Autumn Statement 2016 - GOV.UK
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This was published under the
2016 to 2019 May Conservative government
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This publication is available at https://www.gov.uk/government/publications/autumn-statement-2016-documents/autumn-statement-2016
Since 2010, the government has made huge progress in turning the economy around following the Great Recession. The employment rate is at a record high and the deficit has fallen by almost two thirds. But more needs to be done. The deficit remains too high and productivity too low. In addition, the government wants to see more people sharing in the UK’s prosperity and ensure that the tax system is one where everyone plays by the same rules. In the near term, the UK’s economic outlook has become more uncertain. The British people’s decision to leave the
EU
presents new opportunities, but also new challenges. The Autumn Statement sets out policies which support the economy during this transition. Alongside the forthcoming Industrial Strategy it prioritises investment to improve productivity and ultimately living standards. It provides certainty for business to secure investment and create jobs; and reprioritises spending to build an economy that works for everyone. The UK economy showed considerable momentum in the run up to the
EU
referendum, and has shown significant resilience since. The UK is forecast to be the fastest growing country in the
G7
in 2016 and economic activity grew 2.3% in the year to Q3 2016. The employment rate is at a record high of 74.5%, and between 2009-10 and 2015-16 the deficit was reduced by almost two-thirds from 10.1% to 4.0% of
GDP
. The UK is likely to face a period of uncertainty, followed by adjustment. Reflecting this, the Office for Budget Responsibility (
OBR
) forecasts that
GDP
growth will slow to 1.4% in 2017, and then recover to 1.7% in 2018, 2.1% in both 2019 and 2020, and 2.0% in 2021. The
OBR
expects lower business investment and household spending to weigh on
GDP
in the near term. Lower business investment is expected to exacerbate the long-standing weakness in UK productivity. The
OBR
highlights that there is a higher than usual degree of uncertainty in these forecasts. The Autumn Statement sets out how the government will return the public finances to health, while providing flexibility to support the economy in the near term and addressing long-term economic weaknesses through increased investment. The government will return the public finances to balance as soon as possible in the next Parliament, with an interim objective of reducing the structural deficit to less than 2% of
GDP
, and for debt as a percentage of
GDP
to be falling by the end of this Parliament. To achieve this, the government is committed to maintaining fiscal discipline. At the Autumn Statement the government chooses to borrow only to invest in highly-targeted infrastructure and innovation which will boost productivity. All other new commitments have been funded. The Autumn Statement, and the government’s forthcoming Industrial Strategy, will focus on raising productivity to raise living standards for people across the UK. A new National Productivity Investment Fund will add £23 billion in high-value investment from 2017-18 to 2021-22. The government will target this spending at areas that are critical for productivity: housing; research and development (
R&D
); and economic infrastructure. The NPIF will take total spending in these areas to £170 billion over the period from 2017-18 to 2021-22, reaching 1.7% of
GDP
in 2021-22. The new spending includes:
£7.2 billion to support the construction of new homes, including spending by Housing Associations
£4.7 billion to enhance the UK’s position as a world leader in science and innovation
£2.6 billion to tackle congestion and ensure the UK’s transport networks are fit for the future
£0.7 billion to support the market to roll out full-fibre connections and future 5G communications
The government will encourage private investment with £400 million from the British Business Bank to unlock £1 billion of new investment in innovative firms planning to scale up, and a doubling of capacity to support exporters through UK Export Finance. In addition the government will review the tax environment for
R&D
to look at ways to build on the introduction of the ‘above the line’
R&D
tax credit to make the UK an even more competitive place to do
R&D
. Providing certainty is central to the government’s aims for the tax system. The government’s intention is to move to a single fiscal event in the autumn each year to provide more stability for businesses and individuals. Despite pressure on the public finances:
the government recommits to raising the personal allowance to £12,500 and the higher rate threshold to £50,000 by the end of the Parliament. By 2020, the government will have delivered a decade of income tax cuts, reducing taxes so that working families can take home more of what they earn. From that point the personal allowance will rise in line with the Consumer Prices Index
the government recommits to the business tax road map which sets out plans for major business taxes to 2020 and beyond, including cutting the rate of corporation tax to 17% by 2020, the lowest in the
G20
, and reducing the burden of business rates by £6.7 billion over the next 5 years. In order to reduce living costs, and support those who are just about managing to get by, the government will freeze fuel duty from April 2017 for the seventh successive year. This will save the average driver around £130 a year, compared to pre-2010 fuel duty escalator plans.
The government will also take action to promote fairness in the tax system, ensuring everyone plays by the same rules, and to secure a sustainable tax base:
to tackle tax avoidance, the government will strengthen sanctions and deterrents and will take further action on disguised remuneration tax avoidance schemes
to ensure multinational companies pay their fair share, following consultation, the government will go ahead with reforms to restrict the amount of profit that can be offset by historical losses or high interest charges
to fund commitments made in the Autumn Statement, Insurance Premium Tax will rise from 10% to 12% in June 2017
to promote fairness and broaden the tax base, the government will phase out the tax advantages of salary sacrifice arrangements
Putting the public finances on a sustainable path is vital to securing a strong and stable economy. Departments will therefore continue to deliver overall spending plans set at the
. The Efficiency Review announced at
will update in autumn 2017. The government will deliver welfare savings already identified but has no plans to introduce further welfare savings measures in this Parliament beyond those already announced. To help people progress in work, the government will reduce the taper rate that applies in Universal Credit from 65% to 63% so working families will keep more of every pound they earn. In order to support savers,
NS&I
will offer a new market leading 3-year savings bond, open to those aged 16 and over, available for 12 months from spring 2017. Government action since 2010 has helped to ensure that the fundamentals of the economy are strong. The government has taken steps to improve growth prospects and reduce the deficit, putting the economy on a sound footing. In recent years, the UK economy has grown at a faster pace than other major advanced economies, which has supported strong gains in employment. As data released since the
EU
referendum have shown, the economy has been resilient. Gross Domestic Product (
GDP
) grew at a solid rate through the first three quarters of 2016, and employment and living standards have continued to rise. The Office for Budget Responsibility (
OBR
) judges that there will now be a period of economic uncertainty as the UK negotiates its departure from the
EU
. Beyond that, the economy will need to adjust to new relationships with the
EU
and the rest of the world. Consistent with most external studies, the
OBR
expects that this period of uncertainty and adjustment will lead to lower business investment. This has driven its assessment that the outlook for productivity growth is weaker than it had previously envisaged. This section outlines the current position of the UK economy, and the
. This provides the backdrop for both meeting the challenge and seizing the opportunities that the next few years will bring. The UK economy has grown 14.3% in real terms since Q1 2010, second only to the US among major advanced economies. UK
GDP
grew 2.2% in 2015, and growth has remained solid in the first three quarters of 2016. GDP
grew 2.3% in the year to Q3 2016, with average quarterly growth of 0.5% in 2016 to date. On a per capita basis, UK
GDP
has increased 9.0% since Q1 2010, and has experienced the third fastest growth among major advanced economies since 2010. After falling during the financial crisis,
GDP
per capita grew slowly in the early years of the recovery, and only reached its pre-crisis peak in Q4 2015. Growth has since increased;
GDP
per capita grew 1.4% in 2015 and has continued to rise more recently, increasing 1.5% in the year to Q3 2016. Household consumption growth has been consistently strong in recent years. Consumption rose by 2.5% in 2015, and growth picked up to 2.9% in the year to Q2 2016. Household saving as a proportion of disposable income has fallen from a recent peak of 11.5% in Q1 2010, and is now at 5.1%, having been broadly stable for the last three years. Business investment increased by 5.1% in 2015, but has been weaker in recent quarters, falling by 0.8% in the year to Q2 2016. Official data on business investment in Q3 2016 will be published on 25 November 2016. Most private business surveys suggest that investment has remained subdued, and many firms cite uncertainty about future demand and the outcome of the
EU
negotiations as weighing on spending. The total volume of exports increased 4.5% in 2015, while the volume of imports increased 5.4%. The trade in goods deficit widened to £126.4 billion while the trade in services surplus increased to £87.8 billion, combining to give a total trade deficit of £38.7 billion or 2.1% of
GDP
. This is in line with its average since 2010 and down from a peak of 3.0% of
GDP
in 2008. The annual current account deficit was the largest on record in 2015, at 5.4% of
GDP
. On a quarterly basis, the deficit remained close to record highs, and wide by international and historical standards, at 5.9% of
GDP
in Q2 2016. The widening in recent years has been driven by a deterioration in the UK’s primary income balance, as the return on assets held overseas by UK residents was relatively weaker. There was a primary income deficit of 2.0% of
GDP
in 2015, in contrast to surpluses before 2012. Consumer price growth has slowed in recent years, with the Consumer Prices Index (
CPI
) measure of inflation falling from a peak of 5.2% in September 2011. Falling fuel and food prices through 2014 and 2015 contributed to unusually low inflation, with
CPI
inflation averaging 0.0% in 2015, supporting real income growth and household spending. Inflation has risen in recent months, as fuel prices have started to increase internationally, and reached 1.0% in September 2016 before falling back to 0.9% in October.
