside private developers to develop strategic sites, including new settlements and urban regeneration schemes.

 

Health

  • The Chancellor announced £6.3 billion of new funding for the NHS to improve front-line services.
  • He also announced an additional £2.8 billion of resource funding to the NHS in England; of which £350 million will be provided immediately to allow trusts to plan for this winter, and £1.6 billion in 2018-19, with the balance in 19-20 (£900 million), taking the extra resource into the NHS next year to £3.75 billion in total, meaning the NHS will receive a £7.5 billion increase to its resource budget 2017 and 2018.
  • The Chancellor announced that the Health Secretary has begun discussions with health unions on pay structure modernisation for Agenda for Change staff to improve recruitment and retention, and that he will submit evidence to the independent Pay Review Body in due course.
  • The Chancellor reaffirmed the governments endorsement and funding of the NHS’s Five Year Forward View in 2014.

 

Education

  • The Chancellor announced the expansion of the Teaching for Mastery of Maths programme to a further 3000 schools with a further £27 million in funding, and pledged £40 million to train maths teachers across the country.
  • The government committed to test a £8.5 million pilot to improve GCSE Maths resit outcomes.
  • The Chancellor also announced a £600 maths premium for schools for every additional pupil who takes A-level maths or Core maths.
  • The government announced it will commit £18 million to fund an annual £350,000 for every maths school under the specialist maths school model, which includes outreach work.
  • The Chancellor pledged to triple the number of computer science teachers to 12,000, and the government announced it would provide £84 million to upskill 8,000 computer science teachers by the end of this parliament.
  • The Chancellor also announced the government will create a new National Centre for Computing.
  • The Chancellor reaffirmed the introduction of T-Levels and announced a further £20 million to support FE colleges to prepare for them.
  • The government announced it will invest £30 million to test the use of AI and innovative EdTech in online digital skills courses.
  • The Chancellor announced a partnership with the CBI and TUC for a National Retraining Scheme to boost digital skills and decrease the skills shortage in the construction sector.
    • He announced a £30 million investment in digital skills distance learning courses.
    • The government also committed to provide £8.5 million over the next two years to support Unionlearn, an organisation of the Trades Union Congress to boost learning in the workplace.

 

Energy and Environment

  • The government announced it is providing £30 million extra funding over the next four years to help the Environment Agency tackle waste, crime and reduce harm caused to the environment and to legitimate operators. 
  • The government announced an additional £76 million will be spent on flood and coastal defence schemes over the next three years.

 

Regions

  • The Chancellor reconfirmed the government will make over £1 billion of discounted lending available to local authorities across the country to support high-value infrastructure projects.
  • The Chancellor announced a further £2 billion to the Scottish government, £1.2 billion more for the Welsh Government, and over £650 million more for a Northern Ireland Executive.
  • The Chancellor announced the government will introduce ‘Transferable Tax History’ for transfers of oil and gas fields in the North Sea, and will legislate to allow for VAT refunds from April 2018.
  • The Chancellor reaffirmed the government would abolish tolls on the Severn Bridge by the end of 2018, will review the effect of VAT and APD on tourism in Northern Ireland and report on it in the next Budget, and will open negotiations for a Belfast City Deal as part of its commitment to a comprehensive and ambitious set of city deals across Northern Ireland.

 

Welfare

  • The Chancellor announced the government will remove the 7-day waiting period applied at the beginning of a benefit claim for Universal Credit, effective immediately, and will also change the advances system to ensure that any household that needs it can access a full month’s payment within 5 days of applying.
    • The Chancellor also announced the government will make advanced applications available online, and will extend the repayment period for advances from 6 months to 12 months
    • Any new Universal Credit claimant in receipt of Housing Benefit, will continue to receive it for two weeks.
    • The Chancellor confirmed there is a £1.5 billion package to address concerns about the delivery of Universal Credit.
  • In the aftermath of the Grenfell Tower disaster, the Chancellor announced the provision of a further £28 million for mental health services, regeneration support for the surrounding areas and to provide a new community space for Grenfell United community group.

 

OPPOSITION AND KEY STAKEHOLDERS RESPONSE

 

The Leader of the Opposition, the Rt Hon Jeremy Corbyn MP

“The Budget represents a “record of failure with a forecast of more to come”. The test of a Budget “is how it affects the reality of people’s lives all around this country”, adding that he believed it would unravel in the days ahead as “the reality will be a lot of people will be no better off and the misery many are in will be continuing”. 

 

Other Key Stakeholders

 

Liberal Democrats

“It says everything you need to know about this government's priorities that more funding has been found for Brexit than for our struggling NHS, schools and police”. Rt Hon Vince Cable MP, Party Leader

 

SNP

“This is a budget that shows the Chancellor is either blind to what is going on or that he is behaving like a frightened rabbit caught in the headlights. Either way, people are going to pay a price for the lack of leadership”.

 

 

TUC

“The Chancellor’s job today was to get Britain’s economy fit for Brexit. But what he announced falls far short of the investment boost the economy needs. And it leaves us trailing our competitors. The government must urgently up its game, or life outside of the EU will be a rough ride for working people.” Frances O’Grady

 

BCC

“While more remains to be done to reduce the impact of business rates on investment and growth, the Chancellor’s decisions will lessen the impact of rate rises on hard-pressed firms in many parts of the country. Commitments to delivering road and rail infrastructure, and working to improve mobile phone signals on key transport corridors, will help support local business productivity”.

 

IOD

“The Chancellor dipped his toe in the water with this Budget, but failed to make a splash with business. Next year’s Budget is too close to point of Brexit to make a difference, so this was his last chance to give business the boost it desperately needs.” Stephen Martin, DG

 

CBI

“Against a sombre economic backdrop, the Chancellor today gripped the steering wheel on the UK economy. This is a budget that balances support for people on squeezed incomes with vital action to help grow the UK out of austerity. But delivery is everything ... The challenge now is to turn words into action.” Carolyn Fairbairn, DG

 

 

 

 

 

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