The rabbits have been retired: Chancellor Philip Hammond delivered a no-nonsense Autumn Statement, his first and last, to show Britain’s still open for business. Publicised as a fair economy and budget for all, the clear goal is to invest in the future whilst trying to show support for workers and families now.
No big shocks, just a manageable transition ahead is the impression given, ‘step-change’ the new buzzword of the day. Deficit reduction plans are on hold until the next parliament while sights are clearly set on Brexit, uncertainty mentioned but downplayed.
The ‘strength and resilience’ of our economy following the EU referendum confounds commentators and as we venture in to new waters no-one knows how to handle the economy. A wide range of opinions have been ventured, but despite this there has been high profile investment in the UK since the referendum which shouldn’t be taken lightly.
A worry to contractors and small businesses, the Chancellor has clear issues over incorporations and self employment, blaming their increase for lower tax revenues. The key issue for PSCs, apart from the public sector IR35 changes already announced, is the change to the VAT FRS percentage for what HMRC deem to be ‘labour-only’ businesses. This will decrease income, perhaps not by much but enough to show the mistrust the government must have for small businesses.
Growth: 2.1% in 2016, higher than forecast in March, it's expected to decrease to 1.4% in 2017 - equal or higher to the rest of EU but not where the Chancellor would like. Lower investment and weaker consumer demand are the key factors in this forecast. Increases are then expected, levelling off at 2% in 2021.
Debt to GDP: expected to increase from 84.2% last year to 87.3% this year, peaking at 90.2% in 2017/18 before falling.
Borrowing: currently at £68.2bn for 2016/17 reducing significantly each year to £17.2bn in 2021-22. As a % of GDP borrowing will go from 4% last year to 0.7% in 2022, the lowest in two decades.
Jobs: Unemployment is at 11 year low with 2.7m new jobs since 2010. Growth has been seen all over Britain, not just concentrated in London and the South East.
Surplus: No longer looking to reach a surplus in this parliament, but public finances to balance at earliest possible date in the next. Still looking to reduce debt as a share of GDP.
- Changes to the Flat Rate Scheme (FRS) with a new 16.5% rate being introduced from April 2017 will affect a large amount of small business. The aim is to tackle what’s seen as ‘aggressive abuse’ of the scheme. There will be an online test to see if it applies, with further legislation being released on 05/12/2017 - we will give you more information on this as soon as we have it.
- Public sector reform for IR35 is still going ahead, disappointing many. The removal of the 5% allowance has been confirmed but very little else. Legislation will be released on 5th December as well, again we’ll provide more information when it's released, in a future blog.
- National Insurance thresholds will be aligned at £157/week from April 2017.
- Various things already announced were confirmed: the cut of CT to 17% by 2020, 100% FYA for installation of electric vehicle charging infrastructure, continued efforts to tackle tax avoidance and disguised remuneration schemes, re-evaluation of company car tax bands for low emission cars.
- Changes to the salary sacrifice scheme will be made so everyone pays similar taxes, whether you receive the benefit through the company or pay for it out of your own pocket. A consultation has already closed for this and it’s expected to be phased in between 2017 and 2021. Ultra-low emission cars, pensions, childcare and the cycle to work scheme will be excluded from this currently.
- Consultations will be released on the valuations of benefits in kind and the use of income tax relief for employee expenses.
- Funding was announced to double capacity to support exporters through UK Export Finance as well as for Sir Charlie Mayfield’s business-led initiative to boost management skills across British businesses. A boost to finance for growing tech firms through venture capital funds is planned too, to stop them being taken over by bigger companies.
- A lower transitional relief cap for businesses was announced, allowing a smoother transition to higher bills when business rates are reviewed.
- Plans to abolish any tax advantages via Employee Shareholder Status where primary use is for tax planning are being made. Further penalties were announced for anyone who enables the use of tax avoidance schemes and general anti-avoidance measures continued.