The post-referendum sterling depreciation has amplified the effect of global oil price rises, increasing the contribution of the energy and transport components to
CPI
inflation. The employment rate has been rising since 2010 and stood at a record high of 74.5% in the three months to September 2016. The number of people in employment has also reached its highest ever level in recent months, and there are now over 2.7 million more people in work than in Q1 2010. Over the same period, average hours worked have increased 1.6% to 32.1 hours per week, with full-time workers accounting for 72% of employment growth. The unemployment rate was 4.8% in the three months to September 2016, its lowest in 11 years. The UK has a longstanding productivity gap with other major advanced economies. In 2015, UK labour productivity, as measured on an output per hour basis, was 18 percentage points below the average of other
G7
countries; 35 percentage points below Germany; and 30 percentage points below the US. UK labour productivity growth remains subdued, as in most advanced economies. The average rate of productivity growth across Organisation for Economic Cooperation and Development (
OECD
) countries fell to 0.9% between 2010 and 2014, compared with 1.8% in the five years before the financial crisis. Although UK productivity growth increased slightly to 0.9% in 2015, this is less than half the average growth rate experienced before the financial crisis. With relatively slow productivity growth, earnings growth in the UK has remained subdued following the financial crisis – a trend observed in many advanced economies during this period. More recently, UK earnings growth has picked up. Total pay rose 2.3% in the three months to September 2016, compared with the same period a year earlier. Regular pay (excluding bonuses) grew 2.4% over the same period. Some improvement in wage growth and unusually low inflation has supported increases in living standards, as measured by real household disposable income (
RHDI
) per capita, in recent years. RHDI
per capita grew 2.8% in 2015 – the fastest rate of growth in 14 years – and has continued to increase in 2016, rising 2.0% in the year to Q2 2016. The global economy remains subdued, posing continued challenges for the UK economy. Global growth was 3.2% in 2015, the slowest pace since the financial crisis, and the International Monetary Fund (
IMF
) forecasts that global growth will remain modest, at 3.1% in 2016 and 3.4% in 2017. Advanced economies grew 2.1% in 2015, while emerging economies grew 4.0%, the fifth consecutive year of slowing emerging economy growth. China’s growth has slowed, as policymakers seek to move to a more sustainable growth path, but, like in India, growth remains well above the global average. Growth in global trade has also slowed in recent years to a rate well below its pre-crisis trend. World trade has grown at an average annual rate of 3.2% over the last four years, compared with an average annual rate of 7.1% in the two decades before the financial crisis. This is a weakening of the historical relationship between trade and
GDP
growth; global trade growth was lower than global
GDP
growth in 2015 and is expected to remain lower in 2016. The
is for slightly stronger
GDP
growth in 2016 than expected in March. The UK economy showed considerable momentum in the run up to the referendum, and has shown significant resilience since. Thereafter, the
OBR
’s forecast reflects a new set of circumstances for the UK economy, resulting from the decision to leave the
EU
. In the near term, economic uncertainty during the period of negotiation is likely to constrain business investment, and higher inflation, largely caused by the post-referendum sterling depreciation, is likely to put downward pressure on real incomes, weighing on household consumption growth. The economy will then adjust to new relationships with the
EU
and the rest of the world over the coming years. In producing the forecast, the
OBR
has not attempted to predict the precise outcome of negotiations, nor the breadth and depth of new relationships that may be negotiated bilaterally with the
EU
or other trading partners. Instead, it has made assumptions in line with a range of external studies. As the
OBR
sets out, the unprecedented nature of the decision to leave the
EU
has increased uncertainty around the outlook for the UK economy. The outlook for trend productivity growth is the most important and most uncertain judgement in the
OBR
’s economic forecast. The
OBR
now judges that uncertainty following the decision to leave the
EU
will reduce business investment. In turn, with lower investment the
OBR
has made a downward revision to productivity growth over the medium term. The level of potential output is forecast to be 1.5 percentage points lower than had been forecast in March. However, the
OBR
notes that in the absence of the referendum result it would have revised up its forecast for net migration and potential growth. As a result the
OBR
judges that the
EU
referendum result has served to reduce potential output by 2.4 percentage points. With lower potential output over the next 5 years, the
OBR
expects weaker
GDP
growth than at Budget 2016. The
OBR
forecasts
GDP
growth to be 1.4% in 2017, rising to 1.7% in 2018, 2.1% in both 2019 and 2020, and 2.0% in 2021. GDP
growth has been revised down by 0.8 percentage points in 2017 and by 0.4 percentage points in 2018, and is unchanged in both 2019 and 2020. GDP
growth on a per capita basis has been revised down by the same amount, given the unchanged forecast for population growth. The
OBR
has revised up its forecast for household consumption growth in 2016, based on recent data showing continued robust consumer spending during the year to date.
However, consumption growth is then forecast to slow, as the recent decline in sterling is expected to put upward pressure on inflation and therefore restrict real income growth. This contributes to the weaker
GDP
growth forecast in 2017 and 2018. The
OBR
forecasts consumption growth of 1.2% in 2017 and 1.1% in 2018 – both 1.0 percentage point lower than forecast at Budget 2016 – before increasing to between 2.0% and 2.1% growth for the remainder of the forecast period. As consumption growth is not expected to slow as much as household income growth, the
OBR
forecasts that household saving as a proportion of disposable income will fall to 3.8% in 2017, before increasing to 4.2% in 2018 and 2019, 4.3% in 2020 and 4.4% in 2021. The downward revision to the outlook for business investment has been more substantial. A combination of weak recent data and the effect of higher uncertainty, cited by firms, mean that the
OBR
forecasts a 2.2% fall in business investment in 2016, followed by a 0.3% fall in 2017 – revised down by 4.7 percentage points in 2016 and 6.3 percentage points in 2017. The
OBR
expects that business investment will then return to growth, increasing 4.1% in 2018, 5.3% in 2019, 4.1% in 2020 and 3.6% in 2021. However, the level of investment is expected to remain permanently lower than that forecast at Budget 2016. This has the effect of depressing near-term
GDP
growth, and additionally slows the productive potential of the economy. Sterling depreciated 14.2% on a trade-weighted basis between the beginning of June and the end of October. The
OBR
expects that this will support exports and reduce imports in the short term, with net trade adding 0.3 percentage points to
GDP
growth in both 2017 and 2018. In the longer term, forecasts for both import and export growth have been revised down by similar amounts, due to the loss of trade that the
OBR
judges will result from the UK leaving the
EU
. This judgement draws on a range of external studies of the effect of leaving the
EU
on UK trade. The effect is to leave the net trade contribution to
GDP
little changed from the March forecast in 2019 and 2020. The
OBR
forecasts that the current account deficit will narrow, to 5.0% of
GDP
in 2017, 4.2% of
GDP
in 2018, 3.4% of
GDP
in 2019, 2.8% of
GDP
in 2020 and 2.7% of
GDP
in 2021. The
OBR
expects that recent net investment income deficits will fade and return to surplus as the rate of return on the UK’s stock of foreign assets normalises and the value of investment income received on those assets rises due to the depreciation of sterling. The weaker exchange rate has a material effect on the
OBR
’s forecast for consumer prices. The depreciation is expected to put upward pressure on inflation, coupled in the short term with higher fuel prices and the drag from past falls in fuel and food prices falling out of the annual comparison. The
OBR
forecasts
CPI
inflation of 2.3% in 2017, 2.5% in 2018, 2.1% in 2019 and 2.0% in 2020 and 2021. The
OBR
forecasts that the number of people in employment will continue to increase, reaching 32.3 million in 2021. Weaker expected activity in the near term has also caused the
OBR
to revise its near-term forecast for the unemployment rate up slightly, compared to the forecast at Budget 2016. The unemployment rate is now forecast to be 5.2% in 2017, 5.5% in 2018, and 5.4% from 2019 to 2021. The
OBR
forecasts that productivity growth will be 1.3% in 2017, 1.4% in 2018, 1.8% in 2019 and 2.0% in both 2020 and 2021. The
OBR
highlights that there was considerable uncertainty around the outlook for productivity pre-referendum, reflecting the marked difference across advanced economies between the weak growth seen in recent years and the preceding decades of stronger performance. As there is little by way of precedent to guide the forecast, the decision to leave the
EU
has increased this uncertainty around the prospects for productivity growth in the medium term. Wages and salaries are expected to continue to increase, but the
OBR
now forecasts slower earnings growth than previously predicted, due to the weaker projection for productivity growth. The
OBR
forecasts average earnings growth of 2.4% in 2017 and 2.8% in 2018, followed by annual growth above 3.0% through to 2021. The
OBR
expects that upward pressure on inflation and lower wage growth than previously anticipated will temporarily halt recent rises in living standards, with
RHDI
per capita forecast to fall 0.5% in 2017. RHDI
per capita is then expected to return to growth, increasing 0.3% in 2018, 0.6% in 2019, 1.1% in 2020 and 1.3% in 2021. The Monetary Policy Committee (
MPC
) of the Bank of England has full operational independence to set monetary policy to meet the inflation target of 2.0%, as measured by the 12-month increase in the
CPI
. This is a cornerstone of the UK’s macroeconomic framework, which underpins the continued performance of the economy, including growth and employment. On 4 August 2016 the
MPC
announced a monetary stimulus package to support economic growth and achieve a sustainable return of inflation to target. The
MPC
:
cut Bank Rate, the Bank of England’s base interest rate, from 0.5% to 0.25%
extended the quantitative easing programme. The Bank of England will expand its purchases of UK government bonds by £60 billion, taking the stock of these asset purchases to £435 billion, and purchase up to £10 billion of corporate bonds, using newly created central bank reserves
At its November meeting, the
MPC
voted unanimously to maintain the package of measures announced in August, and noted that the measures have supported financial conditions. Market interest rates have remained low, with the average rate on a new variable rate mortgage now below 2%.
