Chris Sanger (EY) provides an overview of Philip Hammond’s first and last Autumn Statement.
We all enjoy a good first: the first Autumn Statement by Philip Hammond; the first Autumn Statement since the EU referendum; and the first Autumn Statement of the Trump era. But when the first also announces a last, it’s a double bonus. And that’s exactly what we got from the chancellor on 23 November, as he used his first Autumn Statement to pull down the curtain on the whole idea of a twice-yearly ‘fiscal event’. In the future, we will have an Autumn Budget and a Spring Statement, but with the latter being bereft of tax changes.
The chancellor is clearly of the view that if the Autumn Statement continues, successors lacking his own self-control may not be able to resist the temptation to make policy changes just after the clocks go back. And true to his creed, this Autumn Statement is very light on detailed tinkering, and serves as more of a deck cleaner for the unflashy Hammond era.
So what kind of Autumn Statement was this?
In some ways, this was a new broom Autumn Statement. While paying tribute to his predecessor, Philip Hammond used his speech to set out a different approach.
For starters, that meant formally folding up and putting away (the new chancellor is not a ripper-upper) George Osborne’s fiscal rules and his commitment to running a surplus by the end of this parliament. In their place, we have a much less definitive set of rules and a more interventionist approach (particularly on infrastructure). Moreover, the shift in approach has not been delivered through the pursuit of a range of new initiatives. In terms of core tax policy, many of Osborne’s landmarks remain in place.
There was a great deal of continuity, with the word ‘confirms’ cropping up a good deal more often than is usual in the Autumn Statement and Budget. We saw little of the usual mantras of ‘So today I announce…’ and ‘But today I go further…’
Even if Hammond felt the hand of (Brexit) history upon his shoulder, this wasn’t the time for soundbites from the chancellor.
What is the new fiscal framework?
Whereas Osborne prophesied returning a surplus by a set date (2020), Hammond is closer to St Augustin: he wants to be chaste, but not yet.
To give himself the wriggle room that might be required by the Brexit-tinged headwinds heading this way, the chancellor has committed to returning the public finances to balance ‘at the earliest possible date’ in the next parliament.
Within that commitment, he has set intermediate targets for the current parliament:
net borrowing to be below 2% of GDP by 2020/21;
net debt to be falling by 2020/21; and
maintain welfare spending beneath the cap.
This is enough to keep him honest, but not so much as to tie his hands in potentially difficult times to come.
Is Britain still open for business?
Hammond said that we are indeed open for business. There was, however, less emphasis than usual on the role of tax policy in keeping it that way.
The chancellor set out his view explicitly: ‘The best way to support business is through a strong, stable economic climate that supports investment growth.’ The subtext here is ‘…and without lots of tinkering with the tax regimes.’
The key messages were therefore around continuity – stick with the commitment to have the lowest corporation tax rate in the G20, stick with the business tax road map – and investment. Those hoping that cuts in the equivalent US federal tax to 15% might force the chancellor to go further will be disappointed, however. Hammond was careful to talk about the ‘overall rate’, allowing for the inclusion of US state and local taxes in any calculation.
Where there are changes – such as the introduction of interest restriction in line with the base erosion and profit shifting (BEPS) process, or changes to loss relief – these are the end result of extended consultation exercises, rather rabbits pulled from hats. While these measures don’t fit easily with an open for business agenda, we will have to wait for legislation day on 5 December for the details.
So where was the pain?
In terms of raising revenue, the star of the show is again the former Cinderella of the insurance premium tax (IPT). Rising from 10% to 12%, IPT will bring in a whopping £4bn over the period. Given that insurers cannot recover any VAT they incur, comparisons to the VAT rate are erroneous, and this increase is bound to be passed on in premiums.
The Autumn Statement took place in a context where the government was at pains to create, and then reach out to, the category of Jams (hard-working people who are ‘just about managing'). It is odd, then, that one of the more painful measures in the package will hit just this very group. The changes to the treatment of benefits in kind provided through salary sacrifice are likely to have a disproportionately negative effect on standard rate taxpayers working in sectors such as the NHS. Delivering a cool £1bn between now and 2021/22, it remains to be seen whether this (like Osborne’s infamous ‘pasty gate’ tax) is a miscalculation or a calculated risk.
What about personal tax?
