Five things to look out for in the Autumn Statement
Written by Matthew Walters | Posted on 17.11.2016
When Philip Hammond rises to his feet on Wednesday 23rd November to deliver his first major House of Commons speech as Chancellor, there are a lot of questions for him to answer. How will his approach to the public finances differ from his predecessor’s? How has the EU Referendum vote affected Treasury plans? What will be the spending priorities of Theresa May’s Government?
To find the answers within Hammond’s Autumn Statement, it’s worth paying particular attention to the following five topics.
- Growth downgrade. Both before and after the EU referendum, economists and others warned that a vote to leave could harm economic growth, particularly in the short-term; now we’ll discover whether the Government thinks so too. The Office for Budget Responsibility – set up by George Osborne to conduct independent analysis of the economy and the public finances – will publish its first forecasts since the referendum alongside the Autumn Statement. Their last, which were produced in March and assumed that Britain would stay in the EU, predicted that the economy would grow by 2.2 per cent in 2017 and 2.1 per cent in 2018. As the graph below shows, other forecasters are now much more pessimistic, predicting on average that it will grow by just 1.1 per cent next year and 1.4 per cent the year after. We can expect the OBR to downgrade its forecasts accordingly.
(Autumn Statement 2016)
- New fiscal targets? Lower economic growth will impact the public finances, through lower tax receipts and higher social security spending. This will force the Government to abandon its plans to eliminate the deficit by 2020. The Government currently has a ‘fiscal mandate’ to get the overall public sector budget into surplus by 2019/20, as well as a ‘supplementary target’ to reduce the public sector net debt as a share of GDP every year between now and 2019/20. As the below graphs show, Osborne was – just about – on course to meet the main mandate, but not the supplementary target, until the EU referendum upended his plans and effectively ended his Chancellorship.
Public Sector Net Borrowing (Autumn Statement 2016)
Public Sector Net Debt (Autumn Statement 2016)
At the Conservative Party conference last month, Hammond said that ‘we will no longer target a surplus at the end of this Parliament’. But what will he replace that fiscal mandate with? Hammond has promised that his Autumn Statement will contain the answer.
- Salary Sacrifice. When it comes to more specific policies, the one we will be watching most closely is Salary Sacrifice. As we’ve written about in more detail recently, the Government is planning to tax many of the employee benefits received through Salary Sacrifice schemes as if they were income – and that includes cars. Furthermore, HMRC are making no distinction between the ‘true’ practice of Salary Sacrifice and where a cash allowance is offered in lieu of a company car effectively extending the effected population from 70K to 600K. After a consultation that closed last month, the final details are due to be announced in the Autumn Statement. We – along with the rest of the automotive industry – have argued that Car Salary Sacrifice schemes should be exempt from these changes. They benefit companies and workers, the British economy and the Government coffers, and the environment too. Let’s see if Philip Hammond has been listening.
- Fuel Duty. Almost every one of George Osborne’s Budgets and Autumn Statements involved cancelling or postponing the next planned rise in Fuel Duty. As a result, the rate of Fuel Duty has remained at 57.95p a litre since March 2011, and Fuel Duty receipts have declined as a share of the economy. As set out in our recent Fuel Duty briefing, revenues are likely to fall further as vehicles become more fuel-efficient and more electric cars hit the roads. Will Hammond attempt to combat this by hiking Fuel Duty rates? Will he share Osborne’s penchant for freezing them? Or might he be bolder, and reform the system completely?
- Infrastructure investments. The Government has finally made a decision on airport expansion near London: it’s backing a third runway at Heathrow. But what other infrastructure projects will we see over the coming years? Sky News reports that Hammond plans to invest £15 billion in infrastructure ‘in an attempt to “future-proof” the economy from the turbulence of Brexit’, while the Financial Times suggests that he may introduce new ‘infrastructure bonds’ to help fund it. One particular area that might be soon the site of big spending is the Oxford-to-Cambridge ‘corridor’. The National Infrastructure Commission has just published a report recommending that new road and rail links between the two cities be ‘taken forward urgently’, arguing that it could form ‘the UK’s Silicon Valley’.
We at LeasePlan will be listening closely to all of Philip Hammond’s announcements on Wednesday. Watch this space for our expert analysis.
Blog by Matthew Walters, Head of Consultancy Services at LeasePlan UK.
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