Sterling corporate bond spreads narrowed after the announcement of corporate bond purchases, reducing the cost for businesses of borrowing to invest. Continuing to reduce the deficit is vital to delivering a strong and stable economy. The government remains committed to returning the public finances to balance, ensuring that the UK lives within its means. However, given the weaker growth outlook, and the period of uncertainty that is likely while the UK negotiates a new relationship with the
EU
, the government will no longer seek to reach a fiscal surplus in this Parliament. The government’s objective is to return the public finances to balance at the earliest possible date in the next Parliament. To ensure this objective is reached, the government has published a
. This commits to reducing the structural deficit to below 2% of
GDP
and to have debt falling as a percentage of
GDP
by the end of this Parliament. This new fiscal framework ensures the public finances continue on the path to sustainability, while providing the flexibility needed to support the economy in the near term. Due to the pressure on the public finances, the government has chosen to focus discretionary support on highly-targeted investments to boost the productive capacity of the economy. This will, over the medium and long term, be the most important factor for continuing to raise living standards across the UK. Otherwise, the government is sticking to its overall spending plans set out in Spending Review 2015 and has reinforced its controls on welfare spending. All other new policies announced in Autumn Statement 2016 have been funded from savings or taxation. Over the last 6 years the deficit has been cut by almost two-thirds from its 2009-10 post‑war peak of 10.1% of
GDP
to 4.0% last year. However, borrowing and debt remain high, and the
OBR
judges that the economic and fiscal outlook for the UK has deteriorated in the wake of the
EU
referendum. As a result, the
OBR
’s forecast shows that the public finances will no longer reach a surplus by 2019-20. Public sector net borrowing (
PSNB
) is higher than forecast at Budget 2016 in every year and by £32 billion in 2020-21, reflecting primarily the impact of lower growth on tax revenues. The deterioration in the fiscal outlook since Budget 2016 is driven by a number of factors:
receipts are £15 billion lower by 2020-21 due in large part to lower income tax and National Insurance contributions (
NICs
) partly offset by higher corporation and other taxes. Total income tax and
NICs
receipts are forecast to be £23 billion lower by 2020-21, of which £7 billion can be attributed to weaker outturn data, £9 billion to slower earnings growth over the forecast period, and a further £3 billion to higher rates of incorporation which reduces the effective tax rate
spending is £4 billion higher by 2020-21 due to previously announced decisions not to go ahead with changes to the Personal Independence Payment (PIP) proposed at Budget 2016, changes to the Universal Credit roll out schedule, and higher inflation which offset savings from lower debt interest payments
classification changes add a further £4 billion to borrowing in 2020-21. These include the Office for National Statistics’ (
ONS
) revision to the accounting treatment of corporation tax payments and the reclassification of non-England housing associations to the public sector
The
OBR
’s forecast also includes new policies announced in the Autumn Statement which target investment to raise the UK economy’s long-term productive capacity. Public sector net debt (
PSND
) is also higher than forecast at Budget 2016 in every year, and peaks at 90.2% of
GDP
in 2017-18. This is partly due to higher government borrowing over this period. However, much of the near-term increase in debt is due to the liabilities created by the Bank of England through its monetary policy operations announced in August 2016, which will unwind from 2020-21. As noted by the
OBR
, some assets acquired by the Bank of England through these interventions are treated as illiquid and are not netted off against
PSND
. However, the loans extended are secured on collateral and are therefore very unlikely to generate losses for the public sector. The fiscal impact of these interventions is discussed in more detail below. The government remains committed to returning the public finances to balance at the earliest possible date. In light of the changed economic circumstances that date will be in the next Parliament. To support this objective, the government has today published a
which sets out the following targets for this Parliament:
a mandate to reduce cyclically-adjusted
PSNB
below 2% of
GDP
by 2020-21
The government’s new fiscal framework strikes the right balance between restoring the public finances to health in the medium term whilst providing sufficient flexibility to support the economy in the near term. The new fiscal framework provides the space for additional investment in the productive capacity of the UK economy, the centrepiece of which is a new National Productivity Investment Fund (NPIF). The NPIF will be targeted at four areas that are critical for productivity: transport, digital communications,
R&D
and housing. It will provide for an extra £23 billion of spending between 2017-18 and 2021-22. The new fiscal framework also allows automatic stabilisers to support the economy during a period of near-term uncertainty as the UK negotiates its departure from the
EU
. At the same time the government will continue to restore the underlying public finances to health. It will do so by sticking to departmental resource spending plans set out at Spending Review 2015 and delivering the £3.5 billion of additional savings in 2019-20 announced at Budget 2016. And it will continue to control welfare spending through a reformed welfare cap. All new policies announced in the Autumn Statement, with the exception of the NPIF, are fully funded through savings or additional tax revenues.
The government’s plan for tackling the structural deficit and to have debt falling by the end of this Parliament leaves it well placed to return the public finances to overall balance as soon as possible in the next Parliament, when the UK’s future relationship with the
EU
is clear. The
OBR
’s ‘Economic and fiscal outlook’ provides an assessment of the government’s performance against the new fiscal mandate. It shows that the government is on track to meet its fiscal mandate to reduce cyclically-adjusted
PSNB
below 2% of
GDP
by the end of this Parliament. The structural deficit is forecast to reach 0.8% of
GDP
in 2020-21. The government remains committed to bringing down the UK’s Treaty deficit in line with the 3% target set out in the Stability and Growth Pact. The
OBR
’s forecast indicates that this target will be met in 2017-18. In order to maintain a consistent measure of the government’s fiscal position, the government’s target for debt will continue to be set in reference to
PSND
. However, while the liabilities created by the Bank of England to fund its monetary policy operations have a significant impact on
PSND
, the assets acquired through those operations are not fully captured in this measure. PSND
excluding the Bank of England (
PSND
ex BoE) – which deducts the assets and liabilities held on the Bank of England’s balance sheet from
PSND
Public Sector Net Financial Liabilities (PSNFL) – a broader fiscal aggregate which recognises all public sector financial assets and liabilities recorded in the national accounts
With the deficit still sizeable, control of public spending and delivery of efficiencies is vital. The government is committed to the overall plans for departmental resource spending set out at Spending Review 2015. In the Autumn Statement, new spending initiatives, with the exception of the NPIF, have been fully funded. As announced at Budget 2016, the government intends to identify £3.5 billion of savings in 2019-20. The government intends to allocate £1 billion of these savings for re-investment in priority areas. (7)
The Efficiency Review was launched to help identify these savings and the government will report on progress in autumn 2017. Ongoing improvement in efficiency should be part of business-as-usual activity across the public sector. The Efficiency Review will look to embed a culture where incremental improvements in the efficiency of public services are made year on year. Alongside this, the Treasury is reviewing its approach to spending control, with the aim of improving how it works with departments. This will ensure that the framework continues to provide the right incentives for departments to identify efficiencies and deliver high quality public services within budget, that public expenditure provides value for money, and that it can be reprioritised as necessary. Budget 2016 set out that departmental resource spending will continue to grow with inflation in 2020-21. Departmental spending will also grow with inflation in 2021-22. The government will meet the commitments on public spending set out for this Parliament: including commitments to priority public services, to international development and defence, and to pensioners. The government will continue to constrain public spending in the next Parliament to reach a balanced budget and live within its means. The commitments it is able to make on protecting public spending priorities in the next Parliament will need to be determined in light of evolving prospects for the fiscal position. The government will do this at the next Spending Review. Table 1.5 sets out the path for Total Managed Expenditure (
TME
), Public Sector Current Expenditure (
PSCE
), and Public Sector Gross Investment (
PSGI
) to 2021-22. The government introduced the welfare cap at Budget 2014 to strengthen control and improve Parliamentary accountability of welfare spending. This followed the trebling of spending on working-age welfare in real terms between 1980 and 2014. A full list of the benefits and tax credits that are within the scope of the welfare cap is set out at Annex B. As a result of previous announcements on changes to tax credits and the PIP, the government has reassessed the level of the welfare cap. To maintain control of welfare spending the government is introducing a new medium-term welfare cap. The cap is based on the
OBR
forecast in the Autumn Statement of the benefits and tax credits in scope as set out in Annex B, and will apply to welfare spending in 2021-22. To manage unavoidable fluctuations in welfare spending there will be a margin rising to 3% above the cap; the cap will only be breached if spending exceeds the cap plus the margin at the point of assessment. Performance against the cap will be formally assessed by the
OBR
in 2020-21. In the interim years, progress towards the cap will be managed internally, based on the
OBR
’s monitoring of forecasts of welfare spending. This will avoid the government having to make short-term responses to changes in the welfare forecast, while ensuring welfare spending remains sustainable in the medium term. Further details are set out in the
, published alongside the Autumn Statement. Some policy measures do not directly affect
PSNB
in the same way as conventional spending or taxation. These include financial transactions that directly affect only the central government net cash requirement (
CGNCR
) and the
PSND
. Table 1.7 shows the effect of the financial transactions announced at the Autumn Statement on
CGNCR
. The government is committed to returning the financial sector assets acquired in 2008-09 to the private sector in a way that maximises value for taxpayers. To date, the government has recovered over £80 billion of proceeds from these assets. Subject to market conditions the plan for asset disposals is as follows:
Lloyds – the government launched a trading plan on 7 October 2016, with a view to returning Lloyds Banking Group fully to the private sector by the end of 2017‑18.
