While stagnating growth may force the Government’s hand on economic stimulus, representing a marked departure from the rigid framework that has characterised fiscal policy since 2010, the Autumn Statement on 23 November will be no spending splurge. Instead, it will be defined by cautionary steps to shore up the UK economy against potential uncertainties as Theresa May prepares to fire the starting gun on Brexit negotiations. This article provides a rundown of the key announcements you can expect in next week’s Statement.
Fiscal policy
While the economy defied expectations to grow by 0.5% in the three months to September, there is an underlying concern within the Treasury that this positive news was as a consequence of the fall in Sterling and that medium-term growth could stall as higher inflation bites and as businesses hold off on making hires and investments. The Institute for Fiscal Studies, a respected economic think tank, shares these fears, recently predicting that tax revenues could be £25 billion lower by 2020 than forecasted in the Budget earlier this year. As a result, and having already scrapped plans to deliver a budget surplus by 2019-20, the Chancellor has briefed cabinet colleagues to expect a ‘modest economic stimulus’ next week.
Infrastructure and housing
Any stimulus is likely to be spearheaded by a boost in infrastructure spending, although the form of that spending is yet to be confirmed. Following remarks by Theresa May in July, it is understood that the Government is exploring the idea of Treasury-backed infrastructure bonds to raise finance for large-scale projects. The plans are proving controversial, however, with some (reportedly including Treasury officials) questioning the rationale of issuing more expensive bonds in the place of government gilts.
Notwithstanding, funding is expected to be targeted at ‘shovel-ready’ regional projects that ministers’ hope will complement large-scale developments, boost productivity and ‘future proof’ the UK economy. Housing too will be a focus, with a White Paper on plans to speed up housebuilding, first announced at this year’s Conservative Party conference, expected alongside the Statement.
Tax
Slower than expected growth and higher inflation will leave little wiggle-room to implement a mooted cut to corporation tax, and the Chancellor may instead choose to simplify existing structures. A recent proposal from the Office for Tax Simplification (OTS) – an independent team sitting within the Treasury – on reforming National Insurance (NI) could be given the green light by the Government. The OTS claim the plans would boost the UK’s tax competitiveness and benefit student and seasonal workers by aligning NI contributions with income. The investment allowance – which enables businesses to offset purchases of machinery against profits – could also be increased from its current limit of £200,000 to help stimulate growth sectors.
Wider measures
Alongside headline tax and spending announcements, reports suggest the Autumn Statement will provide an early indication of the Government’s plans to develop an industrial strategy, expected to have a strong focus on boosting innovative industries. The Chancellor may also heed calls from the former Secretary of State for Work and Pensions, Iain Duncan Smith, to reverse planned cuts to Universal Credit, whilst the Government’s resolve to withhold additional funding for the NHS is likely to be tested by health service leaders in the run up to the Statement.
The Newington team will be monitoring the Autumn Statement next Wednesday and developing sector-specific briefings for all our clients. If you would like to receive a briefing or have any questions on the Statement then please get in touch with Naomi Harris at [email protected].
