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Jessica Fino and Danny McCance 22 Nov 2017 12:10pm

Economy weakens as Hammond helps housing

Chancellor Philip Hammond made housing central to his Budget by scrapping stamp duty for first time buyers but the UK overall economic worsened

In a speech with more jokes than expected from ‘Spreadsheet Phil’ he also set aside £3bn to prepare for all Brexit scenarios

Economy

The UK economic growth has been downgraded for the next five years, while borrowing reductions plans will be reduced.

The Office for Budget Responsibility (OBR) reduced its GDP forecast this year to 1.5% from 2%. Next year, the economy is expected to grow by 1.4%, against the previously expected 1.6%.

In 2019 and 2020, the economy will grow by 1.3% against the previous forecast of 1.7% and 1.9% respectively, but in 2021 and 2021 it will grow faster at 1.5% ad 1.6%.

The chancellor said that there will be an extra 600,000 people in work by 2022, but productivity performance continues to disappoint.

The OBR expects productivity to remain flat in 2017, before increasing 0.9% in 2018 and 1.0% in 2019. It will then increase to 1.3% in later years. In the Spring Budget this year, the forecast was of 1.7% on average.

Meanwhile, borrowing is forecast to be £49.9bn this year, £8.4bn lower than the forecast at the Spring Budget, giving the chancellor some headroom to spend the money elsewhere.

Borrowing will continue to fall in every year of the forecast from £39.5bn next year to £25.6bn in 2022-23, reaching its lowest level in 20 years.

In percentage terms, borrowing will fall from 2.4% this year, to 1.9% next year; then 1.6%; 1.5%; 1.3% and finally, 1.1% in 2022-23.

Moreover, debt will stand at 86.5% of GDP this year but fall to 86.4% next year. In the following years, it will be at 86.1%, 83.1%, 79.3%, and 79.1% in 2022-23.

Business

The Budget also included some tax avoidance measures, which are expected to raise £4.8bn by 2022-23.

Hammond said that, from now on, online marketplaces will be jointly liable for VAT. He also said income tax will be applied to sales abroad.

The government will be piloting 100% business rates retention in London next year, at same time as making £1bn of discounted lending available to local authorities across the country to be spent in infrastructure projects.

The chancellor committed £500m to projects across artificial intelligence (AI), 5g and full fibre broadband, saying that for the first time in decades “Britain is genuinely at the forefront of technological revolution.”

He pointed to the publication today of a ‘action plan’ aimed at unlocking more than £20bn of new investment in scale up UK-business, including a new £2.5bn fund in the British Business bank.

The chancellor also mentioned that he would double EIS investment limits for knowledge intensive companies.

Following pressure from business groups and several politicians in recent months, Hammond decided to make changes in the controversial staircase tax, changing the law to ensure that where a business has been impacted by the Supreme Court ruling, it can have its original bill reinstated and backdated.

He also said pubs will see a £1,000 discount with a rateable value of less than £100,000 for one more year to March 2019. Moreover, after the next revaluation, future revaluations will take place every three years, a change from five years.

The chancellor said he had to concerns about the potential costs of the annual uprating of business rates in April, and decided bring forward the planned switch from RPI to CPI by two years, to April 2018 instead of 2020.

Taxes

The chancellor said on Wednesday the personal allowance would increase to £11,850 a year, while the higher rate threshold will also increase to £46,350.

The national living wage will also increase from £7.5 an hour to £7.83 in April 2018, translation into a further £600 pay increase for full-time workers.

The first Autumn Budget also brought changes in the controversial universal credit operational delivery. Hammond said he would remove the seven-day waiting period applied at the beginning of a benefit claim.

From now on, any new claimant in receipt of housing benefit, will continue to receive it for two weeks.

The new package is worth £1.5bn and aims at addressing concerns about the delivery of the benefit, which saw many people distressed as they had to wait several weeks before receiving their first benefit.

Hammond said the government would be increasing duty in "cheap, high strength, low quality products – especially so-called white ciders", from 2019, but freeze duties on other ciders, wines, spirits and on beer.

Once again, Hammond cancelled the fuel duty rise for both petrol and diesel that was scheduled for April. He said fuel duty has now been frozen for the longest period in 40 years, at a total cost to the Exchequer of £46bn since 2010.

Furthermore, Hammond said there was now a case for removing the anomaly of the indexation allowance for capital gains, bringing the corporate system into line with personal capital gains tax.

He decided to freeze this allowance so that companies receive relief for inflation up to January 2018, but not thereafter.

Housing

As expected, one of the main announcements in today’s Budget were aimed at solving the current housing crisis. Hammond announced that, with effect from today, Stamp Duty will be abolished for purchases of up to £300,000 for all first-time buyer. Those buying properties up to £500,000 will not pay stamp duty on the first £300,000. This measure is expected to save £5,000 for 80% of first buyers.

Other housing measures include giving local authorities the power to charge a 100% council tax premium on empty properties and an investment of £28m in three new “Housing First” pilots in the West Midlands, Manchester and Liverpool.

The chancellor said the government would be establishing a homelessness taskforce in a bid to reduce rough sleeping by 2022, and eliminating it by 2027.

He unveiled a 5-year plan to support the housing market, including £44bn of capital funding, loans and guarantees.

This money will be invested in building 300,000 additional homes a year on average by the mid-2020s, while £630m will be spent in small sites fund to release the delivery of 40,000 homes. Moreover, the government will spend £2.7bn to increase the Housing Infrastructure Fund, £400m for estate regeneration, £8bn to support private housebuilding and the purpose-built private rented sector and £34m to develop construction skills. A £1.1bn fund to unlock new settlements and urban regeneration schemes will also be invested.

Brexit

The chancellor said that the UK’s relation with the EU is at a “critical phase.” As such the government would set aside a further £3bn over the next two years, to add to the £700m already spent on Brexit so far. He added that further resources would be allocated if needed.

NHS

Hammond claimed that the government had fulfilled its aims of providing £10bn to the NHS in real terms by 2020 at the same time acknowledging that more was needed. He committed to a further £10bn package in capital funding for the health service over the course of parliament.

He went on to explain that the government was going to do more now and, outside of the spending review, committed £2.8bn in resources funding to the NHS in England.

Of this, £350m would be provided immediately, with £1.6bn being made available in 2018/19 and the balance would be provided in 2019-20.

He said that this would mean the increase the total provided to the NHS resource over this year and the next to £7.5bn.

He mentioned that discussions had also begun between health unions and the health secretary over modernising the pay structure.


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