Chancellor pledges post-Brexit economy 'that works for everyone'
The new Chancellor of the Exchequer, Philip Hammond, acknowledged 'sharp challenges ahead' for the economy as he presented his first major fiscal statement, exactly five months after the UK's historic vote to leave the European Union.
The latest forecasts from the Office for Budget Responsibility confirmed an increase in borrowing, which is now forecast to reach £68.2bn this year. Economic growth is expected to slow over the next two years, initially rising marginally to 2.1% for 2016, but then reducing to 1.4% in 2017. Overall, the 'Brexit effect' is expected to impact on economic growth to the tune of 2.4%.
Having paid tribute to his predecessor, Mr Hammond then proceeded to sweep away George Osborne's fiscal targets, announcing a new draft Charter for Budget Responsibility. This replaces the aim of balancing the books by 2020 with a pledge to deliver a surplus 'as early as practicable' in the next Parliament, and an emphasis on allowing sufficient flexibility to build a resilient economy.
The Chancellor proposes to do this by prioritising investment in UK infrastructure and innovation, and announced the creation of a new £23bn National Productivity Investment Fund (NPIF) which will provide additional funding in four areas: transport, digital communications, research and development, and housing.
The Statement included a number of other significant measures for businesses, including confirmation that corporation tax will be reduced to 17% by 2020 as planned, together with the implementation of the business rates reduction package. In other announcements, from April 2017 employee and employer national insurance thresholds will be aligned, and salary sacrifice schemes will be scaled back, with most schemes being subject to the same tax as cash income, although some exemptions will apply.
Emphasising the government's stated commitment to low and middle income workers, the Chancellor announced that from April 2017 the Universal Credit taper rate will be reduced from 65p to 63p for every pound of net earnings. The National Living Wage and National Minimum Wage will also rise with effect from April 2017. The government's plans to raise the income tax personal allowance to £12,500 and the higher rate income tax threshold to £50,000 by 2020/21 were also confirmed, while a new NS&I Investment Bond will be launched for savers.
Other announcements included further measures to counter tax avoidance, an increase in insurance premium tax from 1 June 2017, and a freeze on fuel duty for the seventh consecutive year.
In a final flourish, and marking a major change to policy-making processes, the Chancellor announced that his first Autumn Statement would also be his last. 2017 will see the final Spring Budget, as from that point on the main Budget will be held in the Autumn.
What They Said
'We resolve today to confront [our] challenges head on. To prepare our country to seize the opportunities ahead. And in doing so, to build an economy that works for everyone… and where every corner of this United Kingdom is part of our national success.'
Chancellor Philip Hammond
'The figures speak for themselves. Growth down, wage growth down, business investment down, and their own deficit target failed.'
Shadow Chancellor John McDonnell
'Reducing the frequency of fiscal events along with the commitment to stick with the tax roadmap will provide stability for businesses. Importantly, the new fiscal rules provide the government with welcome flexibility, while remaining prudent in uncertain times.'
Carolyn Fairbairn, Director General of the Confederation of British Industry
'The official figures have revealed a £220bn Brexit black hole - hundreds of billions taken out of our economy when we need it most. Given how bad the outlook is, it's no wonder the Chancellor doesn't want to have to do another Autumn Statement.'
Tim Farron, Leader of the Liberal Democrats
'The Chancellor's strong focus on the growth requirements of our cities, regions and nations will not go unnoticed in business communities across the UK.'
Adam Marshall, Director General of the British Chambers of Commerce