In Philip Hammond’s first Autumn Budget, the second Budget of 2017, the Chancellor of the Exchequer promised that his Government would, “invest to secure a bright future for Britain”.
This was a much better performance from the Chancellor than last time. A positive statement delivered with confidence and surety. An investment budget, with more money for the regions, the NHS and Hi-Tec innovation, plus a national re-training scheme and a focus on increasing maths skills. I hope the Treasury have got their sums right as there were no major revenue increases announced, borrowing is falling whilst GDP growth has been adjusted downward.
However, there was a total lack of vision, which, bearing in mind the disappointing OBR growth predictions, is a major missed opportunity. The tax system is overblown and over complicated. It distorts behaviour and promotes tax evasion. The obsession with increasing the Personal Allowance to take more and more people out of tax is very dangerous. It makes our public services something other people pay for, presumably rich types on 20k pa. The loss of the personal allowance for higher earners and the fiendishly complex tapering of pension discourage ambition. Ridiculous levels of stamp duty at the higher end trickle down the chain and cause a stagnating housing market.
Cutting tax for all has been proven to increase government revenues as it encourages entrepreneurial activity. With Brexit looming this was a perfect moment to announce the UK as a major business friendly powerhouse allowing the individual talent of our people to drive success. Unfortunately, the chancellor chose instead to manage and fund pet projects which will do little to reverse the disappointing GDP growth predictions.
Paul Beasley ACII
Chief Executive Officer
The Office of Budget Responsibility (OBR) downgraded the forecast growth of the UK economy over the next few years. This caused sterling and the return on government debt to initially fall. While lower economic growth should result in lower growth for companies, the immediate effect of a weaker pound is to push the FTSE All Share index up as overseas earnings are worth more in sterling terms, so the stock market was a little bit higher.
The Chancellor of the Exchequer pledged billions of pounds to various initiatives, many of which were in the name of growth, business and innovation. Hopefully, this will help drive growth higher in the future. Despite all the give-aways, the Chancellor forecast that the country’s debt burden would decline marginally as a percentage of the economy over the next few years and the annual budget deficit and amount of borrowing would also gradually fall. If this comes to pass (and it’s a big ‘if’), the UK will be one of few developed markets able to accomplish this and should push sterling up against other currencies. Any additional stability will be useful given the uncertainty of the Brexit negotiations.
In summary, the budget appeared to be mildly supportive of government debt, while growth should be higher than it would have been otherwise due to the support for construction in housebuilding and infrastructure. The tax incentives for North Sea oil & gas fields should also encourage investment. The impact on stock markets and sterling however has been minimal at the time of writing.
Emma Wilkinson MCSI
Investment Director
In Philip Hammond’s first Autumn Budget, the second Budget of 2017, the Chancellor of the Exchequer promised that his Government would, “invest to secure a bright future for Britain”.
Set amid a backdrop of political and economic constraints, and with Brexit negotiations at a critical phase, the Conservatives are under intense pressure. The abolition of stamp duty for most first-time buyers and an array of other housing measures were prominent announcements.
The Chancellor began by confirming that government borrowing is forecast to be £49.9bn this year, £8.4bn lower than forecast at the Spring Budget. He went on to add that the Office for Budget Responsibility (OBR) had downgraded its forecast of economic growth from 2% to 1.5% in 2017, 1.4% in 2018, 1.3% in 2019/20, up to 1.5% in 2021, and then 1.6% in 2022. At the same time, they predicted CPI inflation would peak at 3% in Q4 2017 and then begin to fall back towards the target of 2%. The percentage of public sector net borrowing to Gross Domestic Product (GDP) would equate to 2.4% in 2017, 1.9% in 2018, 1.6% in 2019, 1.5% in 2020, 1.3% in 2021 and1.1% in 2022/23.
The Chancellor kept a key announcement until the end of his speech when he unveiled an ambitious house building initiative, promising to facilitate construction of 300,000 new homes each year by the mid-2020s. He will achieve this through a number of initiatives, including: pressurising developers sitting on unused planning permissions to either develop those sites or face compulsory purchase; developing five new ‘Garden Towns’ across the UK and ensuring that local authorities permit more homes for first-time buyers and ‘affordable renters’.