This was another area of continuity, with a confirmation of the commitment to deliver a personal allowance of £12,500 [query: we’ve changed £12,000 to £12,500. Is that right?] and a higher rate threshold of £50,000. This year’s instalment takes the personal allowance from £11,000 to £11,500 from April 2017, giving a £100 annual saving for basic rate taxpayers and a £200 saving for higher rate taxpayers. The threshold rises from £32,000 to £33,500 – a further saving for higher rate taxpayers of £300 per year.
Any targeted help for the ‘Jams’?
No. They will reap the benefits of the duty freeze, like everyone else; and see the cost of their insurance go up, like everyone else. So there were warm words in the build-up, but no jam today for the Jams.
Any word on simplification?
Although not trumpeted as a major theme, there is a thread of simplification running though this Autumn Statement, not least in the commitment to get rid of the second ‘fiscal event’ itself. This may suggest that the chancellor sees simplification more as a way of making tax policy, rather than appearing as a major reform strand in its own right.
Business may baulk, however, at ‘simplifications’ such as the alignment of national insurance contributions thresholds. While a genuine simplification, this has a price tag of up to £7.18 per employee and brings the chancellor a healthy £170m per annum.
Any innovations?
At previous ‘fiscal events’, we have been on the look out for innovations that might offer the chancellor a way of raising revenue without breaching the triple lock. None appeared this time, though we are a step closer to seeing the details on two innovations – the soft drinks industry levy and the minimum excise tax on tobacco – which will appear in detail on legislation day.
So was this a giveaway or a cash grab?
As far as tax is concerned, this ends up as a mild tax grab, but the tax policy decisions are dwarfed by the chancellor’s spending largesse.
As the table below shows, where there was a giveaway (the continued freeze on fuel duty), it was almost completely balanced out by the raid on IPT.
Will we miss the Autumn Statement?
While it is always fun to have a ‘fiscal event’, with the build-up, the secrecy and the leaks, the cycle of Budgets and Autumn Statements did set up a situation where change rather than stability became the norm in tax policy making. To that extent, the greater stability that could emerge from a single ‘fiscal event’ could more than make up for loss of our Autumn Statement fun.
In the meantime, however, the chancellor has promised us two full Budgets next year. One final hurrah?
Home >Articles > Autumn Statement 2016: The big picture
Autumn Statement 2016: The big picture
Chris Sanger (EY) provides an overview of Philip Hammond’s first and last Autumn Statement.
We all enjoy a good first: the first Autumn Statement by Philip Hammond; the first Autumn Statement since the EU referendum; and the first Autumn Statement of the Trump era. But when the first also announces a last, it’s a double bonus. And that’s exactly what we got from the chancellor on 23 November, as he used his first Autumn Statement to pull down the curtain on the whole idea of a twice-yearly ‘fiscal event’. In the future, we will have an Autumn Budget and a Spring Statement, but with the latter being bereft of tax changes.
The chancellor is clearly of the view that if the Autumn Statement continues, successors lacking his own self-control may not be able to resist the temptation to make policy changes just after the clocks go back. And true to his creed, this Autumn Statement is very light on detailed tinkering, and serves as more of a deck cleaner for the unflashy Hammond era.
So what kind of Autumn Statement was this?
In some ways, this was a new broom Autumn Statement. While paying tribute to his predecessor, Philip Hammond used his speech to set out a different approach.
For starters, that meant formally folding up and putting away (the new chancellor is not a ripper-upper) George Osborne’s fiscal rules and his commitment to running a surplus by the end of this parliament. In their place, we have a much less definitive set of rules and a more interventionist approach (particularly on infrastructure). Moreover, the shift in approach has not been delivered through the pursuit of a range of new initiatives. In terms of core tax policy, many of Osborne’s landmarks remain in place.
There was a great deal of continuity, with the word ‘confirms’ cropping up a good deal more often than is usual in the Autumn Statement and Budget. We saw little of the usual mantras of ‘So today I announce…’ and ‘But today I go further…’
Even if Hammond felt the hand of (Brexit) history upon his shoulder, this wasn’t the time for soundbites from the chancellor.
What is the new fiscal framework?
Whereas Osborne prophesied returning a surplus by a set date (2020), Hammond is closer to St Augustin: he wants to be chaste, but not yet.
To give himself the wriggle room that might be required by the Brexit-tinged headwinds heading this way, the chancellor has committed to returning the public finances to balance ‘at the earliest possible date’ in the next parliament.
