Chancellor of the Exchequer Philip Hammond has given his first Autumn Statement to the House of Commons and announced that it would also be his last.
On 23 November 2016, UK Chancellor of the Exchequer Philip Hammond gave his first Autumn Statement to the House of Commons and announced that it would also be his last. However this was not a surprise resignation at the end of his speech, but an announcement of a timetable change for future years.
From next year, the Budget will be announced in the Autumn followed by a statement the following Spring responding to economic forecasts. Mr Hammond announced that he does not intend to make tax changes in the Spring statements; time will tell if this promise will be met. This Autumn Statement was the Chancellor’s first opportunity, since the 23 June referendum, to outline the UK government’s plans on spending and taxation. The following is a summary of what Chancellor Hammond said, and a brief overview of some of the documents published alongside, excluding Foreign Pension, Value Added Tax and Insurance Premium Tax measures. As usual, there is much detail to come and the overall effect of the Statement will take some months to establish.
Philip Hammond was appointed Chancellor of the Exchequer following the Brexit referendum result and since then economic forecasters, including the Office of Budget Responsibility, have downgraded future growth prospects for the UK economy. Theresa May in her campaign to be Prime Minister proposed that the government should drop its target to eliminate the budget deficit by 2020/2021, and Mr Hammond confirmed this timeline had been dropped in his speech; replaced by various targets, including to reduce the cyclically-adjusted deficit to under 2% of Gross Domestic Product by 2020/2021.
Infrastructure and innovation
The main theme of the Chancellor’s speech was investment in infrastructure and innovation to improve productivity. Alongside this, he announced that the cost of installing electric vehicle recharging equipment incurred between 23 November 2016 and 31 March 2019 could be entirely written off against tax in the year of expenditure.
The previously-announced plan to reduce corporation tax to 17% from 1 April 2020 (19% from 1 April 2017) remains unchanged, with no further reduction given despite media speculation.
The Chancellor also announced that the government would restrict the amount that multinational companies can offset their taxable income using high interest charges or brought forward losses. Documents issued alongside the Autumn Statement indicate that the Chancellor intends to extend these restrictions to overseas companies with UK income by bringing these companies into the corporation tax regime. This could have a significant impact on leveraged non-resident companies buying UK real estate.
Personal income tax
Mr Hammond reversed one of his predecessor’s initiatives. George Osborne had allowed employees to receive up to £2,000 of shares tax-free from their employer, in return for giving up certain employment rights. The government have found that this is largely being used by higher earning employees (what did they expect?) and is removing it for shares issued on or after 1 December.
Mr Hammond did however reiterate his predecessor’s commitments to increase the personal allowance (the amount of income that can be earned free of income tax) to £12,500 by 2020 (the allowance rises to £11,500 from 1 April 2017) and to increase the threshold at which 40% income tax is paid, to £50,000 also by 2020.
Employer and Employee National Insurance contribution (NIC) thresholds are to be aligned at £157 per week from 6 April 2017 and, in another revenue raising measure, the Chancellor announced that the tax advantages of salary sacrifice benefits would be abolished, except for pension contributions, childcare benefits, ultra-low emission vehicles and cycle-to-work equipment. Mr Hammond announced an intention to review the valuation of employment benefits for tax purposes in 2017, particularly the provision of living accommodation. He is also reducing the amount that an individual can contribute to a pension scheme, once he is drawing a pension, from £10,000 to £4,000.
Some payments on the termination of employment of up to £30,000 remain tax-free under certain circumstances. From April 2018, payments in excess of £30,000 will be subject to NICs as well as income tax.
Mr Hammond announced the introduction of a new savings bond by National Savings & Investment, which he expects will pay 2.2% gross for 3 years capped at £3,000 per person. Full details will be announced in the Spring 2017 budget.
The Autumn Statement confirmed previous announcements that UK residential property held indirectly through offshore trusts and companies will be subject to inheritance tax and announced that non-domiciled individuals will be subject to inheritance tax after being resident for 15 of the past 20 years.
The Chancellor was heavily constrained by the UK’s huge budget deficit and so the measures announced or re-announced were relatively insignificant. This Autumn Statement will probably mostly be remembered for being Mr Hammond’s first, and last.