A Chairman's view: Autumn Statement November 2016
Its content had been widely leaked and speculated upon, so perhaps the biggest surprise in this Autumn Statement was the Chancellor’s announcement that it would be the last one.
Philip Hammond revealed that from now on, major fiscal changes will only be made once a year in a full Budget each autumn, with the spring Budget replaced by a more concise update report to fulfil the government’s obligations to the Office of Budget Responsibility.
The move is clearly designed to bring more stability to businesses and the wider economy, with tweaks only being made in the spring if absolutely necessary.
So what did the current Chancellor’s first and only Autumn Statement bring us? Here’s a summary – and the views of senior Blake Morgan specialists on some of the key points.
Our teams will be working with you over the coming months to understand and help you make the most of these changes.
The Chancellor gave a downbeat view of the post-Brexit economy, with forecasts adjusted to put growth at 2.4% lower than previously predicted.
Previous Chancellor George Osborne had always been bullish about the nation’s finances being in surplus by 2019/2020, but his successor has apparently ditched that aim, committing only to balancing the books “as early as possible in the next Parliament”.
There was more optimism when it came to Britain’s economic output, with predicted Gross Domestic Product (GDP) revised upwards very slightly, from 2% to 2.1%.
Tim Forer, a barrister specialising in employment and business at Blake Morgan, said: “It was an Autumn Statement with no great surprises, despite the Chancellor’s upbeat mood.
“The Chancellor's room for manoeuvre was very limited, partly caused by the uncertainty of Brexit and partly by the state of the public finances.
“In some ways, the statement will be worrying for a lot of companies as the Brexit vote has meant potential growth in the current Parliament will be 2.4 percentage points lower than forecast in March.
“Yet there are some helpful boosts today for businesses and the economy.”
The Chancellor pledged to commit to the business tax roadmap set out in the March budget – which means a cut in Corporation Tax from 205 to 17%. Mr Hammond said this underlined that Britain is “open for business” despite the Brexit decision.
Cathy Bryant, a lawyer specialising in corporate tax at Blake Morgan, said: "The commitment to reducing the corporate tax rate to 17 per cent by 2020, and no lower, provides the business community much-needed certainty at a time when so many other areas of business are uncertain.
“A reduction of the tax rate below the 17 per cent mark would have the result of turning the UK into a tax haven economy which will distract from the strategy to re-balance the economy. It also undermines public trust in tax-paying corporate world.
“The Chancellor's budget shows Britain is very much open for business and will help businesses prepare for Brexit and implement strategies to mitigate any risk they may face.
“The abolition of the Autumn Statement going forward is to be welcomed. It brings certainty to the tax and business environment."
Blake Morgan partner Tim Forer adds: “The commitment to reduce corporation tax to 17 per cent, billions of pounds’ worth of investment in infrastructure like roads and digital technology, and unlocking £1bn of finance to help start-up businesses, are all important steps to help drive the economy forward and increase productivity in these uncertain times.
“It’s far from ideal conditions, but this Autumn Statement, set to be the last, will give many businesses some certainty at a time when they most need it.
“The key for future prosperity will be what sort of trade deal the government is able to negotiate with the EU and, perhaps more importantly, what sort of deals it can strike with the rest of the world.”
Letting agents’ fees scrapped
It’s not a popular decision among landlords and letting agents, but the Chancellor struck a blow for tenants by announcing a ban on agency fees and charges.
David Cox, managing director of the Association of Residential Letting Agents, called the move “a draconian measure” and “an assault on the sector” and insisted the soon-to-be-outlawed fees were reasonable and fair.
Meanwhile Alan Ward, chair of the Residential Landlords Association, warned that landlords would react simply by raising rents.
Our residential property specialist Pervaze Ahmed, says the move is a sign of the times as the market moves from ownership to rental.
“The banning of agency fees is a positive move for tenants and will help strengthen the rental market.
“There has always been a question mark over why landlords should take a fee from the tenant, particularly in light of the fact that they act for the landlord and are already obtaining commission from the letting.
“It confirms that going forward rental, as opposed to home-ownership, will become the norm - especially in places like London.
