A fairly lacklustre final Autumn Statement today, with very little for those in the investment community. As expected, growth will slow and borrowing will be higher going forward, with Brexit to blame. However, GDP growth of 2.1% in 2016 is still expected to be the fastest in the developed world. Next year’s fall to 1.4% isn’t particularly welcome, but after the sharp fall in Sterling versus most major currencies earlier this year it is to be expected. The knock-on impact of falling growth is a slower path to a balanced budget, which now won’t happen until sometime during the next parliament. In fact, public sector debt is now expected to peak at 90.2% in the 2017/18 financial year.
Infrastructure spending again came to the fore, with roads, housing and broadband all receiving funding. If these plans come to fruition, the construction sector could be very busy over the next decade.
Bank bashing seems to have ended; I can’t remember the last budget or statement that didn’t include new taxes on the sector so today was a welcome relief. The insurance sector, however, has been hit with a 2% increase to the insurance premium tax from June 2017.
The biggest announcement affecting many will be the reining in of the use of salary sacrifice. Pensions, low emission cars, bikes and childcare are still allowable but everything else has essentially been banned from April 2017. Using shares as a form of payment to employees was also being looked at and National Insurance thresholds are being equalised between employer and employee.
The major chunk of the statement was aimed at measures to boost productivity and long term innovation. The creation of a new national productivity investment fund for example. £23 billion to be invested over the next five years into research and development and innovation, building on the existing strength of science and technology.
There is to be an injection of £400 million of venture capital money through the British business bank, to invest in small, growing, entrepreneurial technology companies. This is expected to unlock further funding from institutional investors. The chancellor is keen to attract longer term, patient investors to help fund these small businesses. There were many other measures aimed at boosting the fortunes of these high tech companies with spending on boosting the fibre network and 5G.
It is always difficult working out how many of the announcements are new ones, or are just rehashes of previous policies What is clear, however, is that the tax take is falling, and the government needs to plug a hole. Lowering corporation tax to 17% by 2020 is a boon to all (profitable) companies and shareholders, but is partially offset by the increase in NI and insurance premium tax. As with his predecessor, tax avoidance received a decent mention in today’s statement, with new measures and fines aimed at tax avoidance schemes that HMRC will eventually ban. As has been recently mentioned in the press, draconian penalties are now on the table for those investors looking to cheat the system. In my view, this continues to highlight the benefit of legal, bona fide, tax mitigation strategies including Pensions and Isas (although certain maximum Pension contribution levels have been reduced).
Finally, a new national savings bond will be introduced next year, although unfortunately the limit will be £3,000. Even at market leading rates as promised this may not be appropriate for many, especially as it will tie your money up for three years.
The key points are listed below:
- Scrapped plans for a Budget surplus by 2020.
- No further welfare savings measures beyond those already announced.
- £23bn National Productivity Investment Fund.
- £2bn extra a year in R&D by 2020.
- £2.3bn housing infrastructure fund for 100,000 new houses.
- £1.4bn aimed at delivering 40,000 affordable new homes.
- £1bn to help upgrade Britain’s broadband to “full fibre”.
- 100% capital allowances for electric car recharging stations.
- £400m into venture capital funds to help start-ups grow.
- Corporation Tax to fall to 17% by 2020 as planned.
- Employee / er NIC thresholds aligned at £157 per week from 2018.
- The MPAA – the annual amount individuals can contribute to defined contribution pensions after having previously accessed a pension flexibly – will be cut from £10,000 to £4,000.
- Insurance Premium Tax increases to 12% from 2017.
- Salary sacrifice schemes scrapped from April 2017.
- Tax avoidance measures on tax and VAT to raise £2bn.
- Corporate interest relief restrictions from April 2017.
- A promise to raise the personal allowance to £12,500 by 2020.
- A promise to raise the basic rate threshold to £50,000 by 2020.
- National Living Wage to rise to £7.50 per hour from April 2017.
- Reduction of the Universal Credit taper rate from 65p to 63p to help low paid.
- Ban on upfront fees imposed by lettings agents in England.
- NSI Savings Bond with 2%+ interest rate from next year.
- Fuel duty frozen again.
Ben Yearsley November 2016
This article represents a personal view from Ben Yearsley, and is based on his opinion of economic data from the UK and across the globe. It should not be used for investment purposes and does not constitute advice. For investment advice please refer to your financial adviser. No party should act or refrain from acting on anything contained in this material. Relevant primary materials should always be consulted at all times for all purposes. No statements or representations made in this material, document or at the presentation are legally binding on Shore Financial Planning (Plymouth) Ltd or the recipient and no liability is accepted in connection with this material. This article may not be reproduced or circulated without prior permission. Issued by Shore Financial Planning (Plymouth) Ltd, authorised and regulated in the UK by the Financial Conduct Authority.
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