Autumn Statement 2016
Thursday, 24th November 2016
The Rt Hon Philip Hammond, Chancellor of the Exchequer, presented his Autumn Statement to the House of Commons on 23 November 2016.
The main announcements were as follows.
Growth – there remains considerable uncertainty about the economic outlook for the next five years. Output is now predicted to be 1.5 percentage points lower than forecast in March, with growth in GDP in 2017 down by 0.8 percentage points to 1.4%, rising to 2.0% in 2021. Household saving as a proportion of disposable income is predicted to fall in 2017 before rising again thereafter. Business investment is expected to fall by 2.2% in 2016 and again by 0.3% in 2017, remaining permanently lower than forecast in the spring.
Trade – while the depreciation of sterling is expected to support exports and reduce imports in the short term, in the longer term forecasts for import and export growth have been revised downwards.
Inflation – upward pressure on prices is expected to lead to an increase in the consumer price index of 2.3% in 2017, falling to 2.0% in 2021.
Labour market – in a small increase, unemployment is now predicted to rise from 5.2% to 5.4% in 2021. Productivity growth is forecast to rise from 1.3% in 2017 to 2.0% in 2021, though the outlook is uncertain. Earnings growth will be slower than previously predicted, rising from 2.4% in 2017 to 3.0% in 2021. As a result, real household disposable income per capita is expected to fall by 0.5% in 2017, before returning to modest growth.
Structural deficit – the outlook for public finances has worsened since the spring. While the government remains committed to returning public finances to balance, the weaker growth outlook means that it is no longer planned to reach a fiscal surplus during the current parliament. Instead, a new Charter for Budget Responsibility sets out a target of reducing the structural deficit to less than 2% of GDP, and for debt as a percentage of GDP to be falling, by the end of the parliament.
Spending and borrowing – apart from some extra targeted investment to increase productivity, funded from savings or taxation, the government is continuing with its overall spending plans as set out last year. Public sector net borrowing is predicted to fall from £68.2 billion in 2016–17 to £20.7 billion in 2020–21, but will be higher in each year than previously forecast, because of lower tax revenues. For example, predicted borrowing in 2020–21 is now £31.8 billion more than the £11 billion surplus forecast for that period in the spring.
Welfare cap – a new medium-term welfare cap of £126 billion will apply to welfare spending in 2021–22, with a margin of 3%.
Financial assets – the planned sales of shares in Lloyds Banking Group and Bradford & Bingley mortgage assets will continue. Legacy issues make disposals of Royal Bank of Scotland assets unlikely. Land Registry will become a more digital data-driven registration business, but will remain in the public sector.
National Productivity Investment Fund – over the next five years, £23 billion will be invested in a new National Productivity Investment Fund. This will focus on housing, transport, digital communications, and research and development.
Housing – a new Housing Infrastructure Fund (funded by the NPIF) will encourage new private house building, with a particular emphasis on affordable homes and house building on public sector land. Total spend on housing will be £7.2 billion.
Road transport – an additional £1.1 billion is promised by 2020–21 for improvements to local roads and public transport networks, with £220 million for strategic road upgrades. £390 million will be invested by 2020–21 on ultra-low emission vehicles, renewable fuels, and connected and autonomous vehicles, including 100% first-year allowances for charging points for electric vehicles.
Rail transport – £450 million will be invested in digital signalling technology by 2020–21, and £80 million in smart ticketing. £5 million is provided for the Midlands rail hub.
Oxford–Milton Keynes–Cambridge corridor – in response to the recent report from the National Infrastructure Commission, £27 million is provided for the Oxford–Cambridge expressway, £100 million for the Bicester–Bedford section of the East–West rail line, and £10 million for development of the Bedford–Cambridge section.
Digital communications – £1 billion will be invested by 2020–21, including a new 100% business rates relief for new full-fibre infrastructure for five years from April 2017.
Flood defence and resilience – £170 million will be invested in flood defences, with £50 million provided for rail projects (including improvements at Dawlish) and £100 million for roads projects.
Research and development – an additional £4.7 billion will be provided by 2020–21. A new Industrial Strategy Challenge Fund will support collaboration between business and science. The tax environment for R&D will be reviewed to build on the above-the-line R&D tax credit. £100 million will be provided until 2020–21 for technology transfer.
Trade – support for exports will be provided by doubling to £5 billion the total risk appetite of UK Export Finance, the government’s export credit agency. Up to £412 million will be provided over the course of the current parliament to the government departments dealing with Brexit and trade agreements with other countries.
Enterprise – £400 million will be invested in venture capital funds by the British Business Bank to support innovation. A new tax framework for insurance-linked securities is being considered. £13 million is provided to implement a review of business productivity.
Competition and consumers – a green paper will examine markets in which consumers are not fairly served. Letting agents’ fees to tenants will be banned. Options to tackle pensions scams, including cold calling, will be canvassed. Car insurance premiums will be cut as a result of reforms to the law on whiplash claims.