Within that commitment, he has set intermediate targets for the current parliament:
net borrowing to be below 2% of GDP by 2020/21;
net debt to be falling by 2020/21; and
maintain welfare spending beneath the cap.
This is enough to keep him honest, but not so much as to tie his hands in potentially difficult times to come.
Is Britain still open for business?
Hammond said that we are indeed open for business. There was, however, less emphasis than usual on the role of tax policy in keeping it that way.
The chancellor set out his view explicitly: ‘The best way to support business is through a strong, stable economic climate that supports investment growth.’ The subtext here is ‘…and without lots of tinkering with the tax regimes.’
The key messages were therefore around continuity – stick with the commitment to have the lowest corporation tax rate in the G20, stick with the business tax road map – and investment. Those hoping that cuts in the equivalent US federal tax to 15% might force the chancellor to go further will be disappointed, however. Hammond was careful to talk about the ‘overall rate’, allowing for the inclusion of US state and local taxes in any calculation.
Where there are changes – such as the introduction of interest restriction in line with the base erosion and profit shifting (BEPS) process, or changes to loss relief – these are the end result of extended consultation exercises, rather rabbits pulled from hats. While these measures don’t fit easily with an open for business agenda, we will have to wait for legislation day on 5 December for the details.
So where was the pain?
In terms of raising revenue, the star of the show is again the former Cinderella of the insurance premium tax (IPT). Rising from 10% to 12%, IPT will bring in a whopping £4bn over the period. Given that insurers cannot recover any VAT they incur, comparisons to the VAT rate are erroneous, and this increase is bound to be passed on in premiums.
The Autumn Statement took place in a context where the government was at pains to create, and then reach out to, the category of Jams (hard-working people who are ‘just about managing'). It is odd, then, that one of the more painful measures in the package will hit just this very group. The changes to the treatment of benefits in kind provided through salary sacrifice are likely to have a disproportionately negative effect on standard rate taxpayers working in sectors such as the NHS. Delivering a cool £1bn between now and 2021/22, it remains to be seen whether this (like Osborne’s infamous ‘pasty gate’ tax) is a miscalculation or a calculated risk.
What about personal tax?
This was another area of continuity, with a confirmation of the commitment to deliver a personal allowance of £12,500 [query: we’ve changed £12,000 to £12,500. Is that right?] and a higher rate threshold of £50,000. This year’s instalment takes the personal allowance from £11,000 to £11,500 from April 2017, giving a £100 annual saving for basic rate taxpayers and a £200 saving for higher rate taxpayers. The threshold rises from £32,000 to £33,500 – a further saving for higher rate taxpayers of £300 per year.
Any targeted help for the ‘Jams’?
No. They will reap the benefits of the duty freeze, like everyone else; and see the cost of their insurance go up, like everyone else. So there were warm words in the build-up, but no jam today for the Jams.
Any word on simplification?
Although not trumpeted as a major theme, there is a thread of simplification running though this Autumn Statement, not least in the commitment to get rid of the second ‘fiscal event’ itself. This may suggest that the chancellor sees simplification more as a way of making tax policy, rather than appearing as a major reform strand in its own right.
Business may baulk, however, at ‘simplifications’ such as the alignment of national insurance contributions thresholds. While a genuine simplification, this has a price tag of up to £7.18 per employee and brings the chancellor a healthy £170m per annum.
Any innovations?
At previous ‘fiscal events’, we have been on the look out for innovations that might offer the chancellor a way of raising revenue without breaching the triple lock. None appeared this time, though we are a step closer to seeing the details on two innovations – the soft drinks industry levy and the minimum excise tax on tobacco – which will appear in detail on legislation day.
So was this a giveaway or a cash grab?
As far as tax is concerned, this ends up as a mild tax grab, but the tax policy decisions are dwarfed by the chancellor’s spending largesse.
As the table below shows, where there was a giveaway (the continued freeze on fuel duty), it was almost completely balanced out by the raid on IPT.
Will we miss the Autumn Statement?
While it is always fun to have a ‘fiscal event’, with the build-up, the secrecy and the leaks, the cycle of Budgets and Autumn Statements did set up a situation where change rather than stability became the norm in tax policy making. To that extent, the greater stability that could emerge from a single ‘fiscal event’ could more than make up for loss of our Autumn Statement fun.
In the meantime, however, the chancellor has promised us two full Budgets next year. One final hurrah?
