Policy News from MHA: November 2016

Welcome to MHA's summary of the Autumn Statement 2016

 

Delivering his first Autumn Statement, Chancellor Philip Hammond reported that the IMF had predicted the UK would be the fastest-growing major economy in the world this year. However he also said that the decision to leave the EU increased the urgency to address the housing shortage and concerns over productivity.

The Chancellor announced that there would be no more Autumn Statements. Instead he indicated a move to an Autumn budget, followed by a Spring statement from 2018, at which the Office for Budget Responsibility’s (OBR) bi-annual report would be presented but there would be no fiscal policy changes, unless there was an economic emergency.

There was no mention of additional funding for the NHS or adult social care in this statement.

(Information courtesy of DeHavilland)

The State of the Economy

Debt and Borrowing

Workforce, Pensions and Tax

Housing

Infrastructure and Transport

Business

Devolution

Other key points

Responses and commentary

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The State of the Economy

  • The OBR forecasts economic growth of:
    • 2.1% in 2016 - down 2.4% from the forecast before the EU referendum
    • 1.4% in 2017 - down from 2.2%
    • 1.7% in 2018 - down from 2.1%
    • 2.1% in 2019 - down from 2.1%
    • 2.0% in 2020 - down from 2.1%

Debt and borrowing

  • Public sector net debt (PSND) is also higher than forecast at Budget 2016 in every year and peaks at 90.2% of GDP in 2017-18. By the end of this parliament, net debt will have risen by £220bn.

  • The Chancellor reiterated the previous announcement that the government no longer sought to return the economy to a surplus by 2019/2020.  However he said "…the Prime Minister and I remain firmly committed to seeing the public finances return to balance as soon as soon as practicable, while leaving enough flexibility to support the economy in the near term."

  • The government will publish a draft charter for budget responsibility with three new fiscal rules:

1. Public finances should be returned to balance as early as possible in the next parliament, and in the interim cyclically adjusted borrowing should be below 2% by the end of this parliament.
2. Public sector net debt as a share of GDP must be falling by the end of this parliament.
3. Welfare spending must be within a cap set by the government and monitored by the OBR.

  • The cap on welfare spending would take into account policy changes already announced and there be no further welfare savings measures.

  • The OBR forecasts that in cash terms, borrowing is set to be:

• £68.2bn in 2016; falling to £59bn in 2017; £46.5bn in 2018-19; then £21.9bn; £20.7bn and finally £17.2bn in 2021-22.
• Overall public sector net borrowing as a percentage of GDP will fall from 4% in 2015 to 3.5% in 2016 and will continue to fall over the Parliament, reaching 0.7% in 2021-22.

Workforce, Tax and Pensions

  • The Personal Allowance will rise to £11,500 in April 2017, to £12,500 by 2020 and then rise in line with inflation.

  • Income Tax higher rate threshold will be £50,000 by the end of the Parliament.

  • From April 2017:

    - National Living Wage will increase from £7.20 to £7.50.

    - Employee and employer National Insurance thresholds will be aligned at £157 per week. This will not cost employees and the maximum cost to business will be an annual £7.18 per employee.

    - The amount of tax paid on employee benefit (salary sacrifice) schemes would be equal to other tax rates (with some exceptions including ultra-low emission cars, childcare and cycle schemes) - consultation to follow.

  • Insurance Premium Tax will rise from10% to 12% and the Government plans to introduce legislation on whiplash scams.

    A commitment to move to Corporation Tax of 17%, reduce businesses rates and support for the oil and gas sector.

  • Increase rural rate relief to 100% for rural businesses.

  • There will be a new penalty for implementing tax avoidance schemes that are challenged and defeated by HMRC and new steps to address the inappropriate use of the VAT flat rate regime.

  • A pledge to retain the triple-lock for pensions, but he added But as we look ahead to the next Parliament, we will need to ensure we tackle the challenges of rising longevity and fiscal sustainability.”

  • For pensions that had been drawn down, the Money Purchase Annual Allowance (MPAA) would be reduced to prevent double tax relief.

  • Pension cold calling to be banned.

Housing

  • Relaxed restrictions on Government grants to allow providers to build a wider range of housing types and tenures.

  • New £2.3bn Housing Infrastructure Fund to support infrastructure development for up 100,000 new homes in high demand areas.

  • A further £1.4bn to deliver 40,000 additional homes to support a wide range of needs.

  • A large-scale regional pilot of Voluntary Right to Buy for Housing Association tenants.

  • Letting fees charged by agents will be banned as soon as possible.

Infrastructure and Transport

  • The creation of a new National Productivity Investment Fund worth £23bn over the next five years.

  • The Chancellor confirmed Government investment of an additional £2bn in scientific research and development.

  • £1.1bn to be invested into English local transport networks

  • £22m would be invested to address traffic pinch points

  • £450m to trial digital signals on railway lines.

  • £390m for the development of low emission vehicles and connected autonomous (driverless) vehicles.

  • £110m to develop Oxford and Cambridge ‘Growth Corridor’ connectivity (transport and digital infrastructure)

  • Funding for an evaluation study of the Midlands Rail hub will be made available.

  • £1bn investment  in digital infrastructure to support 5G trials and 100% business rate relief to support the roll-out of fibre

  • The UK Guarantee Scheme has been extended to 2026 (this is where the Government underwrites infrastructure projects that fail to attract commercial funding, although the contractor has to pay fees)

Business

  • £400m for venture capital through the British Business Bank.

  • A Treasury-led review into barriers to capital funding.

  • The Government will publish a strategy to address productivity barriers to the Northern Powerhouse and a Midlands Engine Strategy would follow shortly.

