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Autumn Budget 2017

Overview

Chancellor Philip Hammond had moved the date of his Budget from March to November in order to give time for any tax changes to be implemented ahead of the new tax year (there will now be a Spring rather than an Autumn Statement). Given the current fragile coalition, he obviously wished to avoid making any ‘U- turns’ on any of his Budget proposals such as that seen in the abandonment of the National Insurance increase for the self-employed announced in March. It is clear that the Conservative Party needs to increase its appeal to younger voters whilst at the same time not alienate the older generation, but it is a difficult tightrope to walk especially given the current political and Brexit uncertainty. Public finances remain tight, not helped by the Office for Budget Responsibility (OBR) lowering its forecasts for economic growth over the next five years.

Housing

The housing market has been strong, helped by record low mortgage rates, but the government believe that we are still not building enough houses in the UK to meet demand. Hence, the Help to Buy scheme will get an additional £10bn of funding. The announcement of the abolition of stamp duty for first time buyers (up to a certain limit and not in Scotland) along with many other housing related measures will help the government get closer to its target of 300,000 new homes per annum by the mid-2020’s. Although a vote winner for the younger generation who are struggling to get on the housing ladder, there needs to be more evidence that we are building more affordable homes or social housing schemes to meaningfully increase the number of new homes currently being built. In addition, given the present tight labour market for construction workers, there is little ability in the short term to significantly increase the number of homes being built.

Minimal changes for individuals

The Personal Allowance has been raised but in general there was very little change for individuals and, for once, no further additional changes to pensions. Fuel Duty changes have been targeted at diesel cars and it was made clear that electric cars are the future, hence the announcement of further investment into the required infrastructure to support this. A new ‘Millennial Railcard’ for those under 30 was another small vote winning measure for the younger generation, although there were no changes to student loans or tuition fees as some had expected.

NHS

The biggest cost to taxpayers of the announced measures according to the OBR is the additional funding for the NHS, with a previously announced capital pledge of an extra £10bn as well as further funding 0f £2.8bn for a pay deal, which is being made available over the course of this Parliament.

Lower growth

After several years of fiscal austerity, the expectation was for a bit more loosening of the purse strings and in general that has been delivered. However, the impact of Brexit and lack of productivity improvement have resulted in the lower economic growth forecasts, hence slowing the pace at which borrowing is predicted to fall over the next five years. Overall the OBR forecasts that the biggest impact of the various policy decisions will be seen in 2018-19 and 2019-20, with very little impact seen in the current tax year.

Investment implications

In terms of investment implications, there was no obvious meaningful impact on either the bond or equity markets, with both showing little reaction to the Budget announcements. The ISA allowance remains at £20,000, but the JISA limit rises in line with CPI to £4,260 for 2018-19.

Conclusion

Overall, we believe it was a fairly balanced Budget that had a more positive tone than many of the recent past. But hidden in the ‘economicky’ words was the consistent message of a lacklustre UK economy.

Margaret McLaren
Head of Research

 23 November 2017