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Budget Summary 2017

 

On 22nd November 2017, Philip Hammond delivered his Autumn budget.  Despite a backdrop of slowing momentum in the UK economy, there was a net fiscal giveaway of £5.8 billion in 2018/19 and £8.9 billion in 2019/20, primarily due to £2.3 billion extra next tax year for the NHS and an extra £1.5 billion for BREXIT preparations.  Freezing fuel and alcohol duties will also cost the treasury £1 billion in lost revenue.

The main headline measure was that Stamp Duty Land Tax was abolished on properties up to £300,000 for first time buyers, leading to a potential saving of up to £5,000. The first £300,000 on a property valued up to £500,000 will also be exempt. At present the average first time buyer spends £200,000 on a property, giving a saving of £1,500, so for the average first time buyer the benefit will be relatively small. This measure should help the major housebuilders and underpin demand for new housing and their selling prices. Also supportive of the sector was a further pledge by the Government to target 300,000 additional homes to be built each year.  This pledge will be backed up by measures totalling £44 billion to streamline and speed up the whole building process. 

The tax-free personal allowance on income tax is to rise to £11,850 in line with inflation in April 2018 whilst the higher-rate tax threshold is to increase to £46,350. In response to criticism over the two speed economy and those struggling with low wages, the National Living Wage is to rise in April 2018 by 4.4%, from £7.50 an hour to £7.83.  This is materially higher than average wage growth, which currently stands at around 2.1%.

Growth forecasts for 2017 were lowered from 2% to 1.5% with forecasts for 2018, 2019, 2020 and 2021 revised down to 1.4%, 1.3%, 1.5% and 1.6% respectively.  The lower forecasts are due to poor productivity. Productivity growth was revised down by an average of 0.7% a year up to 2023

On a more positive note, the annual rate of CPI inflation is forecast to fall from a peak of 3% towards the 2% target later in 2018.  This is good news for workers who have seen higher inflation erode pay increases. Another 600,000 people are forecast to be in work by 2022 which is also good for the wider economy and the treasury as tax receipts are likely to rise as a result.

One piece of good news for businesses was that rises in business rates are to be pegged to the CPI measure of inflation, not the higher RPI, a saving of £2.3bn over 5 years.  This measure comes into effect in April 2018, 2 years earlier than planned. Business rates were linked to the Retail Price Index (RPI), which has historically risen at a faster pace than CPI.  This means that business rates would have increased by 3.9% in April 2018.

There was also support for the new economy with £500m for 5G mobile networks, full fibre broadband and artificial intelligence.  There was also £540m to support the growth of electric cars, including more charging points.

There was no major reaction from financial markets, which continue to focus on BREXIT negotiations.  It is likely that political factors rather than economic will continue to dominate UK markets over 2018.

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