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23 Nov 2016 02:04pm

Philip Hammond abolishes the Autumn Statement

Today will be the chancellor's first, and last Autumn Statement, as he announced a change to the biannual fiscal events

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Caption: Lower growth, higher borrowing and no more AS

The Autumn Statement will be replaced by an Autumn Budget, which will then be followed by a Spring Statement, with limited tax changes.

This time, however, the chancellor used his speech to extend the government's position on multinational tax avoidance, and attempted to tackle the tax minefield surrounding the rise in self-employment.

TAX

The chancellor announced a number of changes to both business and personal tax. He said the "pitch is tilted in favour of large multinational firms" in relation to tax.

He said new measures to clamp down on tax evasion and aggressive tax avoidance will yield an extra £2bn in tax this parliament. Measures included the removal of a tax break on salary sacrifice schemes on employees' benefits from next year with some exclusions for certain schemes, such as the cycle to work scheme.

 

He reversed his predecessor George Osborne's promise on reducing corporation tax to 15%. Hammond said it would fall to 17% by 2020.

He vowed a clampdown on the VAT flat rate scheme and pledged to abolish the tax advantages linked to employee shareholder status.

The income tax threshold will be raised to £11,500 in April, from £11,000. He also is raising the highest tax threshold to £50,000 by the end of the Parliament.

Hammond raised the insurance premium tax from 10% to 12% next June and employee and employer National Insurance thresholds are to be set at £157 per week.

ECONOMIC FIGURES

Hammond's speech, although delivered more confidently than expected, hammered home the blows to the UK economy that have been delivered since the last Budget in March.

OBR predictions put growth over the forecasted period 2.4 percentage points lower than it have been had the UK not voted to leave the EU.

In the face of this uncertainty, Hammond said, he would no longer seek to deliver a surplus in 2019-20 as promised and legislated by his predecessor. His Parliament will instead abide by a new Charter for Budget Responsibility, which will aim to reduce cyclically-adjusted borrowing to below 2% by the end of the Parliament.

The OBR now forecasts that borrowing will be £68.2bn this year; falling to £59bn next year; £46.5bn in 2018-19; then £21.9bn; £20.7bn, and to £17.2bn in 2021-22.

As a percentage of GDP, public sector net borrowing will fall from 4% last year to 3.5% this year, and will continue to fall over the Parliament, reaching 0.7% in 2021-22.

The OBR expects cyclically-adjusted public sector net borrowing to be 0.8% of GDP in 2020-21, comfortably meeting the target to reduce it to less than 2%, Hammond said.

Debt is expected to rise in the near term, to 87.3% of GDP next year, and again to 90.2% in 2017-18, before falling in 2018-19.

INVESTMENT

The government's response to this rather gloomy economic outlook will be to invest, Hammond said. This, due to the governments hard won credibility on public spending he said, will be funded from additional borrowing. All other policies will be funded through additional tax, he added.

Investment will target raising productivity to be more competitive with other European countries. Hammond announced a new £23bn National Productivity Investment Fund, dedicated to innovation and infrastructure.

This will include £2bn per year on R&D by 2020-21, further spending on house building, and continued support for home ownership projects.

There will also be additional money for transport networks, and the development of 5G broadband technology.

The chancellor also announced a further injection of £400m into venture capital funds, which he said would stem the trend of young technology companies being bought up by bigger firms, rather than being allowed to grow to scale.

These investments, coupled with more devolution to regional governments, will help support those across Britain, he said, as it grapples with its uncertain future.

Ellie Clayton

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