Key points from the Chancellor’s first and last Autumn Statement
Philip Hammond remarked that it might be an Autumn Statement delivered with less flair and fewer catchphrases than his predecessor’s Budgets, but this month’s Autumn Statement was no lighter on revelations and new measures than those delivered by George Osborne.
A post-referendum Autumn Statement painted a rather stark picture of how Brexit is impacting the UK already. The Chancellor started on a high, reporting that Britain will be the fastest growing major economy this year despite the Brexit vote, but quickly followed up by announcing that the UK's deficit would no longer be cleared by 2020, replaced by a vaguer target of “as early as possible.”
Despite Brexit not coming into effect until next year, it is already making its presence felt in the Office for Budget Responsibility's forecasts. OBR said the effect of the UK leaving the European Union will knock 2.4 percentage points off UK growth, putting a £122bn black hole in public finances.
The OBR had created its forecasts on estimates: that the UK would leave the EU in April 2019, new trading arrangements would reduce growth, and migration would be curbed. There have since been criticisms that this is overly pessimistic. Ultimately, there are no right answers on this; we are on unchartered waters, and whether choppy seas or plain sailing lie ahead, remains to be seen.
Below we summarise the key announcements made on tax, keeping you abreast of the essentials:
- We were told that the Government “will stick to the business tax roadmap set out in the March Budget.”
- The Chancellor wants Britain to be the first choice for businesses, so he is to push ahead with lowering corporation tax to 17%, the lowest rate in the G20.
- The business rates reduction package was confirmed, with the transitional relief cap lowered.
- There will be an increase of rural rate relief to 100%, a significant tax break for small businesses in rural areas worth £2,900 per year.
- Insurance premium tax will rise from 10% to 12% in June.
- Employee tax breaks are under the microscope, but low emission cars, childcare and cycle to work scheme will be exempt. Arrangements made before April 2017 will be protected until April 2018, while arrangements for cars, accommodation and school fees will be protected until April 2021.
- Salary sacrifice is to be scrutinised. Deemed “unfair”, from April 2017 the tax benefits of using these schemes will be scrapped.
- Tax advantages linked to Employee Shareholder Status will be abolished, in response to growing evidence that it’s being used for tax planning purposes by high earning individuals.
- The Government will shut down inappropriate use of the VAT flat rate scheme, put in place to help small businesses.
- A new penalty will be brought in for those who introduce the use of a tax avoidance scheme that HMRC later challenges and defeats.
- Personal allowance limits are to shift again, with the point at which people start to pay tax rising to £12,500, and the point at which they pay the higher rate rising to £50,000 by 2020. After 2020, these thresholds will rise in line with the consumer prices index.
- The National Insurance threshold for employees and employers will be aligned at £157 a week (with no cost to workers). As announced in the previous Budget, Class 2 National Insurance contributions will be abolished in April 2018.
- The Chancellor confirmed that tax-free childcare will be rolled out across Britain in 2017, representing a saving of up to £2,000 per child.
- The annual allowance for pension savings, for those who have started to "draw down" their pension savings, will be cut to £4,000 from £10,000. The intention is to prevent earners aged 55 and over gaining “double pension tax relief.”
- “This Government has done more to tackle tax evasion and aggressive tax avoidance,” claimed the Chancellor, promising to keep up efforts. And it will pay to do so, with the new tax measures set to raise around £2bn over the forecast period.
You will notice the list doesn’t mention Making Tax Digital. Absent from the Autumn Statement speech, it does briefly appear in the document. It states that in January 2017, the Government will publish a response to the Making Tax Digital consultations, and provisions to implement the previously announced changes. This will presumably give HMRC time to consider the 3,000 responses it received to its consultation documents.
For more detail, the 72-page Autumn Statement provides plenty here. Make the most of it, as this is the final Autumn Statement! The main Budget will now move to the Autumn, with a newly introduced Spring Statement filling its slot. This is designed to give Parliament more time to scrutinise measures before they are implemented – and give everyone else time to digest them too.