Chancellor of the Exchequer Philip Hammond delivered his first Autumn Statement since taking over from George Osborne. The chancellor laid out his plan to ensure the UK economy is “match-fit” as the country prepares to leave the EU.
The government has set new fiscal targets which aim for 2% underlying deficit, debt falling by 2020, and a balanced budget as soon as possible.
The adjective ‘fiscal’ refers to anything related to government finance, such as taxation, public spending, and debt.
Philip Hammond’s said in his speech:
“Today I am publishing a new draft Charter for Budget Responsibility, with three fiscal rules:
“First, the public finances should be returned to balance as early as possible in the next Parliament, and, in the interim, cyclically-adjusted borrowing should be below 2% by the end of this Parliament.
“Second, that public sector net debt as a share of GDP must be falling by the end of this Parliament.
“And third, that *welfare spending must be within a cap, set by the government and monitored by the OBR.”
* In this context, ‘welfare’ refers to financial help from the government to certain groups of people.
The chancellor said that debt will rise until 2018-19, after which it is projected to fall to 89.7% of national income – the first fall in the national debt as a share of GDP since 2001-02. The national debt is the total amount of money the government and local governments owe – including domestic and foreign creditors.
He added that the Office for Budget Responsibility forecasts economic growth of 2.1% for 2016 and then drop to 1.4% in 2017, after which it is expected to recover to 1.7% in 2018, 2.1% in 2019 and 2020, and 2% in 2021.
Investing in infrastructure
A newly created National Productivity Investment (NPI) Fund will provide £23 billion of additional spending in areas that are key to boosting productivity; transport, digital communications, research and development (R&D), and housing.
A total of £1.1 billion will be drawn from the NPI fund “to reduce congestion and upgrade local roads and public transport”, £220 million will be used “to tackle road safety and congestion on Highways England roads”, while £27 million will go towards the development of an expressway connecting Oxford and Cambridge.
Hammond stressed that “reliable transport networks are essential to growth and productivity”, and announced a further £450 million for a trial of digital signalling on the railways.
Hammond also committed £390 million “to build on our competitive advantage in low emission vehicles and the development of connected autonomous vehicles”.
With home ownership remaining “out of reach” for many, the chancellor announced a plan to address the UK’s housing problem by introducing a £2.3 billion Housing Infrastructure Fund. The fund will be used “for projects such as roads and water connections that will support the construction of up to 100,000 new homes in the areas where they are needed most”. In addition, Hammond committed a further £1.4 billion towards the construction of 40,000 additional affordable homes.
Hammond also pledged to “relax restrictions on government grant to allow a wider range of housing-types.”
Wages and savings
In April, the National Living Wage will increase to £7.50 from £7.20 for adults above the age of 25.
The government will also introduce a new savings bond through National Savings & Investments. The “Investment Guaranteed Growth Bond” offers interest of 2.2% on up to £3,000 to those aged 16 and over. Savers must put in their money for three years.
Corporate tax cuts
The main rate of corporation tax has already been cut from 28% in 2010 to 20%, and will be cut again to 17% by 2020 to by far the lowest level amongst those in the G20 “benefitting over 1 million businesses and £400 million through the British Business Bank to invest in growing innovative firms,” HM Treasury said.
Other announcements
- Fuel duty will remain frozen for aseventh year – expected to save drivers £130 a year on average.
- Commitment to increase the Personal Allowance to £12,500 and the Higher Rate Threshold to £50,000 by 2020-21.
- The Universal Credit taper will be cut down to 63% from 65% next April.
- There will be a ban on letting agents charging renters fees.
- A £1 billion investment in full-fibre broadband and trialling 5G networks as well as providing a new 100% business rates relief for new full-fibre infrastructure for a 5 years.
- The Rural Rate Relief will increase to 100%.
- A commitment to tax salary sacrifice schemes more fairly.
- Insurance Premium Tax will increase by 2% from June 2017.