“This change gives further protection to tenants, the same as Tenants Deposit Schemes when they were first introduced.”
There was a raft of infrastructure measures in the Autumn Statement, with promises of investment in roads, transport networks, housing and high-speed broadband.
- A 23bn fund for innovation and infrastructure over the next five years “investing today for the economy of the future”
- £1.1bn for local transport networks
- £220m to tackle “pinch points” on strategic roads
- £450m for railways
- £1bn for digital infrastructure, plus tax breaks to encourage fibre network roll-out
- £1.4bn for 40,000 additional homes
These measures are clearly designed to ensure that Britain can compete on the world stage in a post-Brexit environment and encourage growth.
Simon McCann, a lawyer specialising in construction, development and infrastructure at Blake Morgan, said: “Following ‘Brexit means Brexit’, we now have ‘investment means investment’, although in this case, the Chancellor's intentions are somewhat more clear.
“The purpose of investing in high-value schemes, he said, was to tackle long-term weaknesses in the economy, in particularly productivity and the housing crisis. Productivity was the key theme Mr Hammond returned to several times, highlighting that the UK lags behind Germany and the US by 30 per cent, France by 20 per cent and (most tellingly) Italy by eight per cent.
“Overall, the thrust of the Autumn Statement is clearly to provide a fiscal stimulus to the economy, which is set for a period of slower growth and higher inflation.
“The creation of a £23bn National Productivity Investment Fund to invest in both research and development and ‘economically productive’ infrastructure such as road, rail, telecoms and housing is to be welcomed.
“Some £1.1bn is earmarked for local transport networks in England, with a focus on smaller schemes aimed at alleviating local congestion. “
“This is great news for areas of the south, including the long-awaited funding of the £25m Stubbington Bypass scheme to help businesses prosper on the south coast.
“A commitment was also given to support the Oxford-Cambridge corridor, to unlock the growth potential of the UK's two best-known universities, including support for rail and £27m for an expressway linking Oxford, Milton Keynes and Cambridge.
“The Chancellor highlighted that the major objection holding back housing development is often the impact on local infrastructure. Therefore he promised a £2.3 billion Housing Infrastructure Fund to tackle these issues and unlock the potential for up to 100,000 homes to be built.
“This is a step in the right direction, particularly in some regions of the south-east, where housing shortages, congestion and lack of infrastructure are key issues.”
There were some modest measures aimed at encouraging people to seek or remain in work, including a 30p increase in the National Living Wage. The increase was expected but employers, especially small businesses, should ensure that they are ready for the change.
Our employment expert Ruth Christy said: "The announcement today that the National Living Wage (NLW) introduced in April this year for workers aged 25 and over will be increased from £7.20 to £7.50 per hour from April 2017 is not really ground-breaking, since the rate was due to be revised from next April anyway. However, it will still be a blow to many employers, especially in certain sectors.
"Despite complaints about the NLW from many businesses, the NLW from April 2017 will still fall far short of the voluntary Living Wage set by the Living Wage Foundation which has just risen to £8.45 and £9.75 for workers in London.
“Nevertheless, employers need to take action now and forward plan for this increase - many employers may not be ready for the changes and the impact the increased financial burden will bring.
“Sectors such as retail and hospitality, prior to the introduction of the NLW, were particularly concerned about its potential impact. Many organisations could however offset the costs of the NLW by reduced premium payments, higher prices, lower profits and reduced hours.
“There is a particular concern for the social care sector and small businesses in more marginal sectors where often flexibilities do not exist and cuts by government and local authorities are already hitting hard.
“Businesses will again have to consider increasing productivity to fund the changes, while those that can, may attempt to pass the costs on to customers.
“Clearly the impact will be different depending on regional economies and local pay rates - a much deeper impact is likely to be felt in certain regions and cities, with less of an impact in London and the South East.
"Employers should remember that we are also expecting the other rates of the National Minimum Wage (for 16-17 year-olds, 18-20 year-olds, 21-24 year olds and apprentices) to be revised from next April.