Employment – following the recommendations of the Low Pay Commission, the national living wage will be increased from £7.20 to £7.50 from April 2017. An extra £4.3 million per year will be provided for enforcement.
Devolution – £1.8 billion will be awarded to local enterprise partnerships through a third round of growth deals, including £191 million to the south west, with borrowing powers for mayoral combined authorities. A new local infrastructure rate for government lending to local authorities for infrastructure projects will be considered. There will be further devolution to the West Midlands, Greater Manchester and Greater London. A city deal for Stirling will be progressed. Work is continuing on a Northern Ireland rate of corporation tax.
Future budgets – after the spring 2017 budget, the current pattern of a spring budget and autumn statement will change to an autumn budget and spring statement.
Income tax – the personal allowance will rise to £11,500 and the higher-rate threshold to £45,000 next year and to £12,500 and £50,000 by the end of the parliament, as already announced.
National insurance – the employer and employee thresholds will be aligned from April 2017, so that contributions will be payable by both employees and employers on weekly earnings above £157. Following the abolition of class 2 contributions, self-employed contributory benefit entitlement will be accessed through class 3 and class 4 contributions. Contributory employment and support allowance will be available to self-employed people with profits under the small profits limit. National insurance contributions will no longer be subject to the Limitation Act. Termination payments exceeding £30,000 will be subject to employer’s contributions, but tax will apply only to the equivalent of the employee’s basic pay if they do not work their notice.
Off-payroll working rules – from April 2017, responsibility in the public sector will move to the body paying the worker’s company, to reduce non-compliance; the 5% tax-free allowance will be removed.
Legal support – from April 2017, employees called to testify in court will not pay tax on legal support from their employer.
Salary sacrifice, benefits in kind and expenses – the tax and national insurance advantages of salary sacrifice schemes will be removed from April 2017 (except for pensions, childcare, cycle to work, and ultra-low emission cars), with current arrangements protected until April 2018. There will be consultation on the valuation of benefits in kind and employees’ business expenses.
Non-domiciled individuals – UK residential property held by a non-domiciled individual through an offshore structure will be subject to inheritance tax. Changes to the business investment relief scheme will encourage inward investment in UK businesses.
Inheritance tax – inheritance tax relief will be extended to donations to parties with representatives in the devolved legislatures and through by-elections.
Charities – the process for making gift aid donations digitally will be simplified.
Pensions and savings – as previously announced, the ISA limit will be increased from £15,240 to £20,000 in April 2017. The band of savings income subject to the 0% saving rate will remain at £5,000. The money purchase annual allowance for those in pension fund drawdown will be reduced from £10,000 to £4,000. There will be various changes to the taxation of foreign pensions, bringing them into closer alignment with domestic pensions.
Business tax road map – the government has recommitted itself to the business tax road map published in the spring, cutting corporation tax to 17% by 2020 and reducing the burden of business rates by £6.7 billion over the next five years.
Corporate interest expenses – rules limiting the tax deductions claimed by large groups for their UK interest expenses, including banking and insurance groups, will be introduced from April 2017. They will apply where the group’s net interest expenses are more than £2 million and exceed 30% of UK taxable earnings and the net UK interest-to-earnings ratio exceeds that of the group.
Loss relief – as previously announced, the amount of profit that can be offset by carried-forward losses will be restricted to 50%, subject to a £5 million allowance for each company or group.
Non-resident companies – the government will consult on bringing all non-resident companies receiving taxable income from the UK into the corporation tax regime.
Bank levy reform – as already announced, the bank levy charge will be restricted to UK balance sheet liabilities from 2021, subject to certain exemptions.
Substantial shareholding exemption – with effect from April 2017, the rules will be simplified to remove the investing requirement and strengthen the exemption relating to qualifying institutional investors.
Authorised investment funds – the rules on the taxation of dividend distributions to corporate investors will be reformed so as to enable exempt investors to obtain credit for tax paid by authorised investment funds.
Museums and galleries tax reliefs – the scope of the museums and galleries tax relief will be broadened to include permanent exhibitions (at 20%) as well as touring exhibitions (at 25%), with a cap of £500,000 qualifying expenditure per exhibition.
Capital gains tax – the tax advantages relating to employer shareholder status will be abolished for arrangements entered into from 1 December 2016. Changes to the capital gains tax treatment of offshore funds will align them to onshore funds.
Business rates – the rural rate relief will be doubled to 100% from 1 April 2016, bringing it into line with small business rate relief.
Social investment tax relief – social enterprises up to seven years old will be able to raise investment of up to £1.5 million; certain activities (such as asset leasing, on-lending and, initially, nursing and care homes) will be excluded; and the limit of full-time-equivalent employees will be reduced to 250.
Energy, transport and indirect tax
Motoring – fuel duty will remain frozen. New lower bands of company car tax will be introduced for low-emission cars by 2021, while the percentage for cars emitting more than 90g of carbon dioxide per kilometre will rise by 1 percentage point.
