2nd December, 2016
Autumn Statement 2016
Philip Hammond’s campaign as Chancellor began without a bang. An Autumn Statement is never as versatile as the yearly Budget, but in the face of Brexit uncertainty and a lack of consumer and business confidence, we could be forgiven for holding slightly higher expectations.
What did he do?
- Praised his “honourable friend” George Osbourne for his tenure
- Admitted UK Growth forecasts will now be lower – tell us something we don’t know…
- Said the usual stuff like “we need to build an economy that works for everyone”
- Announced a moderate fiscal stimulus package that pretty much everyone expected
- Decided to abolish Autumn Statement’s from now on… (if they are all like this one, good shout!)
What didn’t he do?
- Enough to instil confidence in UK business growth
- Implement new revolutionary policies to fix the imbalances he highlighted
- Add some substance behind the new governments lack of communication
Were there any announcements that will affect our clients?
The biggest win here was the lack of change. Many of the pension improvements delivered in April have been upheld, and the ISA allowance will still increase to £20,000 per person from next April. Moreover, the “triple lock” state pension guarantee was preserved, ensuring State Pension Income continues to increase annually under strong provisions.
In addition, the Chancellor announced his policy to increase the Income Tax Personal Allowance to £11,500 next year, and to £12,500 over the course of this parliament. This commitment should not be understated, especially considering the allowance was only £6,475 back in 09/10. The changes will quite simply mean more income can be earned (or generated from a portfolio) without tax.
The threshold for Higher Rate Income Tax is also due to rise, all the way to £50,000 by end of this parliament (currently £43,000 if you have a standard personal allowance of £11,000 in 16/17). Again, this will be a benefit for higher earners, and is another variable we shall include when considering our clients’ tax strategy.
On the economic front, the £23bn in stimulus is going to be spent on infrastructure and innovation, boosting roads, railways and telecoms. He also announced further plans to improve the ability to achieve home ownership, aiming to build 40,000 new affordable homes in the coming years. These are good things, but were widely expected. This change to fiscal spending is a major shift from the Osbourne austerity plan. Right wing commentators have suggested that Hammond needs to spend far more than he outlined as Central bankers appear to be out of ammunition. Interest rates can’t rise anytime soon in the UK or Europe, and QE (Quantitative easing) has lost its impact. We expect the globe to follow suit with this fiscal change, especially in the US where Trump is promising to spend $1 trillion on all manner of home initiatives. This looks like the start of a global spending bonanza, and that suggests inflation is just around the corner. For better or worse, we are entering a new phase of economics, and for better or worse, our politicians remain at the wheel…..