This year’s Autumn Statement marks the Rt Hon Phillip Hammond MP’s first major set-piece as Chancellor of the Exchequer, having taken over the role in Number 11 in the wake of the Brexit vote.
The new Chancellor has openly abandoned his predecessor’s commitment to achieving a budget surplus by 2020 – part of a wider move away from the austerity that had characterised George Osborne’s tenure.
Yet in recent weeks the potential for big spending increases and tax cuts has appeared less likely, with reports from the Institute for Fiscal Studies and PwC warning that, while the Chancellor could afford some spending on infrastructure and housing, any other major expenditure would be limited by circumstance.
The headline news was of a relatively gloomy outlook for the UK. Growth has been downgraded to 1.4 per cent next year and will be 2.4 per cent lower overall during the period to 2021. Public debt as a proportion of GDP is predicted to peak at over 90 per cent in 2017-18, with Britain expected to borrow £122 billion more than planned, while debt is set to hit £2 trillion by 2020 – meaning it will have doubled through the current decade.
It is in this context that the Chancellor is seeking to tackle the country’s weaknesses: the productivity gap, the housing crisis and an imbalance in economic growth and prosperity. On the back of this, The Treasury has promised considerable spending in housing and infrastructure, with a new National Productivity Investment Fund (NPIF) providing £23 billion – from which funding on infrastructure, housing and digital investment is to be drawn – with the aim of raising Britain’s productivity to the level of its international competitors.
£2.3 billion of the fund will be spent on infrastructure to support housing development, designed to help “unlock” space for 100,000 new homes in areas of high demand, with the funding distributed to local government on a competitive basis. This additional funding is designed to complement the £5 billion housebuilding plan announced by the Communities Secretary, Sajid Javid at the Conservative Party conference earlier this year.
The government will spend an additional £1.4 billion on building 40,000 affordable homes and is to impose a complete ban on agency fees being charged to renters in order to clamp down on the excessive costs associated with renting.
London Mayor Sadiq Khan welcomed £3.15 billion worth of funding, set to deliver 90,000 affordable homes in the capital.
It was also revealed that the government would relax restrictions on the types of housing to which government grants apply, as well as continuing to support both the Help to Buy ISA and equity loan scheme set up by the coalition government.
Spending to “keep Britain moving” will include £1.1 billion on local English transport networks, along with £200 million to relieve common road pinchpoints, £390 million on low emission vehicles and autonomous vehicles and £450 million on experimenting with digital signalling on Britain’s rail infrastructure. In addition to this, the planned 2p per litre rise on fuel duty has been frozen for a further two years, which Hammond argued was the equivalent of a tax cut worth £850 million a year.
One of the worst kept secrets in the lead up to the statement was the intention to focus on improving Britain’s digital capability, deemed an effective way of improving the nation’s productivity – something which is understood to be a personal ambition for the Chancellor. Funding from the proposed NPIF will help introduce full-fibre connections and 5G internet access. This will involve £400 million as a part of a new Digital Infrastructure Investment Fund, matched by private finances, along with 100 per cent business rates relief for full-fibre infrastructure from April next year.
Hammond has received praise from his predecessor for promising additional funding to the Northern Powerhouse, one of George Osborne’s flagship policies, with an additional £556 million committed for northern Local Enterprise Partnerships.
The Chancellor also bolstered the Oxford-Cambridge growth corridor, with a £110 million commitment from East West Rail to deliver a new “expressway”.
Taxation and personal finance
The Chancellor said he wanted to make sure Britain stayed at the top of the list of countries that are open for business and committed to lowering corporation tax to 17 per cent. The drop sees Britain cement its position as the country with the lowest corporation tax of the world’s largest 20 economies, although it doesn’t go so far as to drop it in line with the 15 per cent level proposed by the American President-elect Donald Trump, nor the 12.5 per cent rate in Ireland. A business rates reduction package was also confirmed with the transitional relief cap lowered. Insurance premium tax is set to rise from 10 per cent to 12 per cent next summer.
The Chancellor announced no further plans for welfare cuts in this parliament and called the reduction from 65 per cent to 63 per cent in the taper rate of Universal Credit a “targeted tax break”. At the same time, the National Living Wage will increase from £7.20 an hour to £7.50 from April 2017, although the Shadow Chancellor, John McDonnell, and others, were quick to point out that this increase is in fact less than was expected under Osborne. Hammond also reaffirmed the government’s plans to increase the personal allowance to £12,500 by 2020, with the higher rate threshold reaching £50,000.
The Chancellor’s final announcement regarded the fate of the event itself, announcing that the Autumn Statement would be abolished. However, to jeers from the opposition benches, it was announced this would be replaced by... a Spring Statement and an Autumn Budget. This new calendar is said to bring the nation in line with the rest of the world, and to provide more stability, with fewer half-yearly announcements.