The trading plan involves gradually selling shares in the market over time in an orderly and measured way
RBS
– the government will continue to seek opportunities for disposals, but the need to resolve legacy issues makes it unlikely that disposals will occur in the near term
UK Asset Resolution (
UKAR
) –
UKAR
has launched a programme of sales of Bradford & Bingley (
B&B
) mortgage assets, expected to raise sufficient proceeds for
B&B
to repay the £15.65 billion debt to the Financial Services Compensation Scheme, who in turn will repay the corresponding loan from the Treasury. The programme of sales is expected to conclude in full before the end of 2017-18. UKAR
will also look to make sales of other assets over the course of the Parliament, currently expected to total £5 billion
The government continues to explore options for the sale of wider corporate and financial assets, where there is no longer a policy reason to retain them. The government is continuing to pursue the sale of the pre-2012 income contingent repayment student loan book, and subject to market conditions intends to launch the first sale in early 2017. The process to transfer the Green Investment Bank to private ownership is ongoing. Following consultation the government has decided that HM Land Registry should focus on becoming a more digital data-driven registration business, and to do this will remain in the public sector. Modernisation will maximise the value of HM Land Registry to the economy, and should be completed without a need for significant Exchequer investment. The government’s revised financing plans for 2016-17 are summarised at Annex A. The following chapters set out all Autumn Statement policy decisions. Unless stated otherwise, the decisions set out in these chapters are ones which are announced at the Autumn Statement. Table 2.1 shows the cost or yield of all new Autumn Statement decisions with a direct effect on
PSNB
in the years up to 2021-22. This includes tax measures, changes to allocated
DEL
and measures affecting
AME
. Raising productivity is the central long-term economic challenge facing the UK and will be a key area of focus for the forthcoming Industrial Strategy. Productivity determines living standards in the long term and improving it is the key to increasing wages. If the UK raised its productivity by one percentage point every year, within a decade it would add £240 billion to the size of the economy; £9,000 for every household in Britain. The government’s approach to raising productivity, set out in the
, is based on:
encouraging long-term investment in economic capital, such as technology, innovation, infrastructure, and skills
creating a dynamic economy which ensures resources are put to their best use
The fundamentals that underpin this plan have not changed. There has been a sustained worldwide slowdown in productivity since the financial crisis, which has exacerbated a long-standing gap between the UK and the most productive nations. The vote to leave the
EU
presents new opportunities and challenges, in particular to maintain and take advantage of openness to trade, investment, and competition. The government will continue to focus on driving up productivity and taking action to close the UK’s productivity gap over the long term through promoting increased investment, particularly in innovation and infrastructure; a more flexible planning system; an open, trading economy; and a skilled workforce. The Autumn Statement provides the financial backbone for the government’s forthcoming Industrial Strategy. The strategy will set out the broader framework for government and business to work together to address key economic challenges such as building the skills base the economy needs and turning great ideas into commercial success. Improving productivity requires targeted and sustained investment. The government prioritised capital spending at Spending Review 2015 and is now setting out plans to go further. The Autumn Statement announces a new NPIF which will be targeted at 4 areas that are critical for improving productivity: housing, transport, digital communications, and research and development (
R&D
). The NPIF will provide for £23 billion of spending between 2017-18 and 2021-22. This builds on existing plans for major investment over this Parliament, including the biggest affordable house building programme since the 1970s, resurfacing 80% of the strategic road network, the largest investment in the railways since Victorian times,
and prioritising science and innovation spending. The NPIF will take total spending on housing, economic infrastructure, and
R&D
to £170 billion over the next 5 years. As a result of measures taken at Spending Review 2015 and the Autumn Statement, Public Sector Gross Investment is forecast to be at least 4% of
GDP
in each year of this Parliament and higher than in every year from 1993-94 until the financial crash. ,
This new investment will fund projects that demonstrate a clear and strong contribution to economic growth. The NPIF will provide additional support in order to:
accelerate new housing supply
tackle congestion on the roads and ensure the UK’s transport networks are fit for the future
support the market to roll out full-fibre connections and future 5G communications, delivering a step change in broadband speed, security, and reliability
enhance the UK’s position as a world leader in science and innovation
The Autumn Statement sets out the priority areas for this new investment. Specific projects will be decided in due course, using value for money assessments, following HM Treasury standards. Where relevant, expert sector bodies such as Highways England, the Homes and Communities Agency, and UK Research and Innovation (UKRI) will make this assessment. There are no set departmental budgets for 2021-22, so allocations within the package for that year will be made in due course. The government will publish a Housing White Paper shortly, setting out a comprehensive package of reform to increase housing supply and halt the decline in housing affordability. To help deliver this, the Autumn Statement announces:
Right to Buy – The government will fund a large-scale regional pilot of the Right to Buy for housing association tenants.
Over 3,000 tenants will be able to buy their own home with Right to Buy discounts under the pilot. (16)
Economic infrastructure (transport, energy, flood defences, water, waste, and digital communications) is crucial for the economy and for people’s daily lives. The government has put infrastructure at the heart of its economic strategy and has set up the National Infrastructure Commission (NIC) to provide expert advice on the country’s strategic infrastructure needs and independent recommendations on how to meet them. At Spending Review 2015, the government announced it would increase transport spending by 50% to invest £61 billion in this Parliament. Including the additional investment provided by the NPIF, annual central government investment in economic infrastructure will increase by almost 60% from £14 billion in 2016-17 to £22 billion in 2020-21. The government’s long-term investment decisions will be informed by the NIC to ensure they are targeted at the UK’s most critical infrastructure needs. To ensure the NIC’s recommendations are affordable, the government has
. Government investment in the areas the NIC covers will rise to over 1% of
GDP
by 2020-21. The fiscal remit invites the NIC to set out recommendations on the assumption that spending on infrastructure will lie between 1% and 1.2% of
GDP
each year from 2020 to 2050. This would mark a sustained, long-term increase in infrastructure investment. The government will take all final spending decisions. Future transport – The NPIF will invest a further £390 million by 2020-21 to support ultra-low emission vehicles (ULEVs), renewable fuels, and connected and autonomous vehicles (CAVs). This includes £80 million for ULEV charging infrastructure, £150 million in support for low emission buses and taxis, £20 million for the development of alternative aviation and heavy goods vehicle fuels, and £100 million for new UK CAV testing infrastructure. In addition to the tax incentives for ULEVs in company tax and salary schemes set out in the tax chapter, from today to the end of March 2019 the government will also offer 100% first-year allowances to companies investing in charge-points for electric vehicles. (9)
The government will invest over £1 billion by 2020-21, including £740 million through the NPIF, targeted at supporting the market to roll out full-fibre connections and future 5G communications. This will bring faster and more reliable broadband for homes and businesses across the UK, boost the next generation of mobile connectivity and keep the UK in the forefront of the development of the Internet of Things. This will be delivered through:
£400 million for a new Digital Infrastructure Investment Fund, at least matched by private finance, to invest in new fibre networks over the next 4 years, helping to boost market ambitions to deploy full-fibre access to millions more premises by 2020
a new 100% business rates relief for new full-fibre infrastructure for a 5 year period from 1 April 2017; this is designed to support roll out to more homes and businesses (39)
Over the next 15 years, more than £100 billion of private investment is expected in the UK’s energy sector, providing new cleaner generating capacity, upgrading to a smarter energy system, and developing new resources such as shale. Levy Control Framework – The government is committed to decarbonising the economy while limiting costs on bills, and will continue to engage stakeholders as it develops an emissions reduction plan. The government is considering the future of the Levy Control Framework which it will set out at Budget 2017. Carbon Price Support – To provide certainty to businesses, the government confirms it is maintaining the cap on Carbon Price Support rates at £18 t/CO2, uprating this with inflation in 2020-21. The government will continue to consider the appropriate mechanism for determining the carbon price in the 2020s. Flood defence and resilience – The government will invest £170 million in flood defence and resilience measures. £20 million of this investment will be for new flood defence schemes, £50 million for rail resilience projects, including Dawlish, and £100 million to improve the resilience of roads to flooding. Treasury-backed infrastructure bonds – The Autumn Statement recommits to the UK Guarantees Scheme, and commits to extend it beyond the life of this Parliament, to at least 2026. The UK Guarantees Scheme has to date issued 9 guarantees that have delivered £1.8 billion of Treasury-backed infrastructure bonds and loans, supporting over £4 billion worth of investment. The government is working with industry to understand the demand for construction-only guarantees. Private Finance 2 (PF2) – The government will develop a new pipeline of projects that are suitable for delivery through the PF2 Public Private Partnership scheme. A list of projects to make up the initial pipeline, covering both economic and social infrastructure, will be set out in early 2017. Industrial Strategy Challenge Fund – a new cross-disciplinary fund to support collaborations between business and the UK’s science base, which will set identifiable challenges for UK researchers to tackle. The fund will be managed by Innovate UK and research councils. Modelled on the USA’s Defense Advanced Research Projects Agency programme the challenge fund will cover a broad range of technologies, to be decided by an evidence-based process (11)
R&D
tax environment – To ensure the UK tax system is strongly pro-innovation, the government will review the tax environment for
R&D
to look at ways to build on the introduction of the ‘above the line’
R&D
tax credit to make the UK an even more competitive place to do
R&D
. Science and Innovation Audits – The government has selected 8 areas for the second wave of Science and Innovation Audits: Bioeconomy of the North of England; East of England; Innovation South; Glasgow Economic Leadership; Leeds City Region; Liverpool City Region +; Offshore Energy Consortium; and Oxfordshire Transformative Technologies. The government is also announcing a further opportunity to apply to participate in a third wave of audits.