Devolution

  • The allocation of £1.8bn from the Local Growth Fund to the English regions:  £556m to Local Enterprise Partnerships in the North of England, £542m to the Midlands and East of England, and £683m to LEPs in the South West, South East and London.

  • A new City Deal for Stirling.

  • New borrowing powers for new Combined Authority mayors

  • £3.1bn for London for affordable homes and devolved budgets for  adult education and skills

Other key points:
Welfare

  • Universal credit taper rate from 65p to 63p in every pound, meaning people keep 37p rather than 35p of every extra pound they earn.

Alcohol, tobacco, gambling and fuel

  • Fuel duty rise cancelled (for the 7th time in a row).

  • No announcements on alcohol, tobacco or gambling.

Savings

  • A new saving bond through NS&I will be developed and announced at the Budget.

Third Sector

  • Further distribution of £102m LIBOR fines for armed forces and emergency services charities.

  • Comic Relief will receive £3m from the Tampon Tax Fund to distribute to a range of women’s charities.

Government departments

  • Departmental spending plans would remain in place and departmental expenditure would grow in line with inflation in 2021/22.

  • £1bn from Departmental savings will be reinvested in priority areas

  • Additional funding given to the Ministry of Justice to recruit more prison staff, following recent prison safety concerns

  • The Government would protect budgets for overseas aid and the Defence budget.

Special projects

  • The Chancellor announced that Wentworth Woodhouse, a Grade 1 listed country house in South Yorkshire, was at risk of being lost and that the Government would provide a £7.6m grant for this house.

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Responses and commentary

  • Responding to the 2016 Autumn Statement, Shadow Chancellor John McDonnell made the following points:

    - The Statement placed on record the “abject failure” of the last six years, and that growth, wage growth, and business investment had been revised down. He added that the Chancellor had spoken of a “reset” in economic policy, but had not delivered one. 

    - Wages remain lower than 2008 and the focus on those who were 'just about managing' (JAMs) was merely an attempt to target an “electoral demographic”. Further, he argued that these people were “just managing” because of the austerity introduced by the Conservative Party, and said that there was not enough in the Autumn Statement to help them.

    - He attacked the Chancellor for going ahead with cuts to Universal Credit.

    - The infrastructure gap between London and the rest of the UK remained, he said, accusing the Government of making a “re-announcement” of previously-committed funds. There were “no new ideas here”, he claimed.

    - Local Government councillors were warning of pressures from rising social care costs, wishing to see more funding and these had not been addressed.

    - He criticised the Government for delivering “misleading” claims on new funding for the NHS, and highlighted the high number of patients on NHS waiting lists.

    - He urged the Chancellor to press for the UK to have full, tariff-free access to the European Single Market.

    - He added that business investment could only increase as a result of having confidence in access to skilled workers and said that the Chancellor had not delivered any hope of change “The country remains ill-equipped to cope with the challenges of Brexit”.

  • Responding to the 2016 Autumn Statement, SNP Westminster Economy Spokesperson Stewart Hosie noted the lack of references to the WASPI campaign on pensions for 1950s-born women. He added that there had been no significant remarks in the Statement on Brexit, noting that the tax yield could reduce significantly as a result of leaving the EU. He asked why there had been no plan to retain membership of the Single Market or to act on the lost tax yield as a result of Brexit. Mr Hosie commented on the Fiscal Charter, and said the previous surplus target had left some “terrible consequences” and placed the burden of austerity of the poor.  He said that the Autumn Statement did not provide the fiscal stimulus to match the monetary policy discipline of the central bank.

  • The Institute for Fiscal Studies and the Resolution Foundation both said that the outlook for family finances is a "grim picture" with little respite from measures announced in the Autumn Statement. The Resolution Foundation suggested that biggest losers between now and 2020 will be lower income families, with the poorest third likely to see incomes drop, predicting the squeeze on living standards could be worse during this Parliament than between 2010 and 2015.

  • Simon Walker, director-general of the Institute of Directors said “…it's clear that boosting the UK's low productivity is Philip Hammond's number one priority. A lot of what we saw today ties in with that. However, the IoD is a bit disappointed that the chancellor wasn't more ambitious. There could have been more tax incentives to encourage companies - many of which are cautious at the moment.”

  • Professor Martin Green, Chief Executive of Care England said: “Yet again the Chancellor has ignored social care. In doing so the Government needs to be prepared for the detrimental impact on families, local economies and the NHS.  Social care needs to be a priority, indeed in some regions it is a huge employer and stability is crucial for those in receipt of care and those in its employment. Unfortunately the lack of investment in social care spells disaster in the NHS and potentially a perpetual winter”.

  • Lord Porter, chairman of the Local Government Association said: “Councils, the NHS, charities and care providers have been clear about the desperate need for the Chancellor to take action to tackle the funding crisis in social care. It is unacceptable that this has not been addressed in the Autumn Statement. The Government must take urgent action to properly fund social care if councils are to stand any chance of protecting the services which care for the elderly and vulnerable. Services supporting our elderly and vulnerable are at breaking point now."

  • Barbara Keeley MP, Labour’s Shadow Minister for Social Care said: “It’s astonishing that this Autumn Statement has failed one of the key challenges facing the Government: the funding crisis they’ve created in social care. The Tories have ignored the chorus of voices pleading for them to address the mess they’ve created with their cuts of £4.5 billion to social care budgets. It’s a scandal that they’ve not offered even a penny more to support this vital service.”

Further reading: OBR summary and infographics

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Back to MHA Policy News November 2016

 

Some information sourced from DeHavilland

 
 

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