2016 has been a year of surprises. In contrast, the Chancellor’s first (and last) Autumn Statement broadly announced a continuation of the existing policy direction (set by George Osborne). This continuity was signalled by the cancelling of the proposed Emergency Budget following the EU Referendum and should help to provide greater clarity and certainty for UK business.
Mr Hammond revealed mixed forecasts from the Office of Budget Responsibility (OBR). Debt is expected to rise, with a forecast that the UK’s finances will be worse compared with March’s expectations over the next five years. Growth forecasts were revised upwards for 2016 to 2.1%, downwards for 2017 and 2018 (to 1.4% and 1.7%) and unchanged for 2019 and 2020 at 2.1%. Despite the lowered expectation for 2017, this is still in line with the IMF’s forecast for Germany, as observed by Mr Hammond, and ahead of many of our European neighbours, including France and Italy.
In the corporate world, such forecasts are typical by new management in order to manage expectations and Mr Hammond may well be grateful of this opportunity. By lengthening the timescale for seeking a budget surplus, he will have slightly more freedom to operate and help the UK economy adjust to the implications of Brexit. In addition, should low interest rates persist, this will ease the borrowing burden.
In personal tax, Income Tax thresholds and the ISA contribution limit will rise in line with previous statements (the Personal Allowance will rise to £11,500 and ISA limit to £20,000 for 2017/18). There were no major changes to pension policy, but for those who have accessed their pension flexibly, the amount that can be contributed to money purchase schemes will reduce from £10,000 to £4,000 pa.
For businesses, the speculation that Corporation Tax would be cut more quickly than previously announced proved unfounded, and the reductions will continue as planned. The UK’s Corporation Tax rate remains the joint lowest in the G20 (with Russia, Saudi Arabia and Turkey), making the UK an attractive place to do business, although other countries including the US may follow in reducing rates. The Corporation Tax take is relatively small compared to Income Tax, VAT and NICs, and a cut in rates could have more upside for increased business than downside in lost revenue.
Other announcements included:
- There are simple but far-reaching changes to salary sacrifice, which will save the exchequer a forecasted £1bn over 5 years. All employers should review their benefit arrangements. Employer pension contributions, childcare vouchers and cycle schemes remain unaffected for now.
- There will also be changes to the tax on winding up of companies, where they are replaced by a new company continuing the same trade, to avoid artificially bring income into the capital tax regime.
- National Insurance will be simplified to align with Income Tax bands.
- Non-UK domiciled status will be harder to achieve, with the withdrawal of the remittance tax basis and the lowering of the residency threshold before becoming “deemed domiciled”. Importantly, for returning non-domiciled UK nationals, they will revert to UK domicile immediately.
- Employee Shareholder Status will be withdrawn as it has not been used as intended.
- New measures will be introduced to try to restrict the shifting of profits across borders by large multinationals.
- The government will target tax avoiders, to include:
- disguised remuneration, including the self-employed
- enablers of tax schemes
- the hidden economy.
Risk warnings
This document has been prepared based on our understanding of current UK law and HM Revenue and Customs practice, both of which may be the subject of change in the future. The opinions expressed herein are those of Cantab Asset Management Ltd and should not be construed as investment advice. Cantab Asset Management Ltd is authorised and regulated by the Financial Conduct Authority. As with all equity-based and bond-based investments, the value and the income therefrom can fall as well as rise and you may not get back all the money that you invested. The value of overseas securities will be influenced by the exchange rate used to convert these to sterling. Investments in stocks and shares should therefore be viewed as a medium to long-term investment. Past performance is not a guide to the future. It is important to note that in selecting ESG investments, a screening out process has taken place which eliminates many investments potentially providing good financial returns. By reducing the universe of possible investments, the investment performance of ESG portfolios might be less than that potentially produced by selecting from the larger unscreened universe.