UK Export Finance (
UKEF
) – The government will provide additional support through
UKEF
to ensure that no viable UK export should fail for lack of finance or insurance from the private sector, by:
doubling its total risk appetite to £5 billion, and increasing capacity for support in individual markets by up to 100%; this will be supported by an improved risk management framework and the use of private insurance markets to reduce Exchequer exposure
increasing the number of pre-approved local currencies in which
UKEF
can offer support from 10 to 40, enabling more overseas buyers of UK exports to pay in their own currency
The government will take a series of actions to ensure businesses have the skills, finance, and stable framework within which to invest. Patient capital – HM Treasury will lead a review to identify barriers to access to long-term finance for growing firms, supported by an advisory panel led by Sir Damon Buffini. The British Business Bank will also invest an additional £400 million in venture capital funds to unlock up to £1 billion of new investment in innovative firms planning to scale up. FinTech – To support investment in UK FinTech, the DIT will provide £500,000 a year for FinTech specialists and the government has commissioned an annual ‘State of UK FinTech’ report on key metrics for investors. The government will also launch a network of regional FinTech envoys, and has agreed with the Joint Money Laundering Steering Group that they will modernise their guidance on electronic ID verification to support the use of technology to access financial services. Supporting management skills – The government will provide £13 million to support firms’ plans to improve their management skills by implementing Sir Charlie Mayfield’s review of business productivity. (38)
Competitive markets benefit consumers by giving them more choice and low prices. In the UK, consumers enjoy strong protections and an effective consumer regime to help them to get the best deal. However, where markets fail and competition isn’t strong, consumers may not get a good deal. Where this is the case, this government will not hesitate to step in to strengthen competition. The government will bring forward a green paper in Spring 2017 that will closely examine markets which are not working fairly for consumers. Letting agent fees – The government will ban letting agents’ fees to tenants, to improve competition in the private rental market and give renters greater clarity and control over what they will pay. The Department for Communities and Local Government (
DCLG
) will consult ahead of bringing forward legislation. Pension scams – The government will shortly publish a consultation on options to tackle pension scams, including banning cold calling in relation to pensions, giving firms greater powers to block suspicious transfers and making it harder for scammers to abuse ‘small self-administered schemes’. Whiplash reform – The Ministry of Justice is consulting on proposals which will reduce the unacceptably high number of whiplash claims and allow insurers to cut premiums. The government will bring forward supporting legislation in the Justice Bill and expects insurers to pass on savings which average around £40 for drivers in England and Wales, worth a total of £1 billion. Consumer insurance market – New
FCA
rules on consumer insurance policy renewals, being introduced in April 2017, will encourage consumers to shop around instead of renewing their policy automatically. The
FCA
will monitor the effect of the rules and the government will ask the
FCA
to consider further intervention if necessary. Credit unions – From 2018, the government will expand an existing scheme which incentivises credit union membership in communities at risk of being targeted by loan sharks. This will use funds recovered under the Proceeds of Crime Act from convicted loan sharks. National Living Wage and National Minimum Wage rates – Following the recommendations of the independent Low Pay Commission, the government will increase the National Living Wage (NLW) by 4.2% from £7.20 to £7.50 from April 2017. This is estimated to mean a pay rise for over a million workers. In total, earnings for a full-time worker on the National Minimum Wage (
NMW
) will have increased by over £1,400 a year since the introduction of the NLW in April 2016. The government’s target is for the NLW to reach 60% of median earnings by 2020 subject to sustained economic growth. The government will also accept all of their recommendations for the other
NMW
rates (which were last increased in October 2016) to apply from April 2017, including:
increase the rate for 21 to 24 year olds from £6.95 to £7.05 per hour
increase the rate for 18 to 20 year olds from £5.55 to £5.60 per hour
increase the rate for 16 to 17 year olds from £4.00 to £4.05 per hour
increase the rate for apprentices from £3.40 to £3.50 per hour
National Minimum Wage enforcement – The government will invest an additional £4.3 million per year to strengthen
NMW
enforcement. This will fund new HM Revenue and Customs teams to proactively review those employers considered most at risk of non-compliance with the
NMW
. The government will also provide additional support targeted at small businesses to help them to comply; and a campaign aimed at raising awareness amongst workers and employers of their rights and responsibilities. (17)
Regional productivity – The government has published a strategy setting out an overall approach to building the Northern Powerhouse, through addressing the key barriers to productivity that the region faces. The government will also publish a Midlands Engine strategy shortly. Northern Powerhouse Investment Fund and Midlands Engine Investment Fund – The Autumn Statement confirms the arrangements for these funds, and the British Business Bank will make its first investments from the Northern Powerhouse Investment Fund in early 2017 to support local SMEs and its first investments from the Midlands Engine Investment Fund shortly after.