“Employers will also be faced with the increased cost of National Insurance Contributions and pension contributions under the auto-enrolment scheme – both as a result of increased pay, and as the rate of employer pension contributions slowly rises.
“Compulsory employer contributions under auto-enrolment, currently at 1%, will rise to 2% from April 2018 and then 3% from April 2019. There may be a slight set-off to these increased costs through a revised threshold of who must be auto-enrolled, but that is likely to have minimal impact.
“With many employers already complaining about the costs of the forthcoming Apprenticeship Levy, businesses will be hoping that savings can be made from other concessions in the Autumn Statement.
“The Chancellor confirmed that tax advantages linked to Employee Shareholder Status (introduced in 2013) will be abolished. Employee Shareholders give up certain statutory rights (such as the right not to be unfairly dismissed) in return for shares.
“Although it was designed to encourage start-ups and small businesses, the special tax rules have been only really used by senior executives using it as a tax break for shares they were going to get anyway.
“The Autumn Statement papers state that the status itself will be closed at the next legislative opportunity."
Non-Domicile Tax Changes
The proposed taxation changes for non-domiciled individuals will still be happening in April 2017 although we await details in the draft legislation. It was confirmed that non-doms will be deemed domiciled for all UK tax purposes if they have been resident in the UK for 15 out of the past 20 years or were born in the UK with a UK domicile of origin. Furthermore, Inheritance Tax will now be charged on UK residential property owned directly or indirectly (through a company or trust) by a non-dom.
Stamp Duty Land Tax
Some had speculated that the 3% surcharge for “additional” residential properties would be scrapped. Others thought that there would be changes to address the way the surcharge can impact on “hard” cases such as:
- where parents help adult children to buy their first property
- on leasehold extensions
- on transfers of shares in mortgaged properties between married couples
but nothing has changed.
The most we can expect is the revised Guidance Note that is due out before the end of November to replace the 16 March 2016 Guidance Note. From what we have seen, the revised document will be much clearer as to the way the replacement of the only or main residence exemption works. It will not answer all of the questions and its length (the draft we commented on ran to 39 pages) demonstrates the complexities of the way in which it has been chosen to structure the surcharge.
Other key points for individuals are:
- from April 2017 the income tax personal allowance will rise to £11,500, and the higher rate threshold will rise to £45,000. In addition, it was confirmed that the Government would meet its commitment to raise these to £12,500 and £50,000 respectively by the end of the current Parliament;
- the Government confirmed (as originally announced in the Budget 2016) that the ISA limit will increase from £15,240 to £20,000 in April 2017 – a good measure for those thinking about saving for the future;
- in another bid to encourage saving, a new three-year savings bond will be available through NS&I from spring 2017. This will allow individuals to invest between £100 and £3,000, and the Government hopes that this bond will offer a "market-leading" rate of 2.2%. Whether such a rate is possible (and whether it will indeed be "market-leading" at the time) remains to be seen;
- the Government will phase out the tax and National Insurance advantages of certain salary sacrifice schemes from April 2017. Arrangements relating to pensions, childcare, ultra-low emission cars and the cycle to work scheme will not be subject to this change. Salary sacrifices are currently used by employers to provide a range of benefits to employees, such as gym memberships and company cars;
- the Government will consult on scrapping letting agency fees charged on new and existing tenants, with the intention that such fees will be banned "as soon as possible" – renters are already looking forward to the saving, with many likely to apply it towards getting on the property ladder;
- the Annual Tax on Enveloped Dwellings charges will rise in line with inflation for the 2017/18 chargeable period (having remained the same for 2015/16 and 2016/17); and
- the Government has recommitted itself to the pledge made in its March 2016 "business tax road map" to reduce Corporation Tax to 17% by 2020.
The Autumn Statement didn't cause many waves itself but there is a lot for individuals to keep looking out for. The first draft legislation on non-doms is expected in early December, hot on the heels of the much-needed updated guidance about the reach and ramifications of the Stamp Duty Land Tax surcharge. With the somewhat gloomy forecast presented for the economy over the next few years, it remains a good time for people to be thinking about how best they can plan for the changes and uncertainties of the future.