Autumn Statement 2016: Phillip Hammond announces UK’s first budget post Brexit

 

Britain's Finance Minister Philip Hammond in his first economic policy announcement post Brexit said the UK’s expected GDP growth would be 2.1% this year and 1.4% in 2017, mainly due to lower investment and weaker demand, and those are caused by greater uncertainty and higher inflation.

 

He projected the country’s GDP to grow by 1.7% in 2018, 2.1% in 2019, 2.1% in 2020 and 2% in 2021. “Over the forecast period, growth is expected to be 2.4% lower than forecast as a result of Brexit,” Hammond said.

 

Making his first budget announcement, Hammond said the government will form a new national productivity investment fund worth £23 billion to focus on innovation and infrastructure, as well as it will also increase the total investments in R&D to £2 billion a year by 2020.

 

“The government will commit to spending between 1% and 1.2% of GDP from 2020 on economic infrastructure,” Hammond said. By comparison, the British government is spending 0.8% at present. This investment is envisaged to provide a backbone to the government’s industrial strategy, which in turn will double UK Export’s financial capacity.

 

Hammond said the country’s borrowing will be £68.2 billion this year, and £59 billion next year, and will go further down to £46 billion in 2018-19, £21 billion in 2019-20, £20.7 billion in 2020-21 and £17.2 billion in 2021-22. “The borrowing will be 3.5% this year, falling to 0.7% by 2021-22.”
Hammond said he will take a step towards the problem of UK start-ups being snapped up by larger competitors by investing £400m, with a view to unlocking £1 billion of investment.

 

The newly-elected finance minister underlined that devolution continues to be at the government’s approach. “A new city deal for Sterling is being negotiated. This means every city in Scotland will be on course to have one. City regions will get new borrowing powers,” he said.

 

He announced London will get £3.15 billion for 90,000 affordable homes, and the adult education budget will be devolved to London.

 

Hammond said the present UK government wants the UK to be a world-leader in 5G. He announced that the government would invest more than £1 billion in digital infrastructure, and there will be 100% business rates relief on investment in new fibre from April next year.

 

Making an anticipated announcement to improve the country’s infrastructure Hammond says there will be an extra £1.1billion invested in English transport networks, where small investments can often achieve big wins. He said he has written to the National Infrastructure Commission asking for proposals for spending in the next decade.

 

Hammond says insurance premium tax will rise from 10% to 12%.

 

Referring to the country’s foreign direct investments outlook, Hammond said he wanted Britain to remain the number one destination for business. He said the government will stick to the business tax plans set out in the March budget, and it will increase the rural rate relief to 100%, giving businesses in rural areas a boost.

 

Unerscoring the government’s emphasis to curb tax avoidance an evasion, the finance minister said the government has done more than any other to tackle tax avoidance and evasion, which is why the tax gap is one of the lowest in the world.

 

“There will be a new penalty for people who use a tax avoidance scheme HMRC closes down. All these tax avoidance measures will save £2bn over the forecast period,” he said. Turning to the personal allowance, Hammond said it will rise to £11,500 in April, he says. “Since 2010, 28 million people have had their income tax cut, and 4 million people have been taken out of income tax altogether. The government is still committed to taking the allowance up to £12,500 by the end of this parliament. And the 40p threshold will rise to £50,000 over the same period.”

 

Coming back to the anticipated Brexit phenomenon, Hammon said Britain’s Brexit black hole is at least £122bn -- even larger than the £100bn that the City was expecting. “That’s the difference between the deficit forecasts announced in March, and the new, higher, borrowing numbers unveiled today. It means the Office for Budget Responsibilities is expecting the economy to weaken as the Brexit negotiations intensify,” he said.

 

As the treasury statement highlighted on Sunday, Hammond announced the UK minimum wage, also called as the National Living Wage, would increase from its current £7.20 an hour to £7.50 (S$13.30) an hour from April next year. But the aforementioned figure represents only a small increase towards an existing target of £9 by 2020.