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Chancellor confirms cuts to Corporation Tax in ‘final’ Autumn Statement

Posted: November 23, 2016

Resilience, commitment and match-fit for Brexit – these were the watchwords for Philip Hammond as the new chancellor delivered his first – and last – Autumn Statement to a packed House of Commons.

In a largely upbeat Statement, Mr Hammond blended a more humorous approach than his predecessor with an economic insight that were a breath of fresh air. He also said this would be the last Autumn Statement, with the Budget moving to Autumn and a new Spring Statement.

Mr Hammond confirmed that Corporation Tax will be reduced to 17% as planned by 2020. He also plans to give small businesses in rural areas a tax break worth up to £2,900 per year by increasing the Rural Rate Relief.

The chancellor confirmed the government will still raise the personal allowance to £12,500, and the threshold for the higher tax rate to £50,000, by the end of this Parliament.

The personal allowance – the amount people earn before they start paying income tax – will rise to £11,500 in April,

“Our task is to prepare our economy to be resilient as we exit the EU and match-fit for the transition that will follow,” he said. “We will maintain our commitment to fiscal discipline while recognising the need for investment to drive productivity.”

Unveiling the OBR forecasts, Mr Hammond said they would show growth higher than previously thought next year, but just 1.4% in 2018 “driven by greater uncertainty and higher inflation”.

“That is lower than we would like,” he said, “but still higher than many of our European neighbours”.

“While the OBR is clear that it cannot predict the deal the UK will strike with the EU, its current view is that the referendum decision means that potential growth over the forecast period is 2.4 percentage points lower than would otherwise have been the case,” the Chancellor added.

The government has no plan to make further welfare savings funding this parliament, Mr Hammond said to muted reaction from MPs in the House.

He said the deficit – as measured by public sector net borrowing as a percentage of GDP – will fall from 4% last year to 3.5% this year.

It is forecast to continue to fall over the next five years, reaching 0.7% in 2021-22. “This will be the lowest deficit as a share of GDP in two decades,” he told MPs.

The Chancellor reiterated earlier government announcements, saying the government no longer seeks to return the economy to a surplus in 2019/2020.

“But 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 Chancellor said the UK needs to become more productive, so that wages can rise and people can enjoy higher living standards.

To help with that, he announced a National Productivity Investment Fund of £23bn to be spent on innovation and infrastructure over the next five years, “investing today for the economy of the future,” he said.

Raising productivity is essential for the “high wage, high skill economy we want”, he added.

The Chancellor also confirmed funding for 40,000 new homes and announced a large-scale pilot to give the right to buy to housing association tenants.

“We will focus government infrastructure investment to unlock land for housing with a new £2.3bn Housing Infrastructure Fund to deliver infrastructure for up to 100,000 new homes in areas of high demand.

“And, to provide affordable housing that supports a wide range of need, we will invest a further £1.4bn to deliver 40,000 additional affordable homes. And I will also relax restrictions on government grant to allow providers to deliver a wider range of housing types,” Mr Hammond added.

KEY POINTS

Taxation/pay
• Corporation Tax to be cut to 17% by 2020
• Income tax threshold to be raised to £11,500 in April, from £11,000 now
• Higher rate income tax threshold to rise to £50,000 by the end of the Parliament
• Tax savings on salary sacrifice and benefits in kind to be stopped, with exceptions for ultra-low emission cars, pensions, childcare and cycling
• National Living Wage to rise from £7.20 an hour to £7.50 from April next year
• Employee and employer National Insurance thresholds to be equalised at £157 per week from April 2017
• Insurance premium tax to rise from 10% to 12% next June

Welfare
• Universal Credit taper rate to be cut from 65% to 63% from April at a cost of £700m
• No plans for further welfare savings in this Parliament

Housing
• Ban on upfront fees charged by letting agents in England “as soon as possible”
• £2.3bn housing infrastructure fund to help provide 100,000 new homes in high-demand areas
• £1.4bn to deliver 40,000 extra affordable homes

Fuel/Air Passenger Duty
• Fuel duty rise cancelled for seventh year in succession – at a cost of £850m, saving average car driver £130 and van driver £350 a year
• For the oil and gas sector, the Carbon Price Support will be capped until 2020 and business rates reductions worth £6.7bn will be implemented

The state of the economy
• The chancellor promises “fiscal headroom” to support the economy through Brexit
• Office for Budget Responsibility growth forecast upgraded to 2.1% in 2016 – from 2.0% – then downgraded to 1.4% in 2017, from 2.2%
• OBR forecasts growth of 1.7% in 2018, 2.1% in 2019 and 2020 and 2% in 2021
• Government no longer seeking a budget surplus in 2019-20 – Mr Hammond says he is committed to returning public finances to balance “as soon as practicable”
• Employment grew fastest in north-east of England in past year

Public borrowing/deficit/spending
• Debt will rise from 84.2% of GDP last year to 87.3% this year, peaking at 90.2% in 2017-18
• OBR forecasts borrowing of £68.2bn this year, then £59bn in 2017-18, £46.5bn in 2018-19, £21.9bn in 2019-20 and £20.7bn in 2020-21
• £23bn to be spent on innovation and infrastructure over five years
• £2bn per year by 2020 for research and development funding
• Public spending this year to be 40% of GDP – down from 45% in 2010
• Departmental spending plans set out in 2015 Spending Review to remain in place
• Government will meet commitments to protect budgets for key public services, defence, overseas aid and the pension “triple lock” until the end of this Parliament

Transport/infrastructure/regions
• £1.1bn extra investment in English local transport networks
• £220m to reduce traffic pinch points
• £110m for East West Rail and commitment to deliver Oxford to Cambridge Expressway
• More than £1bn for digital infrastructure
• 100% business rates relief on new fibre infrastructure
• £1.8bn from Local Growth Fund to English regions
• Rural Rate Relief to be increased to 100%, “giving small businesses a tax break worth up to £2,900”
• £7.6m for repairs to Wentworth Woodhouse, near Rotherham, said to be inspiration for Pemberley in Jane Austen’s Pride and Prejudice

Business
• Doubling UK export funding capacity
• £400m into venture capital funds through the British Business Bank to unlock £1bn in finance for growing firms

Other
• Funding for 2,500 more prison officers
• Promise to abolish Autumn Statement, with Budgets happening in the autumn from next year, along with “Spring Statement” from 2018
• Reforms to compensation for whiplash to cut the cost of motor insurance

 

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