What does the 2016 Autumn Statement mean for businesses?
This year’s Autumn Statement was always going to be an interesting one. Predictions and proposed policies have been leaked left, right and centre and yet the biggest shock, of a budget announcement reform, took everybody by surprise.
Despite this being the last ever Autumn Statement in its current format, there were some key takeaways that will affect businesses across the UK.
1) Forecast revisions
The Chancellor, Phillip Hammond, began by announcing the revised forecasts from the Office for Budgetary Responsibility (OBR). Although the revisions were arguably already in the public domain before the statement was announced, Hammond has now confirmed that despite economic upheaval, 2016 growth has been revised up from 2% to 2.2% for 2016. While this may be great in the short term, the news that the forecast for 2017 has been revised down to 1.4% was not the most welcome.
Hammond admitted that growth moving forward is slower than the government would like but that they’ll be doing everything in their power to try and stimulate growth and investment. Having said that, the promise George Osborne made in March 2016, that there would be a budget surplus by the end of this Government, has been now been consigned to the dim and distant past.
Instead, it is predicted that growth will be 2.4% lower over the course of this parliament than the initial forecast stated; a worrying statistic as we move ever closer to Article 50 deadline day, which Theresa May confirmed in Prime Ministers Questions (PMQ) will be the end of March 2017.
So, what does all this mean for businesses? Well as any business owner will know, a poor economic outlook can lead to uncertainty. And with uncertainty comes a reduction in investment. Hammond’s news that the debt will rise to over 90% of GDP over the next few years is world away from Osborne’s March statement and may mean there are some turbulent times ahead.
2) Investment promises
However, it isn’t all bad news. In light of the growth forecasts being revised down and national debt rising, Hammond claimed he was still committed to ensuring Britain remains “open for business” packing in a load of sweeteners for those in the private sector.
He has remained committed to Osborne’s business tax roadmap, promising that corporation tax will be reduced to 17% as planned by 2020/21. He has also announced that there will be 100% business rate relief for small businesses in rural economies to help ease the burden there.
Investment in innovation and start-ups was also a welcome policy on the agenda, with Hammond announcing a £400million injection into venture capital via the British Business Bank. This will hopefully result in £1bn of investment for growing businesses.
3) Regional growth guaranteed
A further boost for SMEs will come in the form of regional investment guarantees. It was nice to see that the Northern Powerhouse, so passionately promoted by Hammond’s predecessor, was still on the agenda but this has now also been extended to the Midlands and other regions across the UK.
It was noted in the statement that no other major economy experiences such a wide gap in productivity between its capital and other big cities. Hammond was quick to say that London’s successes should be celebrated, but also confirmed that this Government is committed to improving regional economies too.
He confirmed that a report into northern barriers to growth was to be issued, and that an evaluation will be held to ensure the East Midland rail hub project will go ahead. He also confirmed that more specific HS2 plans will be issued over the next month or so.
4) Investment in productivity
One of the most promising parts of the Autumn Statement was the commitment to increasing productivity. Hammond claimed that, currently, UK spending on Research and Development (R&D) falls way below the levels seen in Germany, France and other G7 countries. This goes some way in accounting for the productivity gap we also see when comparing the UK economy with our larger European neighbours.
Hammond was clear that he wanted the UK to be seen as a destination for business, with the budget laying a firm foundation upon which we can build a strong industrial strategy.
Unsurprising for the previous Secretary of Transport, infrastructure was a key recipient of investment. £1.1bn is to be invested into local transport networks; £220m into traffic “pinch points”; and £360m is being granted in the hope of driving forward competitive advantage when it comes to electric vehicle manufacture and charging networks.
Investment into the digital infrastructure was also a very welcome addition, with £1bn being promised to improve the UK’s 5G network and 100% business rate relief being granted to those involved in rolling this technology out.
Not only this, but a further £2bn will be invested in R&D projects which will help to stimulate innovation in the UK. This will form part of the £23bn that has now been assigned to a National Productivity Investment Fund which will help aid growth over the next five years, standing us in good stead for our future economic prosperity.
5) Employees benefit too
It wasn’t just businesses that benefitted from the Autumn Statement. The National Living Wage will be increasing from £7.20 to £7.50 in April 2017 and the tax-free personal allowance will rise from £11,000 to £12,500, with the higher rate threshold rising to £50,000 from £43,000, in line with initial conservative manifesto pledges.
Confirming many predictions, universal credit was also reduced in a bid to slow down the rate that benefits are withdrawn when people start work. Instead of 65p per pound, those benefitting from universal tax credits will only have to pay 63p per pound (up to a certain salary threshold).
Some critics claim that this does not go far enough but, as May said in PMQs just before the statement was given “austerity is about living within our means”. And those people that are paying taxes in order to grant support to the unemployed are also struggling to make ends meet.
A rise in the National Living Wage may put extra pressure on smaller businesses to keep up with the rising costs of employment. It remains to be seen if Hammond has struck the correct balance between supporting businesses and those are employed.
6) Fuel Price Freezes
One final bit of good news that shouldn’t be ignored is that fuel prices have once again been frozen. Oil has seen a price increase of 60% in recent months and yet the value of Sterling has fallen. In order to protect motorists and to keep Britain moving, the proposed 2p fuel duty rise has now been cancelled.
This will save the average car driver £130 a year and the average van driver £350 a year.
Something which was not addressed in this budget was the impact this rise in oil prices and depreciation of Sterling will have on energy prices. At Love Energy Savings we are committed to ensuring that businesses aren’t paying over the odds for their commercial energy.
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