Chancellor Philip Hammond is presenting his first Autumn Statement to the House of Commons today, setting out the Conservative government’s plans for taxes, spending and borrowing as the UK prepares for Brexit.
- OBR cuts UK growth forecasts for 2017, 2018
- Plans for surplus in 2019/20 scrapped
- Forecasts for public sector debt increased
- Infrastructure gets boost from £23bn productivity fund
- More funding for affordable housing
- No change to corporation tax roadmap
- Tax free personal allowance increased
- National living wage increased to help Jams
- Letting agents fees banned
- Fuel duty frozen for seventh year running
- Autumn Statement itself is abolished
Hello and welcome to the FT’s live coverage of the Autumn Statement – Philip Hammond’s first as chancellor. Our economics editor Chris Giles has this handy guide on what to look out for – and we’ll be tracking those things, plus a couple more, as the statement is read out.
Hammond didn’t have much to say ahead of this afternoon’s statement, but he did tweet this:
Among the specific measures aimed at struggling working families or so-called Jams, the chancellor is expected to put cheaper housing at the heart of his first Autumn Statement. Plans to make up to £1.4bn available to help build 40,000 affordable homes are one of the modest measures we are looking out for in what one ally of Prime Minister Theresa May said would be “a deadly dull” affair.
You can read more about what we expect from a “sombre and short” speech here.
Hammond’s first task will be to fill us in on the OBR’s new economic and fiscal forecasts. We’re expecting both to be fairly gloomy in the wake of the Brexit vote.
On the economy, we’re expecting the forecast for 2016 GDP growth to remain about 2 per cent (unchanged from March) but for the subsequent years to be downgraded.
This chart shows the March forecasts, compared with the latest best-guesses from UK economists.
If growth is revised down, so too will be the outlook for the public finances, since lower growth means less tax revenue flowing into the government’s coffers. The budget surplus that had been expected for 2019/20, so trumpeted by Hammond’s predecessor Osborne, will probably evaporate.
All this means Hammond’s room for manoeuvre is limited. Which might explain why officials have been playing down the Autumn Statement, insisting it will be a sober affair without any rabbits.
The downbeat tone set by Downing Street and the Treasury ahead of the speech has added to speculation that Hammond could announce that this will be his first and last Autumn Statement and instead it could return to its original function of fiscal forecasting rather than as an instrument to showcase the Treasury’s control across government.
The FT’s George Parker and Chris Giles wrote about this last month.
While you’re waiting for the chancellor to stand up in the Commons in about five minutes, why not take the time to acquaint yourself with the understated man of politics by reading the profile by the FT’s Kate Allen and George Parker.
Prime Minister’s Questions is still going on, if we base it on last year’s Autumn Statement we are running over by about 2 minutes and counting.
And here we go, Hammond is now on his feet. He reminds us that the UK economy is going to be the G7′s fastest growing economy this year, according to the IMF. He talks of the ongoing “strength and resilience” of the economy since the Brexit vote 5 months ago, but reminds everyone that leaving the EU will be a historic moment and will require the government to tackle the economy’s weaknesses. He promises to “build an economy that works for everyone”.
He has also thrown in a tribute to George Osborne: “My focus on building Britain’s long term future is the same.” He adds he will maintain “fiscal discipline” while seeking to build the economy.
OBR cuts UK growth forecasts for 2017, 2018
Hammond praised the “strength and resilience” of the UK economy since the Brexit vote, but the GDP growth forecasts he has just announced from the OBR show it has not been unscathed:
2016: 2.1% (up from 2% forecast in March)
2017: 1.4% (down from 2.2%)
2018: 1.7% (down from 2.1%)
2019: 2.1% (unchanged)
2020: 2.1% (unchanged)
2021: 2 (no forecast in March)
Plans for surplus in 2019/20 scrapped
Hammond confirms the government no longer seeks to deliver a surplus in 2019/20, scrapping the previous target as set out in the chart below. He said the aim was to “return to balance as early as is practicable in the next Parliament”.
Here’s what those new growth figures look like:
Forecasts for public sector debt increased
The fiscal forecasts are markedly worse than in March:
In 2020/21, public sector net borrowing is now forecast to be £20.7bn; in March the forecast was for an £11bn surplus.
Public sector net debt is also forecast to be higher: it will now continue to rise as a share of GDP, peaking at 90.2% in 2017/18. In March, debt was projected to start falling as a share of GDP this year, and be down to 81.3% by 2017/18.
Here’s what the public sector borrowing forecast now looks like:
Infrastructure gets boost from £23bn productivity fund
The productivity gap is “shocking” Hammond says – we lag US and Germany by 30 points, France by 20 points and Italy by 8 points. “Too many British workers work longer hours for lower pay”. He says raising productivity is “essential” and he announces he is forming a new £23bn national productivity investment fund to spend on infrastructure and innovation over the next 5 years.