- The response to Making Tax Digital will be published in Jan 2017, whilst there will be reviews on areas of VAT and Stamp Duty on share transactions.
- Another increase in everyone’s personal tax free allowance, currently £11k, to £11,500 for 2017/18 with a commitment to reach £12,500 by 2020. There will be increases to the higher rate tax threshold along with this.
- The NLW (National Living Wage) will increase to £7.50 in April 2017, currently £7.20, with increases in the NMW planned as well.
- Termination payments over £30,000 will be subject to employer NICs from April 2018 with a few other changes.
- Instead of previous allowances, the Money Purchase Annual Allowance has been set at £4,000 to avoid double taxation relief on pensions.
- A new NS&I investment bond will be available from Spring 2017 offering a rate of 2.2% gross for 3 years. This will be open to over-16s for deposits of up to £3,000 to boost savings income.
The biggest announcement was around tax reform so that multinational companies pay a more appropriate amount of tax in this country, expecting to raise over £5bn.
The Insurance Premium Tax is to rise from 10% to 12% in June 2017, though a consultation on how to tackle fraudulent whiplash claims has been announced. Presumably achieving this will lessen the blow of the tax increase.
The fuel duty freeze remains and a small reduction in the Universal Credit taper rate (65% to 63%) should allow families to notice the difference.
Productivity in the UK is far behind US, Germany, France and even Italy. The government feels there is a distinct need to correct this, as “too many British workers work longer hours for lower pay than their counterparts”. Infrastructure is the way forward to correct this, so big spending is on the way through the National Productivity Investment Fund - £23bn over 5yrs - the only announcement funded by borrowing.
Hoping to encourage huge investment in R&D, science and tech innovation, housing is also on the agenda, with investment to build 200,000 more homes, gain access to public land quicker and reduce restrictions on the types of housing. Infrastructure to support these new homes will be put in place, with support for local transport and road improvement. Support is continued for Right to Buy and Help to Buy schemes.
Investment of £1bn in fibre broadband and 5G network reaffirms the aspiration of broadband for all. There will be schemes for business that invest in fibre broadband too.
Public spending is now 40% of GDP (45% in 2010) but living standards have increased according to the statistics. Current spending plans will remain in place, with incentives to drive efficiency in government departments, to be reviewed in the next parliament.
The cap on welfare spending set by government is remaining and spending has stabilised now, no more measures will be announced in this parliament other than those already introduced.
There's a focus on bringing major cities other than London up to more appropriate levels of productivity. Infrastructure spending supports this and there’s devolved spending to local areas. City Deals are continuing so there’s more power for local growth. London itself has been asked to deliver 90,000 homes and been given greater responsibility for its education and employment services delivery.
- Tax free childcare will be introduced from 2017, allowing 15 hours/week of free childcare for 3 and 4 year olds with further changes planned.
- Fees from letting agents to tenants will be banned, with Hammond suggesting landlords should meet the cost
- A ban on cold calling re pensions and pension scams is being put in place
- Previously announced funding for 2,500 more prison officers to improve prison safety confirmed.
- £7.6m provided to Wentworth Woodhouse for urgent repairs after much local fundraising. £102m from LIBOR to Armed Forces and Emergency Services charities and £3m from tampon tax fund to be given to Comic Relief to distribute to women’s charities
- A review of the retail energy market will be undertaken
As a cheeky bonus the budget has moved to Autumn, with a promise of only one change per year to our tax system, unless emergency dictates. This gives more notice and understanding, ready to make the changes in the following April - a sensible decision.
An Autumn Statement that didn’t enlighten us to much more than Hammond’s approach and pragmatism in managing the economy, much the same as how May tackles the role of Prime Minister it seems. In an economy for everyone, the way forward looks to be to increase the deficit in the hope that productivity increases. With most big measures announced in advance to dull the impact of increased borrowing, it’s the hidden detail that’s set to surprise us.
“We are a great nation. Bold in our vision. Confident in our strengths.“ In other words, let's make Britain great again.
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