The 2016 Autumn Statement is potentially the most important announcement we have received from the Government and HM Treasury in decades. This may seem like an exaggeration, however with it being the 1st ‘statement of intent’ from the new Government since Britain voted to leave the EU in June 2016, this will give us the biggest indicator of where the new Chancellor of the Exchequer and the Prime Minister want to take us in this new and unchartered era of British trade and economics.
Whether you agree or disagree with Brexit, or whether you think it will or will not happen (with the legal issues and wrangling’s going on, and possibly the Scottish Government ‘veto’), this announcement is hugely significant for the country and Britain, as a whole, and how it plans to move forward in these changing times. Depending upon which newspaper/website you read, The Telegraph is predicting a £25 billion ‘black hole’ whereas the Financial Times believes is could be as much as £100 billion if you compare the figures from the Budget in March’s figures from the OBR (Office for Budget Responsibility).
This begs the question where is this money going to come from? One answer is that the Chancellor has said that he plans to scrap his predecessor’s plans to reduce borrowing and balance the books by 2020 (the end of this parliament). Although this borrowing is only meant to be in case of an emergency, we will see whether it happens or whether austerity continues as it has.
On top of this, the IFS (Institute for Fiscal Studies) suggests that the fall of the pound since Brexit is likely to push up prices by around 2.5% with food, fuel and clothing amongst the items most affected. Thus, chances are that Mr Hammond shall not be increasing fuel duty this time around.
So, after all of this what has come out of the Autumn Statement and what are the key points?
The government has scrapped cutting the debt surplus by 2019/2020 – this is not a surprise, in fact this has been known about (or at least suspected) for a while now
£1.3 billion is to go towards new roads — £1.1 billion the Chancellor stated will be for local road investments and £220 million for major road ‘pinch points’
The Chancellor wants full fibre network coverage for businesses and homes, and wants the UK to be a pioneer in 5G mobile telephony
Corporation tax is being reduced to 17% by 2020-21
Employee and Employer NI contributions are now brought into alignment — both will now be £157 per week before you pay any NI. This I must admit I had not expected to see but makes things a little simpler from a payroll perspective
Salary sacrifice on Benefits in Kind have been targeted and the Chancellor says that everyone will now pay full tax on these except for: Childcare Vouchers, Pensions, Low Emission Cars and Cycle to Work schemes — this was widely expected and not at all a surprise that the Chancellor has gone after these ‘perks’
The Personal Allowance for Pay as You Earn has increased to £11,500 as of April 17 — nothing has changed from the plan to get to £12,500 by 2020
The National Living Wage has gone up to £7.50 per hour
£10 billion has been pledged for the NHS over the next 5 years
Universal credits from April 17 will have their taper rates reduced from 65 — 63%
Fuel duty is to be capped for the 7th year in a row – this looks promising, saving the average car driver £120 per year however insurance tax is being increased from 10%–12% so the average car driver will actually lose out rather than benefit
The government is capping whiplash claims which they hope will reduce car insurance by up to £40 per year (before the increase of the insurance tax)
There is to be a new savings bond from April 17 where savers will have 12 months to sign up and will then have to save between £1,000 and £3,000 over 3 years at a rate of 2.2% interest. This interest rate is higher than the current best-buy 3 year savings bond which currently offers 1.67%
The ISA limit will increase from £15,240 to £20,000 from April 2017
The question now is, what has this shown us about the future and the economy with Brexit looming?
According to Paul Johnson, Director of The Institute of Fiscal Studies (IFS), workers will earn less in ‘real wages’ in 2021 than they did in 2008 and that “this has, for sure, been the worst decade for living standards since the 1920’s”. He did however go on to say that he felt Philip Hammond had clearly put whatever money he had into long-term plans.
I would have to agree with Mr Johnson in that it seems clear the government are being cautious as they do not know what is going to happen and thus they do not want to be spending lots of cash that in 6-12 months’ time they may not have anymore. The truth of the matter is, at this stage, no-one knows precisely what Brexit will bring, and that itself causes financial instability and uncertainty leading to some businesses not willing to spend money when they do not know what will happen.
If Britain gets forced out of the Common Market, and loses its ability for Free Trade with Europe, the economy may be hit hard. With this in mind, it is easier to amend longer term plans that short-term ones where you have already spent money you no longer have. Thus, it is clear Philip Hammond has gone with a prudent approach this time around – almost a ‘let’s wait and see’ approach. One thing is for sure, as a population we cannot now do anything else but wait and see what happens with both Brexit and the economy.