Air passenger duty – the possibility of devolution to support regional airports will be reviewed after Brexit.
Oil and gas – the government has recommitted itself to its long-term plans already published and will simplify the administration of petroleum revenue tax.
Soft drinks industry levy – legislation will be published in December.
Insurance premium tax – the standard rate will rise from 10% to 12% from 1 June 2017.
VAT – the government will consult on VAT grouping and will digitise the retail export scheme.
Tax administration, avoidance and evasion
Simplification and tax enquiries – the Office for Tax Simplification will be asked to review the VAT system and stamp duty on share transactions. Legislation will provide for earlier certainty in large and complex tax enquiries.
Disguised remuneration schemes – the changes already announced relating to employees will be extended to address the use of disguised remuneration avoidance schemes by the self-employed. Employers’ contributions to disguised remuneration schemes will be denied tax relief unless tax and national insurance contributions are paid within a defined period.
Tax avoidance sanctions and deterrents – there will be a new penalty for anyone who has enabled another person or business to use a tax avoidance arrangement that is later defeated by HMRC. The defence of relying on non-independent advice as taking reasonable care will be removed. Further investment will be made in HMRC’s counter-avoidance operations. Application of the VAT zero-rating for cars adapted for wheelchair users will be clarified.
VAT flat-rate scheme – a new VAT rate of 16.5% will be introduced from 1 April 2017 for businesses with limited costs, such as labour-only businesses.
Offshore tax evasion – there will be a new requirement to correct a past failure to pay UK tax on offshore interests within a specified period. The government is considering requiring intermediaries arranging complex structures for offshore clients to notify HMRC.
Hidden economy – HMRC’s data-gathering powers will be extended to money-service businesses, and the government will consider making access to licences or services conditional on tax registration. Sanctions for those who participate in the hidden economy will be strengthened.
Public spending – welfare
Welfare – there are no plans to introduce further welfare savings in the parliament beyond those already announced.
Universal credit – from April 2017, the taper rate at which universal credit is withdrawn, once a claimant’s earnings exceed the work allowances, will be reduced from 65p for every extra £1 earned to 63p, so that claimants will keep more of their earnings. Funding is provided for the previously announced changes to the universal credit roll-out.
Refugees – refugees will no longer need to have been resident in the UK for two years before being eligible for disability benefits.
Local housing allowance rates – the cap on housing benefit and local housing allowance rates in the social rented sector will apply from April 2019, rather than April 2018, as announced previously. Extra funding for supported housing will be given to local authorities; for general needs housing, the cap will apply to all tenants on universal credit, and to tenants on housing benefit whose tenancies date from April 2016.
Social rent downrating – the policy to reduce social sector rents by 1% per year for four years will not apply to refuges, almshouses, community land trusts or co-operatives.
Pay to stay – as recently announced, the plan to require local authority tenants with incomes over a certain threshold to pay a market rent will not be implemented.
Digital services – new tax credit claims will be able to be made digitally.
Child tax credit – in-year award adjustments will be made so that the disability element of child tax credit will be paid to all eligible recipients.
Public spending – departmental
NS&I investment bond – from the spring of 2017, for one year only, NS&I will offer a new market-leading three-year investment bond with an indicative rate of 2.2% (subject to adjustment); the maximum investment limit will be £3,000.
Tax-free childcare – this will be introduced from 2017, once the trial has been completed.
Rough sleeping fund – a further £10 million will be provided over the next two years, doubling the size of the fund.
Grammar schools capital – £50 million will be provided to support the expansion of existing grammar schools in each year from 2017–18.
Banking fines – a further £102 million from banking fines will be given to armed forces and emergency services charities over the next four years.
Tampon tax – further funds will be made available for women’s charities.
Medical training – funding is provided for the extra 1,500 medical training places per year already announced from 2018–19 onwards.
Prison safety – up to £500 million will be provided for the recruitment of extra prison officers and other reforms to the justice system.
Gift aid – the small donations scheme will be amended to make it more flexible.
Sovereign grant – as recently announced, the percentage of Crown Estate annual profits used for the sovereign grant will be increased from 15% to 25%, to enable the refurbishment of Buckingham Palace.
Culture – £7.6 million will be provided for repairs at Wentworth Woodhouse, a grade-1-listed eighteenth-century country house in Yorkshire. There will also be funding for a creative media centre in Plymouth, an arts complex in Southampton, and a project to promote cultural education in schools.
Sport – funding of £15 million for the 2021 Rugby World Cup, and £10 million for legacy infrastructure, is confirmed. £9 million will be provided for the Cycling Road World Championships in 2019, and £15 million for a legacy fund for cycling infrastructure.
International development – while the commitment to spend 0.7% of gross national income on official development assistance is maintained, the forecast decline in gross national income means that the ODA budget will be reduced by £80 million in 2017–18 and £210 million in 2018–19.