Wales – The government is making good progress in discussions with local partners and the Welsh Government on a city deal for the Swansea Bay City Region. It will also consider options for a growth deal in north Wales and looks forward to receiving proposals from local partners. The government is also continuing to support the implementation of the £1.2 billion city deal for the Cardiff Capital Region, which was agreed in March. Northern Ireland – The government continues to work closely with the Northern Ireland Executive towards the introduction of a Northern Ireland rate of Corporation Tax, subject to the Northern Ireland Executive demonstrating it has placed its finances on a sustainable footing. To promote certainty and simplicity within the tax system, the government intends to move towards having a
. Following the spring 2017 Budget and Finance Bill, Budgets will be delivered in the autumn, with the first one taking place in autumn 2017. The
OBR
will produce a spring forecast from spring 2018 and the government will make a Spring Statement responding to that forecast. The Statement will review wider economic and fiscal challenges and launch consultations. The government will retain the option to make changes to fiscal policy at the Spring Statement if the economic circumstances require it. This will improve both external and Parliamentary scrutiny of proposed tax measures. The government remains committed to the tax policy framework and will consult on tax changes in the spring and draft legislation in the summer, before they are introduced as Finance Bills. Since 2010 the government has made significant progress on reducing taxes so that working families can take home more of what they earn. As a result of increases to the personal allowance announced in Summer Budget 2015 and Budget 2016, a typical basic rate taxpayer will pay £1,005 less income tax in 2017-18 than in 2010-11. This change, together with the changes to the higher rate threshold announced at Budget 2016, means that 31 million people will see their income tax bill reduced in 2017-18 compared to 2015-16. Personal allowance and higher rate threshold – The government will meet its commitment to raise the income tax personal allowance to £12,500 and the higher rate threshold to £50,000, by the end of this Parliament. Next year, the personal allowance will rise to £11,500 and the higher rate threshold to £45,000. Increases to the personal allowance over the last Parliament took 4 million of the lowest paid out of income tax altogether. Once the personal allowance reaches £12,500, it will then rise in line with
CPI
as the higher rate threshold does, rather than in line with the
NMW
. This will lock in the increases the government has made to the personal allowance over the past 6 years, so they are not eroded by inflation, while increasing the sustainability of the public finances in the long term. National Insurance thresholds – As recommended by the Office of Tax Simplification (
OTS
),
the National Insurance secondary (employer) threshold and the National Insurance primary (employee) threshold will be aligned from April 2017, meaning that both employees and employers will start paying National Insurance on weekly earnings above £157. This will simplify the payment of National Insurance for employers. (19)
Class 2
NICs
– As announced at Budget 2016, Class 2
NICs
will be abolished from April 2018, simplifying National Insurance for the self-employed. The Autumn Statement confirms that, following the abolition of Class 2
NICs
, self-employed contributory benefit entitlement will be accessed through Class 3 and Class 4
NICs
. All self-employed women will continue to be able to access the standard rate of Maternity Allowance. Self-employed people with profits below the Small Profits Limit will be able to access Contributory Employment and Support Allowance through Class 3
NICs
. There will be provision to support self-employed individuals with low profits during the transition. Removing National Insurance from the effects of the Limitation Act – From April 2018, the government will remove
NICs
from the effects of the Limitation Act 1980 and Northern Ireland equivalent. This will align the time limits and recovery process for enforcing National Insurance debts with other taxes. The government will consult on the details. Termination payments – As announced at Budget 2016, from April 2018 termination payments over £30,000, which are subject to income tax, will also be subject to employer
NICs
. Following a technical consultation, tax will only be applied to the equivalent of an employee’s basic pay if their notice is not worked, making it simpler to apply the new rules. The government will monitor this change and address any further manipulation. The first £30,000 of a termination payment will remain exempt from income tax and National Insurance. Legal support – From April 2017, all employees called to give evidence in court will no longer need to pay tax on legal support from their employer. This will help support all employees and ensure fairness in the tax system, as currently only those requiring legal support because of allegations against them can use the tax relief. The taxation of different forms of remuneration – Employers can choose to remunerate their employees in a range of different ways in addition to a cash salary. The tax system treats these different forms of remuneration inconsistently and sometimes more generously. The government will therefore consider how the system could be made fairer between workers carrying out the same work under different arrangements and will look specifically at how the taxation of benefits in kind and expenses could be made fairer and more coherent. The government will take the following action:
Salary sacrifice – following consultation, the tax and employer National Insurance advantages of salary sacrifice schemes will be removed from April 2017, except for arrangements relating to pensions (including advice), childcare, Cycle to Work and ultra-low emission cars.
This will mean that employees swapping salary for benefits will pay the same tax as the vast majority of individuals who buy them out of their post-tax income. Arrangements in place before April 2017 will be protected until April 2018, and arrangements for cars, accommodation and school fees will be protected until April 2021 (20)
Valuation of benefits in kind – the government will consider how benefits in kind are valued for tax purposes, publishing a consultation on employer-provided living accommodation and a call for evidence on the valuation of all other benefits in kind at Budget 2017
Employee business expenses – the government will publish a call for evidence at Budget 2017 on the use of the income tax relief for employees’ business expenses, including those that are not reimbursed by their employer
New tax allowance for property and trading income – As announced at Budget 2016, the government will create two new income tax allowances of £1,000 each, for trading and property income. Individuals with trading income or property income below the level of the allowance will no longer need to declare or pay tax on that income. The trading income allowance will now also apply to certain miscellaneous income from providing assets or services. Reforms to the taxation of non-domiciled individuals – Individuals who live in the UK and make use of public services should pay their fair share of tax. The following reforms to the taxation of non-domiciled individuals make the tax system fairer for everybody:
as previously announced, the government will end the permanency of non-domiciled tax status. From April 2017, non-domiciled individuals will be deemed UK-domiciled for tax purposes if they have been UK resident for 15 of the past 20 years, or if they were born in the UK with a UK domicile of origin. As previously announced, non-domiciled individuals who have a non-UK resident trust set up before they become deemed-domiciled in the UK will not be taxed on income and gains arising outside the UK and retained in the trust
from April 2017, inheritance tax will be charged on UK residential property when it is held indirectly by a non-domiciled individual through an offshore structure, such as a company or a trust. This closes a loophole that has been used by non-domiciled individuals to avoid paying inheritance tax on their UK residential property
the government will change the rules for the Business Investment Relief (BIR) scheme from April 2017 to make it easier for non-domiciled individuals who are taxed on the remittance basis to bring offshore money into the UK for the purpose of investing in UK businesses. The government will continue to consider further improvements to the rules for the scheme to attract more capital investment in British businesses by non-domiciled individuals
Inheritance tax reliefs – From Royal Assent of the Finance Bill 2017-18, inheritance tax relief for donations to political parties will be extended to parties with representatives in the devolved legislatures, as well as parties that have acquired representatives through by-elections. This will ensure consistent and fair treatment for all national political parties with elected representatives. Gift Aid digital – As announced at Budget 2016, the government will give intermediaries a greater role in administering Gift Aid, simplifying the Gift Aid process for donors making digital donations. (40)
The government has provided considerable support to savers in recent years, with the result that 98% of adults currently pay no savings tax. As previously announced, the government will continue to support saving by increasing the
ISA
limit from £15,240 to £20,000 in April 2017. Starting rate for savings – The band of savings income that is subject to the 0% starting rate will remain at its current level of £5,000 for 2017-18. Money Purchase Annual Allowance – The Money Purchase Annual Allowance will be reduced to £4,000 from April 2017. The government does not consider that earners aged 55 and over should be able to enjoy double pension tax relief, such as relief on recycled pension savings, but does wish to offer scope for those who have needed to access their savings to subsequently rebuild them. The government
. (21)
Foreign pensions – The tax treatment of foreign pensions will be more closely aligned with the UK’s domestic pension tax regime by bringing foreign pensions and lump sums fully into tax for UK residents, to the same extent as domestic ones. The government will also close specialist pension schemes for those employed abroad (“section 615” schemes) to new saving, extend from 5 to 10 years the taxing rights over recently emigrated non-UK residents’ foreign lump sum payments from funds that have had UK tax relief, align the tax treatment of funds transferred between registered pension schemes, and update the eligibility criteria for foreign schemes to qualify as overseas pensions schemes for tax purposes. (28)
The government believes the best way to support business is through a strong, stable economic climate that supports investment and growth. The government’s decision at the Autumn Statement to prioritise high value infrastructure and innovation will support businesses across the UK. The government is also taking significant steps to support businesses to grow and create jobs through the regulatory and tax systems. Since 2010, the government has eased the regulatory burden on businesses and reduced the corporation tax rate from 28% to 20% with onshore tax receipts increasing by over 20% over the same period. – To continue providing the certainty that businesses need to make their long-term investments, the government is recommitting to the business tax road map and the principles that it sets out. This includes cutting the rate of corporation tax to 17% by 2020 and reducing the burden of business rates by £6.7 billion over the next 5 years. Tax deductibility of corporate interest expense – Following consultation, the government will introduce rules that limit the tax deductions that large groups can claim for their UK interest expenses from April 2017.
