In the year when Britain announced plans to leave the European Union, Philip Hammond’s Autumn Statement will be monitored with particular scrutiny. Not only has the Chancellor of the Exchequer indicated that this may be the last time such financial statements are delivered twice yearly (as they have been since the Industry Act 1975), the British public will be watching closely for anything that could place further strain on national resources. Since the landmark referendum vote by the British public, inflation has risen to 1%, with sterling dropping nearly 20% against the dollar. A recent survey by Credit Suisse estimates that the UK economy has had £1.2 trillion wiped off its wealth since the Brexit vote.
Looking ahead to the Autumn Statement this afternoon, here are the subjects that will have the greatest effect on British businesses..
Loans and Debt
After predecessor George Osborne failed in his ambition to cut the national budget deficit, Mr Hammond has indicated that the Government will adopt new rules on borrowing. Given that tightening the purse strings could hamper our economic growth, while loosening them plunges the nation further into debt, no other aspect of the 2016 statement will be analyzed more closely. While some pundits expect Mr Hammond to announce plans to increase the deficit in an attempt to bolster the economy, think tanks such as the Institute for Fiscal Studies have urged caution suggesting: ‘any easing of fiscal policy should only be a response to temporarily weak demand in the economy: it can’t be permanently looser’.
Whatever Mr Hammond decides will, of course, be intended to ease Britain’s burdens in the wake of Brexit. ‘”I want to make sure that the economy is watertight,’ he said, ‘that we have enough headroom to deal with any unexpected challenges over the next couple of years and most importantly, that we’re ready to seize the opportunities of leaving the European Union.”
Fuel Duty Freeze and Investment in Roads
In contrast to the planned 2 pence-per-litre rise on fuel duty, it’s widely expected that the Chancellor is expected to freeze it today. A fuel duty freeze and £1.3bn for the roads will be a boon for those businesses relying on haulage fleets and transport networks. Reducing congestion and improving rural roads will also be a focus. President of the AA, Edmund King, commented “The country is emerging from recession and there is greater confidence among British families. Not only do hard working families rely on low fuel costs for their day-to-day driving but industry is also dependent on motor fuel for deliveries and mobility of their workers.”
VAT and Corporation Tax
In the run up to the statement, a great deal of media chatter has focussed on what the Chancellor may or may not do to VAT. Since the Spring budget is when major tax changes are generally addressed, most pundits agree that a VAT reduction from 20% to 17.5% would be left until then, although Mr Hammond may well allude to it today. As a measure this would limit the rise in inflation expected during the next fiscal year, therefore reducing the squeeze on household budgets.
The other big issue for business regards corporation tax. Many suspect Philip Hammond will halt the planned cut, given that British businesses already pay one of the lowest rates of any major world economy. While this move will be poorly received by British businesses already suffering from Brexit, it may be that the Chancellor will offer tax breaks for investment spending as a countermeasure.
A recent article by the Guardian, however, indicates that Theresa May may encourage the opposite approach. Echoing the proposed corporation tax cuts already promised by Donald Trump, this would see a substantial commitment to tax cuts laid out by the Chancellor today. ‘My aim is not simply for the UK to have the lowest corporate tax rate in the G20’ she said at the Confederation of British Industry (CBI) annual conference on Monday morning, but also one that is profoundly pro-innovation.”
Benefits enjoyed by middle income earners such as mobile phone contracts, gym memberships and medical cover are likely to be on the Chancellor’s agenda today in what is being described as a ‘stealth tax’ by critics. The Treasury has indicated it deems these so-called ‘Salary-sacrifice’ schemes to be affecting National Insurance contributions and income tax. Until now, workers in many companies forgo some of their wage in return for benefits such as medical cover, allowing them to avoid paying tax on this part of their salary. Importantly, it is thought that childcare benefits, cycle to work schemes and pensions would remain unaffected by the changes.
With the current system meaning that attempts to improve a business can result in higher rates bills, the Association of Convenience Stores (ACS) has been amongst those calling for the Chancellor to address during this year’s statement. Calling for measures that would allow businesses to offset investment against their rates bills, the ACS has also called for businesses with a rateable value of under £50,000 to be absolved from the proposed business rates Infrastructure Levy.
Faster Broadband at last?
With the UK’s tech economy growing some 32% faster than its non-digital counterparts, pre-statement indications that the Chancellor will release some 1bn to promote faster broadband networks have been well received. Allowing users to download the equivalent of a full television box set in less than 2 minutes, 5G internet is something many rival economies have already adopted successfully. Latvia already has 20 per cent full-fibre coverage with Mexico at over 10 per cent and Turkey at 4 per cent, double the amount in Britain.