The new Chancellor of the Exchequer, Philip Hammond, acknowledged encounters ahead for the economy as he presented his first major fiscal statement, exactly five months after the UK's decision 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%.
The UK’s financial services sector employs 1 million people, two thirds of whom are based outside of London and the South East. The finance industry accounts for 12% of total UK exports and contributes over £60 billion in tax each year.
Mr Hammond then proceeded to sweep away George Osborne's fiscal targets, announcing a new draft Charter for Budget Responsibility. He suggested he would take a less aggressive approach to fixing the public finances and an emphasis on allowing sufficient flexibility to build a resilient economy.He chose in this Autumn Statement to prioritize additional high-value investment, specifically in infrastructure and innovation, that will directly contribute to raising Britain’s productivity.
The Statement included several other significant measures for businesses, including validation 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. Also, the Government will invest over £1 billion in our digital infrastructure to catalyze private investment in fibre networks and to support 5G trials.
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 an increase in insurance premium tax from 1 June 2017, and a freeze on fuel duty for the seventh consecutive year.
In a closing embellishment, and marking a major change to policy-making processes, the Chancellor announced that his first Autumn Statement would also be his last as no other major economy makes tax changes twice a year.