More funding for affordable housing
Hammond’s housing promises:
- a £2.3bn housing infrastructure fund to deliver infrastructure for new housing in areas of high demand.
- an extra £1.4bn to fund more affordable homes (this was pre-announced overnight)
- a large scale regional pilot of Right to Buy for housing association tenants (which got a boo from the Labour benches)
He says the package will double in real terms the government’s annual capital spending on housing. He calls it: “A step change in our ambition to increase the supply of homes for sale and rent.”
He has announced what he calls “extra” spending on transport (beware of re-announcements), including:
- £1.1bn in English local transport networks, ie smaller roads
- £220m to address traffic pinch points on strategic roads
- £450m on digital signalling on the railways (Network Rail has had this in train for the last half a decade and will roll out new signalling over the next decade or so)
- £390m to help research on low emissions and driverless cars
There was also a longer-term commitment to spend 1.2 per cent of GDP on “economic infrastructure” from 2020 up from the current rate of 0.8 per cent.
Hammond says departmental spending will continue to be squeezed in line with the plans in March, and in 2021/22 will grow in line with inflation. But he’s agreed to give extra funding to the Ministry of Justice to increase the number of prison officers by 2,500.
No change to corporation tax roadmap
Corporation tax cuts to remain as planned by George Osborne: the rate will fall to 17 per cent by 2020 (there had been some speculation he would cut the rate even more deeply.)
Insurance premium tax will rise from 10 per cent to 12 per cent next June and he is tackling whiplash claims limiting the amount that can be claimed.
The tax break on salary sacrifice schemes on employees’ benefits in kind will be removed from next April.
Hammond has more plans to clamp down on tax avoidance (a common theme in recent Budgets and Autumn Statements), including curbing VAT flat rate scheme & abolishing the tax advantages linked to employee shareholder status. Together, these raise about £2bn over the forecast period.
Tax free personal allowance increased
The lowest tax threshold of £11,500 from next April will increase to £12,500 and the higher rate threshold will rise from £45,000 next year to £50,000 by the end of this parliament. After that, the lower end threshold will rise by inflation although future chancellors will have the freedom to increase it above that.
National living wage increased to help Jams
We’re moving onto measures to help the Jams (“just about managing” families).
- National Living Wage to rise from £7.20 to £7.50 (this was announced overnight, and is a smaller increase than was expected earlier this year)
- Universal Credit taper rate from 65 to 63 per cent (this was also announced overnight). He says this will help 3m households – but it’s worth remembering it is a small boost relative to the large loss these families will face from cuts to the UC work allowance.
- He promises to “look carefully” at the retail energy market to make sure it’s functioning fairly for consumers
Letting agents fees banned
Fees charged by rental agents to tenants, which have “spiraled” to hundreds of pounds, will be banned as soon as possible, he said. Hammond will also look at how to ban pension cold-calling and other scams.
Fuel duty frozen for seventh year running
As expected, Hammond has announced another freeze to fuel duty for the seventh year running. He tells the Commons that is the longest period it has been held for in 40 years.
Autumn Statement itself is abolished
Hammond’s rabbit is… he is abolishing the Autumn Statement (cue a big cheer from the Commons). The Budget will now be in the autumn. And there will be a “Spring Statement” from 2018, responding to the forecasts from the OBR, but no major fiscal event. (This is basically back to how it worked in the 1990s).
“I will not make significant changes twice a year, just for the sake of it.”
Hammond has finished and has handed the baton over to John McDonnell, the shadow chancellor, who tells his opposite number “the long-term economic plan has failed”.
McDonnell accuses the government of hollow talk on tax avoidance, pointing out that HMRC has lost 40 per cent of its staff. He says single parents have been “betrayed” and will be left £2,300 a year worse off. “Those who are just about managing also rely on our public services . . . but the reality is after six wasted years our public services are just not managing.”
The Treasury has also realised its own “25 things you need to know” about today’s Autumn Statement.
The OBR has released this neat visual update of its revised forecasts.
Britain’s benchmark government bond yields have leapt in response to the Autumn Statement, reports the FT’s Mehreen Khan (yields rise when prices fall.)
The 10-year gilt yield has climbed by 0.08 percentage points to 1.44 per cent.
Yields are climbing as the UK faces a period of higher debt and borrowing over the next four years. The government’s debt-to-GDP ratio will peak at 90 per cent next year, while borrowing will hit £59bn a year in 2017 on the back of a smaller economy and weaker tax revenues.
This chart from the OBR shows how the vote for Brexit has affected the forecasts for public sector net borrowing since the March:
So did the Autumn Statement help the JAMs (Theresa may’s term for “just-about-managing” families)? The Treasury’s distributional analysis suggests yes it did – a bit.
However, it’s worth remembering that decisions taken in previous Budgets (especially the decision to freeze working-age benefits) will hurt JAMs badly – and Hammond has not reversed them.