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 (OBR) confirmed an increase in borrowing, which is now forecast to reach £68.2bn this year. Economic growth is expected to initially rise marginally to 2.1% for 2016/17, but then reduce to 1.4% in 2017/18. The ‘Brexit effect’ is expected to impact on economic growth to the tune of 2.4%.
Mr Hammond swept away predecessor 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.
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).
The Statement addressed a number of other significant measures for businesses, including confirmation that corporation tax will be reduced to 17% 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.
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 include further measures to counter tax avoidance, an increase in insurance premium tax (IPT) from 1 June 2017, and a freeze on fuel duty for the seventh consecutive year.
Marking a major change to policy-making processes, the Chancellor also 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.