There have been a number of seismic events since the Budget in March this year.
The UK has voted to leave the European Union, triggering the departure of one Prime Minister, David Cameron, and the arrival in No 10 of a new one, Theresa May.
The change of Premier also brought about a change in Chancellor with George Osborne making way for Philip Hammond.
On Wednesday, November 23rd, the new Chancellor will deliver his first Autumn Statement.
Robert Ellis, Principal of Chester and Wrexham-based Chartered Accountants Ellis & Co, says: “Every SME in the UK is looking to the new Chancellor to put in place a clear direction of travel as we approach the start of the Brexit negotiations.
“Ever since the vote to leave the EU, there has been a cloud of uncertainty hanging over the UK economy. This has had a significant impact on many SMEs with future investment and job creation being put on hold.”
We consider some of the issues currently facing the Prime Minister and her Chancellor.
The Impact of Brexit and World Events
Theresa May has now stated that the UK will trigger Article 50 and begin the formal process of leaving the EU by the end of March 2017, meaning that the UK will have left the EU before the scheduled date of the next General Election in 2020. Acres of newsprint will be devoted to the possible permutations of Brexit over the next two years. Will it be ‘hard Brexit’ or ‘soft Brexit’? What will it mean for London as a financial centre? What will the impact be on Scotland, Wales and Northern Ireland?
And there are far more than domestic considerations for Philip Hammond to worry about. The possible slowdown in China and the continuing problems of so many European economies may well impact the UK every bit as much as Brexit.
What can we expect in the Autumn Statement?
Interestingly, perhaps the first thing we can expect in the Autumn Statement is the end of the Autumn Statement. It’s been around in one form or another for more than 30 years, and was first delivered by Geoffrey Howe in November 1982. But it’s believed that Philip Hammond is considering axing the Statement: he apparently wants to concentrate all the Treasury’s attention on the Budget and end what he sees as ‘gimmicks’. Mind you, George Osborne made a similar commitment when he was in opposition…
Whether it’s the last one or not, this Autumn Statement is clearly vital as the Chancellor will need to set out his plans for managing the economy in the run-up to Brexit. The indications are that he will look to boost growth to cushion the UK economy against any negative impact from Brexit which he is generally expected to do by boosting public spending on infrastructure projects.
Both Theresa May and Philip Hammond see the state as having a greater role to play in the economy than George Osborne did: so expect to see more pro-active measures from the Government, not just in the Autumn Statement, but in future Budgets as well.
On 23rd November, we’re likely to see plans announced for more investment to boost Britain’s roads and railways and measures to ‘get Britain building’. The suggestion is that there will be a £3bn housing fund to help smaller builders (cue the newspaper headlines: Hammond pins hopes on Bob the Builder.)
The Chancellor has already abandoned his predecessor’s pledge to balance the books by the end of this parliament, so he has plenty of leeway to borrow more money for his infrastructure projects. With corporation tax receipts falling, he will need to.
Hammond has also stepped back on George Osborne’s plan to cut corporation tax to 15%, dismissing it as ‘just a suggestion.’ The current level of corporation tax is 20% and he has indicated that he intends to reduce it to 17% by 2020 – again suggesting a much more cautious approach than that of George Osborne.
Speaking in Washington earlier this month, Hammond said: “There is an increasing sense that now is a good time for the UK to invest in productivity enhancing infrastructure projects, taking advantage of low borrowing costs and our ability to borrow long term.” He still intends to balance the books, but he sees it as a more long term commitment than Osborne did. He will, apparently, set out a ‘new set of rules’ in the Autumn Statement to help him do this. For the immediate future, though, Hammond has committed himself to, “careful, considered and targeted decisions around high-value infrastructure projects.” Simply put, he is going to borrow more and spend more than his predecessor.
George Osborne was very fond of stating that the UK was not immune to world events and – as we mentioned in the introduction – any slowdown in China and/or Europe will impact on the Chancellor’s plans. But Philip Hammond has more immediate worries at home: the public finances – and, by extension, his own room for manoeuvre – suffered a setback in mid-October after a collapse in corporation tax receipts (down to their lowest level since 2009) widened the UK’s public deficit to £10.6bn, against expectations of £8.5 to 9bn.
Not surprisingly, there have been plenty of gloomy forecasts and lowering of expectations since the vote to leave the EU, with the British Chambers of Commerce recently cutting their forecast for UK growth for this year from 2.2% to 1.8%. The BBC reported that small business confidence was down for the first time in four years.
And yet there has been plenty of good news since Brexit as well: manufacturers and exporters are clearly benefiting from the fall in the value of the pound, with export volumes growing at their fastest level for 2½ years in the three months to October. There has also been positive news for the UK services sector.
Clearly the road ahead – both politically and economically – will be bumpy. Philip Hammond will, we suspect, deliver an Autumn Statement that matches his personality: careful, cautious and reflective. He’ll almost certainly resist the calls from various quarters for a massive economic stimulus and a wholesale review of the tax system. Any investment made will, he says, “be real investment. I’ll be looking for investment in the sense that a businessman can understand the word.”
Don’t expect fireworks on 23rd November. Do expect a calm, measured approach that is intended to steer Britain through the choppy waters of the next two years and to lay a platform for the country’s economy after we have left the European Union.
On Thursday 24th November, we are holding a 'Post Autumn Statement Briefing' at:
Rowton Hall Hotel,
The event will be held from 6pm – 8pm and will see our Tax Manager, Peter Way-Rider CTA ATT (Fellow), giving a short overview of the Chancellor’s Autumn Statement, due to be delivered on the 23rd November and how this may affect us, our families and our businesses.
Joining Peter will be Illingworth Seddon Chartered Financial Planners, who
will present a summary of some important changes we have seen this year in the areas of Pension, Investment and Estate Planning.
Please contact Lyndsey Ellis (01244 343504 or firstname.lastname@example.org) by Monday 21st November if you would like to attend.