These rules will limit deductions where a group has net interest expenses of more than £2 million, net interest expenses exceed 30% of UK taxable earnings and the group’s net interest to earnings ratio in the UK exceeds that of the worldwide group. The government will widen the provisions proposed to protect investment in public benefit infrastructure. Banking and insurance groups will be subject to the rules in the same way as groups in other industry sectors. Reform of loss relief – Following consultation, the government will legislate for reforms announced at Budget 2016 that will restrict the amount of profit that can be offset by carried-forward losses to 50% from April 2017, while allowing greater flexibility over the types of profit that can be relieved by losses incurred after that date. The restriction will be subject to a £5 million allowance for each standalone company or group. In implementing the reforms the government will take steps to address unintended consequences and simplify the administration of the new rules. The amount of profit that banks can offset with losses incurred prior to April 2015 will continue to be restricted to 25% in recognition of the exceptional nature and scale of losses in the sector. Bringing non-resident companies’ UK income into the corporation tax regime – The government is considering bringing all non-resident companies receiving taxable income from the UK into the corporation tax regime. At Budget 2017, the government will consult on the case and options for implementing this change. The government wants to deliver equal tax treatment to ensure that all companies are subject to the rules which apply generally for the purposes of corporation tax, including the limitation of corporate interest expense deductibility and loss relief rules. Substantial Shareholding Exemption (SSE) reform – Following consultation, the government will make changes to simplify the rules, remove the investing requirement within the SSE and provide a more comprehensive exemption for companies owned by qualifying institutional investors. The changes will take effect from April 2017. Museums and galleries tax relief – The government will broaden the scope of the museums and galleries tax relief announced at Budget 2016 to include permanent exhibitions so that it is accessible to a wider range of institutions across the country. The rates of relief will be set at 25% for touring exhibitions and 20% for non-touring exhibitions and the relief will be capped at £500,000 of qualifying expenditure per exhibition. The relief will take effect from 1 April 2017, with a sunset clause which means the relief will expire in April 2022 if not renewed. In 2020, the government will review the tax relief and set out plans beyond 2022. (41)
Employee Shareholder Status (ESS) – The tax advantages linked to shares awarded under ESS will be abolished for arrangements entered into on, or after, 1 December 2016. The status itself will be closed to new arrangements at the next legislative opportunity. This is in response to evidence suggesting that the status is primarily being used for tax planning instead of supporting a more flexible workforce. (26)
Offshore funds – UK taxpayers invested in offshore reporting funds pay tax on their share of a fund’s reportable income, and Capital Gains Tax (
CGT
) on any gain on disposal of their shares or units. The government will legislate to ensure that performance fees incurred by such funds, and which are calculated by reference to any increase in the fund’s value, are not deductible against reportable income from April 2017 and instead reduce any tax payable on disposal gains. This equalises the tax treatment between onshore and offshore funds. (28)
Business rates – To remove the inconsistency between rural rate relief and small business rate relief the government will double rural rate relief to 100% from 1 April 2017. (39)
Social Investment Tax Relief (
SITR
) – From 6 April 2017, the amount of investment social enterprises aged up to 7 years old can raise through
SITR
will increase to £1.5 million. Other changes will be made to ensure that the scheme is well targeted. Certain activities, including asset leasing and on-lending, will be excluded. Investment in nursing homes and residential care homes will be excluded initially, however the government intends to introduce an accreditation system to allow such investment to qualify for
SITR
in the future. The limit on full-time equivalent employees will be reduced to 250. The government will undertake a review of
SITR
within two years of its enlargement. (42)
Fuel duty – The fuel duty rate will remain frozen for the seventh successive year, saving motorists around £130 a year compared to what they would have been paying under the pre‑2010 escalator. (13)
Company Car Tax (
CCT
) bands and rates for 2020-21 – To provide stronger incentives for the purchase of ULEVs, new, lower bands will be introduced for the lowest emitting cars. The appropriate percentage for cars emitting greater than 90g CO2/km will rise by 1 percentage point. (22)
Air Passenger Duty (
APD
): regional review – The government is publishing a
to the consultation on how to support regional airports in England from the potential effects of
APD
devolution. Given the strong interaction with
EU
law, the government does not intend to take specific measures now, but intends to review this area again after the UK has exited from the
EU
. Oil and gas – To ensure a stable tax regime that maximises economic recovery from the North Sea, the government recommits to Driving Investment,
the long-term plan for the oil and gas ring-fence fiscal regime, and will simplify the reporting process and reduce the administrative costs of Petroleum Revenue Tax for oil and gas companies. Soft Drinks Industry Levy – The government will publish draft legislation for the Soft Drinks Industry Levy on 5 December 2016. Insurance Premium Tax (IPT) – The standard rate of IPT will rise to 12% from 1 June 2017.
IPT is a tax on insurers and so any impact on premiums depends on insurers’ commercial decisions. (18)
Making Tax Digital – In January 2017, the government will publish its response to the Making Tax Digital consultations and provisions to implement the previously announced changes. Tax simplification – The government welcomes and has responded to the reviews the
OTS
has published this autumn,
including on the alignment of income tax and
NICs
. The government has now asked the
OTS
to carry out reviews on aspects of the
VAT
system and on Stamp Duty on share transactions. Tax Enquiries: Closure Rules – The government will legislate to provide
HMRC
and customers earlier certainty on individual matters in large, high risk and complex tax enquiries. (27)
The government believes that all individuals and businesses have a responsibility to pay the tax they owe. Since 2010, the government has secured around £130 billion in additional tax revenue as a result of tackling avoidance, evasion and non-compliance. The UK’s tax gap, the difference between the amount of tax due and the amount collected, remains one of the lowest in the world. The UK has played and continues to play a leading role in Europe, the
G20
and through the 2013 G8 Presidency in bringing about a step change in international tax transparency and ensuring that profits are taxed where the economic activity takes place. Following the publication of the
OECD
Base Erosion and Profit Shifting outputs in October 2015
and the endorsement by
G20
leaders in November 2015, the business tax road map set out a comprehensive package to take further action, to modernise the tax rules in the UK and to ensure these rules are applied effectively to multinationals. Disguised remuneration schemes – Budget 2016 announced changes to tackle use of disguised remuneration schemes by employers and employees. The government will now extend the scope of these changes to tackle the use of disguised remuneration avoidance schemes by the self-employed. This will ensure that self-employed users of these schemes pay their fair share of tax and National Insurance. (24)
Further, the government will take steps to make it less attractive for employers to use disguised remuneration avoidance schemes, by denying tax relief for an employer’s contributions to disguised remuneration schemes unless tax and National Insurance are paid within a specified period. (24)
Strengthening tax avoidance sanctions and deterrents – As signalled at Budget 2016, to provide a strong deterrent to those enabling tax avoidance, the government will introduce a new penalty for any person who has enabled another person or business to use a tax avoidance arrangement that is later defeated by
HMRC
. This new regime will reflect an extensive consultation and input from stakeholders and details will be published in draft legislation shortly. The government will also remove the defence of having relied on non-independent advice as taking ‘reasonable care’ when considering penalties for any person or business that uses such arrangements. HMRC
counter avoidance – The government is investing further in
HMRC
to increase its activity on countering avoidance and taking cases forward for litigation, which is expected to bring forward over £450 million in scored revenue by 2021-22. (27)
Tackling exploitation of the
VAT
relief on adapted cars for wheelchair users – The government will clarify the application of the
VAT
zero-rating for adapted motor vehicles to stop the abuse of this legislation, while continuing to provide help for disabled wheelchair users. (25)
VAT
Flat Rate Scheme – The government will introduce a new 16.5% rate from 1 April 2017 for businesses with limited costs, such as many labour-only businesses. This will help level the playing field, while maintaining the accounting simplification for the small businesses that use the scheme as intended. Guidance which has the force of law, published today, will introduce anti-forestalling provisions. (23)
HMRC
support for emerging insolvency risks –
HMRC
will develop its ability to identify emerging insolvency risk, using external analytical expertise. HMRC
will use this information to tailor its debt collection activity, improve customer service and provide support to struggling businesses. (27)
Requirement to correct – The government will introduce a new legal requirement to correct a past failure to pay UK tax on offshore interests within a defined period of time, with new sanctions for those who fail to do so. (28)
Requirement to register offshore structures – The government will consult on a new legal requirement for intermediaries arranging complex structures for clients holding money offshore to notify
HMRC
of the structures and the related client lists. Hidden economy and money service businesses – The government will legislate to extend
HMRC
’s data-gathering powers to money service businesses in order to identify those operating in the hidden economy. (29)
Tackling the hidden economy – Following consultation, the government will consider the case for making access to licences or services for businesses conditional on them being registered for tax. It will also develop proposals to strengthen sanctions for those who repeatedly and deliberately participate in the hidden economy. Budget 2017 will set out further details. Securing sustainable public finances and a growing economy is the best way to create jobs and raise living standards across the UK. Over the last 6 years the deficit has been cut by almost two-thirds from its 2009-10 post-war peak of 10.1% of
GDP
to 4% last year. But the deficit remains high and the outlook for the public finances has deteriorated since Budget 2016. The government therefore remains committed to delivering overall spending plans set at Spending Review 2015. All new announcements in the Autumn Statement, apart from the NPIF, are fully funded. The government also intends to deliver on its aim of creating a sustainable welfare system, and will deliver the welfare savings already identified. Between 1980 and 2014 spending on working-age welfare trebled in real terms. The government has no plans to introduce further welfare savings measures in this Parliament beyond those already announced.
