Autumn Statement 2016: What happened

The Autumn Statement for 2016 was announced yesterday (Wednesday 23^rd November) and as a follow-up to last week’s post about what to expect, we will be running through the anticipated areas of development, what happened in regards to them, and how the Statement and its proposals will have an impact.

Office for Budget Responsibility (OBR):

As noted in our previous post, the OBR had a particularly challenging task of predicting the British economy due to the uncertainty surrounding Brexit.

The OBR predictions for the growth of the UK economy are as follows:

Year	Growth (%)
2016	2.1
2017	1.4
2018	1.7
2019	2.1
2020	2.1
2021	2.0

The OBR also forecast the amount borrowed in the coming years as follows:

Year	Amount borrowed (£bn)
2017-18	59
2018-19	46.5
2019-20	20.7
2020-21	17.2

In regards to the challenges they faced, the OBR provided a counterfactual based on what the predictions would have been had there been no referendum in June. They found that as a direct result of the referendum result, we are borrowing £3.5bn more this year, £10bn more next year and £15.6bn more in 2018-19, than we would have been without the referendum.

Public borrowing and spending:

In the Budget given by George Osbourne in May, the forecast for the financial stability of the government until 2021 was £122bn more optimistic than that given by Hammond. As a result, public expenditure will fall from 45% in 2010 to 40% this year, although certain budgets (such as defence, pensions and health services) will be protected.  

National debt is also predicted to rise to alarming levels next year (from 84.2% of GDP to 90.2%), and the total amount borrowed is expected to reach just under £2 trillion by 2021. While an increase in the amount of public borrowing was foreseen, the scale of the increase has led to concern among some economists.

Investment:

There were many calls for investment in certain areas, and Philip Hammond announced which sectors would be the focus of public investment.

Infrastructure:

As the Former Secretary of State for Transport, a high level of investment in transport and infrastructure was expected from the current Chancellor. Hammond announced an investment of £1.3bn in English local transport networks – while this decision was largely praised, some have noted its relative significance given it represents 0.08% of GDP. Hammond also expressed his plans to invest £1bn in digital infrastructure, including 5G technology and £2bn per year by 2020 into R+D funding. The above are part of the government’s goals to have invested £23bn in innovation and infrastructure by 2021. 

This extra funding for those in these sectors will be much welcomed due to the significant demand by citizens for improved roads and railways.

Housing:

There has been a notable demand in the past few years for more affordable housing in the UK. Hammond stated this afternoon his intention to invest £2.3bn into a housing infrastructure fund in order to create 100,000 new homes in high-demand areas, alongside another £1.4bn into a fund to build 40,000 affordable homes.

He also announced plans to implement a large-scale regional pilot for the Right-to-Buy schemes and a ban on upfront fees by letting agents, to be effective as soon as possible. The rest of the UK will follow Scotland’s precedent on this matter, where the fees are shifted to the landlords, who have significantly higher bargaining power than prospective tenants.

These changes in the housing industry should help increase the number of homeowners in the UK.

Taxation and pay:

It was revealed that the income tax thresholds will be raised in April 2017 (from £11,000 to £11,500) and again in 2020 (to £12,500) and that the higher rate income tax threshold will be increased to £50,000 by the end of Parliament. Furthermore, the national living wage will see a rise of 30p to £7.50 in April, which is smaller than the rise that was predicted in the March Budget.

While fuel duty has been frozen for a 7^th year, saving the average driver up to £350 annually, insurance premium taxes will be raised 2% to 12% in 2017. We can also expect to see the introduction of a sugar tax on soft drinks in 2018.

In terms of corporation tax, while there was some indication by the Prime Minister that the nation would see a further slash of tax to 15%, the Chancellor has stuck to his intentions and kept the tax level for the coming year at 17%, as was announced in March.  

Hammond intends on raising £32bn by cracking down on tax avoidance schemes.

Other:

Exports:

While there was little clarification on a Brexit strategy, some comfort has been offered to those that are concerned about a decrease in exports to the EU following Britain’s departure. The UK Export Finance funds will be doubled, a change that has been deemed as “vital for small businesses to reach new markets [especially] in the wake of Brexit” by the Chairman for the Federation of Small Businesses, Mike Cherry.

Salary sacrifice schemes:

The salary sacrifice schemes that allow employees to accept benefits in lieu of pay will be restricted, meaning that income will increase for a number of people, resulting in more taxes flowing to the State budget.

The Autumn Statement is somewhat indicative of a stable and strong post-Brexit economy; however, this is dependent on large amounts of borrowing to sustain the immediate aftermath of the referendum. The demand for investment in infrastructure was satisfied and, overall, the changes made will increase the amount of money in the pockets of the general population. However, the lack of clarity regarding Britain’s goals and strategy for leaving the EU leaves a lot to speculation – and the fulfilment of these proposals will be dependent on the terms on which the nation leaves the EU.

- Ellie Dobbyne