Today, the Chancellor, Philip Hammond gave the Autumn Statement. Here is a quick analysis of the key points:
Mr Hammond announced that while the UK economy is expected to grow marginally faster in 2016 (2.1% over 2%), in 2017 it is likely to take a big hit. It has been reduced from 2.2% to 1.4% which is a shocking reduction. This is due to the effects of Brexit and the uncertainty that causes, particularly with Article 50 forthcoming.
The fact that the government have said they are no longer looking for a budget surplus shows that they believe that we are in for a potential trouble next year.
Unsurprisingly, the debt will rise to 90.2% of GDP over the next year. This is a dangerous amount, however I am in agreement with Hammond that this is the right call. We don’t want heavy austerity when the economy is in a fragile place. There is still a commitment towards cutting borrowing from £68.2bn to £20.7bn in 4 years. This is certainly more sensible than Mr Osborne’s old economic policy.
The government will keep to commitments apparently. This includes triple locking the pension.
Lock, Lock & Lock
I hate this scheme. It basically increases pensions by wages, prices or 2.5%, whichever is highest. While I appreciate the need for pensions to support the elderly, this takes the biscuit. It always means that pensioners will be better off than the rest of society and it also leads to an unsustainable increase in spending and the resultant debt. We have lots of old people and to increase pension spending by so much is just not going to be an option as we head into the future.
So why do the Conservatives use such a awful scheme. Well it’s popular with old people. They are the ones that vote. If young people voted as much, this scheme wouldn’t happen. However they don’t and we’re going to be burdened by ridiculous levels of debt.
Unsurprisingly, the income tax threshold is to be raised to £11,500. This is good for low income earners and something the Conservatives have done well throughout their time in office. The middle class are also looking to be better off as the high rate tax threshold will be increased to £50,000. Therefore everyone is looking to have to pay less tax and feel better off. The national living wage is also set to rise from £7.20 to £7.50 per hour.
One scheme that caught my eye was that the salary sacrifice scheme would be abolished. Basically those who give up salary to buy gym membership and phones through their work benefits will have to pay the standard rate of tax. This will most likely hit the highest earners the most. The companies claim this will hurt their workers well-being, but if anything it can be interpreted as small scale tax evasion. I personally feel that socially beneficial goods shouldn’t be taxed, but agree that if there is a tax, that everyone should pay it.
One omission I am surprised about is the idea that corporation tax rates aren’t being reduced. With the Brexit uncertainty,. it seems probable that the rates will reduce next year from 20%. This is because Ireland’s are only 12.5% and will probably be the most attractive investment. A confirmed reduction in this tax would make multi national companies more likely to stay in the UK and is something I see as probable within this government.
Homes, sweet Homes
There is going to be a ban on fees for letting agents. This should theoretically help those who rent. However, it probably won’t because it will just lead to an increase in rent for tennants as agents look to be reimbursed. The government have also committed £3.7bn for 140,000 extra houses. However this isn’t enough and will lead to house prices still rising (a popular, but economically bad thing).
Goodbye Spring Budget:
The last announcement is that we will be saying goodbye to the Spring budget. It will be replaced by the Autumn budget. I think that is because Hammond will be focusing on Brexit and won’t have a budget ready for spring, nor will he be able to predict the state of affairs by the Autumn.
All in all, this is a relatively promising budget. Thankfully, there isn’t a hard core austerity policy like with times before hand. Hammond seems to be waiting and going with a measured approach. But we shall see the implications.