Universal Credit taper – Universal Credit ensures that work always pays. Under the legacy welfare system individuals at certain income levels would not be financially incentivised to work an additional hour, but Universal Credit operates a constant withdrawal rate on net earnings – the taper rate. The current rate of 65% means that once claimants earn above the work allowances in Universal Credit, their income will be withdrawn at a rate of 65 pence for every extra £1 earned. From April 2017, the taper rate that applies in Universal Credit will be reduced from 65% to 63%. This will let individuals keep more of what they earn and strengthen the incentive for individuals to progress in work. The government estimates that 3 million households will benefit from this change. (14)
Other welfare changes – The Secretary of State for
DWP
has previously announced the following changes:
Support for refugees – refugees and their family members will be exempted from the Past Presence Test, meaning that they will no longer have to be resident in the UK for 2 years before they can receive disability benefits (3)
Social rent downrating – refuges, almshouses, Community Land Trusts and co-operatives will be exempt from the policy to reduce social sector rents by 1% a year for 4 years from 2016-17 (4)
Personal Independence Payment (PIP) – The Autumn Statement accounts for the government’s previously announced decision not to go ahead with changes proposed at Budget 2016 to PIP. (1)
Digital services –
HMRC
will allow new Tax Credit claims to be made using digital devices from April 2017. Child Tax Credit –
HMRC
will make in-year award adjustments so the disability elements of Child Tax Credit will be paid to a group of recipients who are eligible, but not currently receiving this entitlement. (33)
NS&I
Investment Bond – To provide support to savers
NS&I
will offer a new market leading 3-year savings bond. The indicative rate is 2.2% but this may be adjusted to reflect market conditions when the product is launched. The bond will be open to those aged 16 and over, subject to a minimum investment limit of £100 and a maximum investment limit of £3,000. The product will be available for 12 months from spring 2017. (15)
Tax-Free Childcare – Tax-Free Childcare will be introduced gradually from early 2017, with roll out beginning upon completion of the trial. Once the scheme is fully rolled out, the government will review its operation to ensure it is delivering as intended and to assess the benefit it is delivering for working parents. Rough Sleeping Fund – The government is committing a further £10 million over two years to the Rough Sleeping Fund. This will double the size of the fund, which will support and scale up innovative approaches to preventing and reducing rough sleeping, particularly in London. The
– The government has committed a further £102 million of banking fines over the next 4 years to support Armed Forces and Emergency Services charities and other related good causes. This includes £20 million to support the defence related capital costs of the Defence and National Rehabilitation Centre at Stanford Hall in Nottinghamshire. Expanding medical training places – The Autumn Statement includes the additional student loan outlay expected following the announcement made by the Secretary of State for Health on 4 October 2016 that the government will fund up to 1,500 additional medical training places each year, from the 2018-19 academic year onwards. Gift Aid Small Donations Scheme – Following the review announced at Autumn Statement 2015, the government is amending the Gift Aid Small Donations Scheme to make it more accessible and flexible, and to ensure fairer treatment between charities that are structured in different ways. (40)
– The Royal Trustees intend to increase temporarily the percentage used to determine the Sovereign Grant from 15% to 25% of the Crown Estate annual profits from 2 years previously, to allow for the significant reservicing work of Buckingham Palace. The government will bring forward legislation to reset the level of the Grant in time for when the works are complete. Investing in culture – £7.6 million will be provided for urgent repairs at Wentworth Woodhouse, subject to approval of a sustainable business case for the Grade I listed country house. The government will also be supporting a new creative media centre in Plymouth, the development of the new Studio 144 arts complex in Southampton, and a Royal Society of the Arts pilot to promote cultural education in schools. (35)
Investing in sport – The Autumn Statement confirms the government’s contribution of up to £15 million towards the costs of hosting the 2021 Rugby League World Cup, and £10 million towards legacy infrastructure. It also confirms the government’s contribution of £9 million towards the cost of hosting the Cycling Road World Championships in Yorkshire in 2019, and £15 million towards a legacy fund to pay for cycling infrastructure. (35)
Official Development Assistance – The government will continue to meet the commitment to spend 0.7% of Gross National Income on Official Development Assistance (ODA) in every year of the Parliament. In line with this commitment, the ODA budget will be reduced by £80 million in 2017-18 and £210 million in 2018-19, to reflect the latest economic forecasts. (30)
This annex sets out revisions to the government’s financing plans for 2016-17, which were previously updated on 21 April 2016. Further details of the revised remit for 2016-17, including progress against the remit to date, can be found on the Debt Management Office’s (
DMO
) website at www.dmo.gov.uk. The government’s debt management framework remains as set out in the
. The updated financing arithmetic is set out in Table A.1. The
OBR
’s November 2016
forecast for the 2016-17 central government net cash requirement (excluding
NRAM
plc, Bradford and Bingley and Network Rail) (
CGNCR
(ex
NRAM
,
B&B
and
NR
)) is £85.7 billion.
This measure is used in the financing arithmetic as it reflects the forecast cash requirement of the Exchequer. The relationship between
PSNB
and
CGNCR
(ex
NRAM
,
B&B
and
NR
) is set out in the November 2016 ‘Economic and fiscal outlook’. The net financing requirement (
NFR
) for the
DMO
comprises:
CGNCR
(ex
NRAM
,
B&B
and
NR
) plus any financing for gilt redemptions, planned financing for the reserves, and other adjustments, less the net contribution to financing from
NS&I
and any other in-year contributions to financing. The
DMO
’s
NFR
for 2016-17 is therefore projected to be £152.1 billion, an increase of £20.6 billion relative to the figure forecast in April 2016. This change reflects:
an upward revision to
CGNCR
(ex
NRAM
,
B&B
and
NR
) of £23.6 billion to £85.7 billion
less an upward revision to
NS&I
’s net financing target of £3.0 billon to £9.0 billion
The increase to the
DMO
’s
NFR
will be delivered by an increase in gilt issuance this year (£15.0 billion) and an increase in the planned stock of Treasury bills (£5.6 billion). The maturity skew and split of type of gilt issuance were previously set out at Budget 2016. Total gilt sales in 2016-17 are now forecast to increase by £15.0 billion to £146.5 billion. This increase will be accommodated through a broad mix of short, medium, long-dated and index-linked gilts. The financing plans at Budget 2016 included £8.0 billion of initially unallocated gilt issuance. It was anticipated that gilts of any maturity or type would be issued from this unallocated portion, in response to evolving market conditions. £6.4 billion of this flexibility has been used so far. The unallocated amount will not increase any further. Auctions will remain the government’s primary method of gilt issuance. It is anticipated that £110.2 billion (75.2%) of total issuance will be issued by auction in 2016-17, and a minimum of £32.1 billion (21.9%) will be issued by syndication. The government will continue to use gilt tenders to supplement issuance by auction and syndication. Treasury bills constituted £66.0 billion of the total debt stock at the end of 2015-16, as reported in the government’s updated financing plans on 21 April 2016. It was anticipated at Budget 2016 that Treasury bill issuance would not make a net contribution to debt financing in 2016-17. However, in light of the increase in the
NFR
, the total stock of Treasury bills used for debt management purposes will increase by £5.6 billion to £71.6 billion. At Budget 2016,
NS&I
was set a net financing target of £6.0 billion for 2016-17, within a range of £4.0 billion to £8.0 billion. This target is being increased by £3.0 billion to £9.0 billion, within a range of £7.0 billion to £11.0 billion. The financing arithmetic provides for £6.0 billion of sterling financing for the Official Reserves in 2016-17. The government is planning on the basis of sterling financing for the Official Reserves at a similar level on average over the three years from 2017-18 up to, and including, 2019-20. Table B.1 sets out a full list of expenditure items within the scope of the welfare cap. The Treasury will seek the approval of the House of Commons for any changes to the list of items of expenditure which fall within the scope of the welfare cap. Access the
OBR
’s
. Further details of the monetary policy package can be found in
, Bank of England, 4 August 2016.
,
ONS
, September 2016. Taken from Table 4.11,
,
OBR
, November 2016. ‘United Kingdom Fiscal transparency evaluation’,
IMF
, November 2016; ‘Evaluating the Government Balance Sheet: financial assets and investments’, National Audit Office, June 2016.
. ,
OBR
, November 2016. ‘International Comparisons of Productivity – First Estimates 2015’,
ONS
, October 2016. ‘Largest Investment in railways since Victorian times will continue’, Network Rail, November 2015. ‘Public finances databank’,
OBR
. ,
OBR
, November 2016. This includes the new Housing Infrastructure Fund which will provide infrastructure targeted at unlocking new private sector house building. , National Infrastructure Commission, November 2016.
, Department for Transport, November 2016.
, HM Treasury, July 2016; HM Treasury calculations. ‘Gross Domestic Expenditure on Research and Development time series dataset’, Office for National Statistics, March 2016.
, Ministry of Justice, November 2016.
,
OBR
, March 2016. HM Treasury calculations: A full-time worker is assumed to work 35 hours a week for the 52.1 weeks in a year. The National Minimum Wage was £6.70 in April 2016, so the April 2017 National Living Wage rate of £7.50 is an 80p/hour increase. In total, this marks a £1,459 increase in earnings per year for a full-time worker on the NLW. HMRC
analysis based on Survey of Personal Incomes (SPI) 2013-14 data and Budget 2016
OBR
forecasts. ,
OTS
, 7 March 2016. HMRC
internal analysis. ,
HMRC
, August 2016.
, HM Treasury, March 2016. HMT
calculations based on
OBR
Retail Prices Index (RPI) forecasts. , HM Treasury, December 2014.
,
HMRC
. ,
HMRC
, October 2012.
,
OECD
. , HM Treasury, March 2016.
,
ONS
, September 2016.
,
DWP
, 2016. The government’s response to the consultation was published at
,
HMRC
, August 2016. Reforms are being legislated via the
, 2016. Yes
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