Autumn Statement 2016 – Highlights
November 29th, 2016
Philip Hammond’s first Autumn Statement will also be his last. In 2017 there will be a Spring Budget followed by an Autumn Budget. In early 2018 there will be the first Spring Statement. The Chancellor presented his Autumn Statement against a background of reduced growth forecasts and the ‘urgent’ need to tackle the long-term weaknesses of the UK economy. His declared ambition is to make UK ‘match-fit’ for Brexit.
The emphasis of the Chancellor’s speech was on increased infrastructure spending, a stop on further new welfare savings measures and an acceptance that government borrowing will be significantly higher than previously projected.
Non-tax provisions included a proposed ban – as in Scotland – on letting agents charging fees to renters, a continuing freeze on fuel duty, and a 30p an hour increase in the national living wage from April 2017 to £7.50.
- Salary sacrifice schemes The tax and NIC advantages of most salary sacrifice schemes will be removed from April 2017 as previously proposed, but there will be some transitional protections. Arrangements relating to pensions will not be affected.
- The pensions money purchase annual allowance (MPAA) will be reduced from £10,000 to £4,000 from April 2017. This limit applies to people who have accessed their pensions flexibly and under the current rules may be obtaining tax relief on up to £10,000 of recycled pensions income.
- Foreign pensions and lump sums of UK residents will be fully taxed to the same extent as their domestic equivalents. Specialist pension schemes (s.615 schemes) for people employed abroad will be closed to new saving. There will also be other significant changes to the tax rules for pensions of people who move overseas.
- The tax changes for non-domiciled individuals will proceed as planned from April 2017.
- Corporation tax The government renewed its commitment to reduce the rate of corporation tax to 17% by 2020. It will also limit the tax deductions that large groups can claim for UK interest expenses from April 2017.
- Insurance premium tax will be increased from 10% to 12% from 1 June 2017.
- Anti-avoidance and evasion provisions were plentiful as usual, including a new legal requirement to correct a past failure to pay UK tax on offshore interests within a defined period of time. There will also be consultation on a new requirement for intermediaries who arrange complex structures for clients holding money offshore to notify HM Revenue & Customs (HMRC) of those structures and to provide lists of clients.
Five months to the day from the Brexit referendum, the economic numbers look significantly different from the government’s projections in the March 2016 Budget.
In what proved to be his Budget finale, George Osborne had made great efforts to hang on to his one surviving fiscal target – ending the budget deficit in 2019/20. He then abandoned his 2020 target shortly after the Brexit vote and shortly before Theresa May abandoned him.
It did not take long for the new Chancellor, Philip Hammond, to start talking about a ‘fiscal reset’, which he would reveal in the Autumn Statement. The latest data on government borrowing show why: just seven months into the financial year the deficit is already £48.6bn – only a little less than the Office for Budgetary Responsibility (OBR) Spring Budget projection for the whole of the 2016/17 deficit of £55.5bn.
Mr Hammond’s reset is arguably no more than a recognition of current reality. The OBR now forecasts the 2016/17 deficit will be £68.2bn, with 2019/20 producing a deficit of £21.9bn. In the space of less than a year, £122bn has been added to total government debt figures by the end of 2020/21. The first surplus has disappeared from view. Mr Hammond’s new fiscal targets carefully leave “significant flexibility to respond to any headwinds the economy may encounter”.
The heightened level of borrowing was an inevitable constraint on the Chancellor’s action. Nevertheless, this Autumn Statement – the last of its type – contained a range of important measures.