Far from trying to go out with a bang, the Chancellor delivered a rather tame statement, in line with his opening quip that he would prove “no more adept at pulling rabbits out of hats” than his predecessor. Was it all a ruse? No, not really. In fact, the tone was well set by some less than encouraging economic forecasts.
Growth forecasts and national debt
The Office for Budget Responsibility (OBR) has cut its growth forecast for the UK economy to 1.4% in 2017 and 1.7% in 2018, compared to 2.2% and 2.1% which was forecast as recently as March 2016. Government debt will peak at 90.2% of GDP in 2017/18, meaning that the rather ambitious target of delivering a budget surplus by 2019/20 has gone.
Conservative commentators and politicians alike are quick to point out that the OBR’s forecasts are just that, forecasts. Notwithstanding the usual caveats, it is accepted that much of the deterioration in Britain’s economic outlook is as a result of the impact of Brexit. Although Brexit is, in reality, still to come.
The Chancellor did announce that the upwards Transitional Relief caps for business premises are to be reduced and will be implemented as follows in 2017/18:
- Small properties – 5.0%
- Medium properties – 12.5%
- Large properties – 42.0%
Some associated good news did eventually come in the form of 100% business rate relief for those adopting full-fibre infrastructure, whilst Rural Rate Relief will double to 100% offering a lifeline to village shops and post offices across the country. In order to push the government’s key message on the importance of infrastructure provision for the continued growth of the economy, £1bn has been allocated to improving the country’s digital infrastructure, with the aim of being a “world leader” in 5G technology.
Economic productivity, we are told, is below the levels of the US, Germany, France, and Italy. As such, a number of additional spending commitments were made. A new £23bn National Productivity Investment Fund will be created to include not only funds for improving infrastructure and the science and innovation sectors, but also to support the construction of new homes. The Chancellor was keen to stress that unaffordable housing is contributing to low levels of productivity. £1.8bn worth of funding is to be allocated from the Local Growth Fund to Local Enterprise Partnerships (LEPs). London, the south west, and the south east will receive £683m from this pot.
In a significant but not at all surprising announcement – given that it was widely leaked prior to the statement – the Chancellor confirmed that corporation tax will fall to 17%, which will be the lowest rate within the G20. This policy is worth keeping an eye on, as many commentators believe this may not be the last shift in corporation tax during this parliament, as we eagerly await an equivalent announcement from the US President elect, who is likely to trump (pun entirely intended) the 17%.
Personal tax allowance and National Living Wage
Increases in the personal taxable allowance and National Living Wage have been directed at the much talked about JAM (Just About Managing) proportion of the population. The pledge to increase the tax free allowance to £12,500 and the higher rate tax bracket to £50,000 is again targeted at the end of this parliament. The JAMs will get some jam, but not until 2020.
The lower chamber was rarely animated during the Chancellor’s statement, but a significant roar (or was it a cheer?) came as a result of the ‘abolition’ of the Autumn Statement itself. Was it simply another cut from the government, or a central commitment to increasing productivity? I’m sure plenty of opinions will surface soon.