Financially, within housing market support worth £44 billion over five years, he will commit £2.7bn to the Housing Infrastructure Fund, £630 million for ‘small-site’ allowances and £34 million to develop construction skills across the country. His ambition is to concentrate developments within existing urban areas, including city centres and around transport hubs, thus protecting the green belt.
On the demand-side, he surprised the House by announcing the abolition of stamp duty for first-time buyers on homes up to £300,000 and in very high-priced areas, such as London, offering a stamp-duty exemption on the first £300,000 purchase price on properties valued up to £500,000; the additional amount up to £200,000 will incur 5% duty. This to take effect immediately in England, Wales and Northern Ireland. It will not apply to Scotland, unless they decide to adopt the measure.
Properties left empty by owners will face sanctions as he will give the relevant local authorities the right to increase the Council Tax premium from 50% to 100%.
On the tax front, the income tax personal allowance will be increased to £11,850 with effect from April 2018, with the higher rate tax band threshold increasing to £46,350. (Rates and bands may differ in Scotland, where a Draft Budget is due on 14 December.)
The ISA savings allowance for 2018/19 will remain at £20,000. The allowance for JISAs and Child Trust Funds will be uprated in line with CPI to £4,260.
The taxation of Trusts will be subject to a consultation in 2018 to make it simpler, fairer and more transparent.
Investors will be able to double their investment in Enterprise Investment Schemes (EIS) to £2 million, provided these are ‘knowledge intensive’ businesses. These firms may now receive £10 million – up from £5 million – of investment through either an EIS or Venture Capital Trust.
Employees on maternity and parental leave can pause their contributions to Save As You Earn share schemes for 12 months, rather than the current six months allowed from April 2018.
Tobacco tax will be increased by RPI inflation plus 2%, with hand-rolled tobacco attracting an additional 1% surcharge over this. Tax will increase on low-cost, high-alcohol drinks, including some ciders, but the tax on most ciders, wine and beer will remain frozen at current levels. Fuel tax will remain frozen as well.
For the first time in seven years, April 2018 will see the pension lifetime allowance increase, by £30,000 to £1,030,000. The basic State Pension will increase by the triple-lock formula. Therefore, April 2018 will see it rising by 3% (£3.65 per week) – for the full basic pension. The full new State Pension will, likewise increase via the triple lock by £4.80 a week.
Corporation Tax will follow the currently proposed levels. However, help was offered to small businesses, as after consultation with the British Chambers of Commerce, the Confederation of British Industry, and the Trades Union Congress, the Chancellor agreed to a range of business reliefs. The threshold for VAT registration will also remain at £85,000 for the next two years.
Given the ‘Digital Consumer Age’, Mr Hammond concentrated on the large consumer internet sites that have been seen to pay royalties to subsidiary companies domiciled in low-tax jurisdictions. In future, such payments will attract income tax payable by the UK domiciled company.
Addressing what he believed was existing VAT fraud, amounting to non-payment of up to £1.2bn on online sales, internet site owners facilitating such sales will also be held responsible for any outstanding VAT payments as well as the original vendor. He said that because of these moves, the “UK now leads change to find solutions” here and dubbed it a “Tax for the digital economy.”
Close to everyone’s heart is the NHS, which he confirmed this year had seen the highest number of patients treated ever recorded. He has committed an additional £10bn of capital investment this parliament for the NHS in England, with an additional £2.8bn of Resource Funding, £350 million of which will be made immediately available, with £1.6bn in 2018 and the balance by 2020. He further promised to listen to his Health Secretary ‘favourably’ after his future staff pay agreements have been concluded.
As Mr Hammond strived to “build an economy fit for the future” the English regions and devolved parliaments of Wales, Scotland and Northern Ireland also benefited. Scotland will see the most benefit of his largesse to the tune of £2bn, Wales £1.2bn, and Northern Ireland benefiting by £650 million of investment.
Philip Hammond closed his Budget Speech with these words:
“In this Budget I have set out a vision for Britain’s future, and our plans for delivering it. By getting our debt down, by supporting British families and businesses, by investing in the technologies and the skills of the future, by creating the homes and the infrastructure our country needs.”
