In a presentation following the Chancellors statement yesterday, the IFS have claimed that the job of mitigating the debt caused by the governments current spending plans could be a job “for not just the current Chancellor, but also many of his successors”.
At a presentation of its findings on the Chancellor’s statement, IFS director Paul Johnson said that a “reckoning, in the form of higher taxes” would have to come eventually. It also suggested that the economy will not grow as large as it could have done if the Covid-19 crisis had not hit.
“If that’s the case, and it’s very likely to be the case, revenues will still be depressed, and if we want to try then to bring the deficit back to where it would have been absent the crisis, we will need to do some spending cuts, or given a decade of austerity, perhaps more likely some tax rises,” he said.
“It’s going to take decades before we manage that debt down to the levels we were used to pre this crisis.”
The IFS has also cast some doubt on the potential effectiveness of the Stamp Duty scheme and the 50% off dining initiative warning that the temporary stamp duty holiday, announced by Mr Sunak, may in fact increase house prices while deputy director Helen Miller raised doubts as to whether the meal discount scheme and VAT cut were driven by a problem with demand, or supply – with businesses unable to accommodate customers due to social distancing constraints.
Her concern lay in the fact that many businesses may not pass on the VAT savings to customers, thus negating the purpose suggesting that “the firms that benefit most would be those who have the highest sales, who are operating closest to normal”.
This isn’t the first time Rishi Sunak’s plans have been called into question. HM Revenue and Customs chief executive Jim Harra has also raised concerns about the Job Retention Bonus scheme which gives £1,000 to firms for each furloughed employee they bring back to work and whether it actually offers enough value and benefit.
In a letter to the Chancellor, he requested a ministerial direction which is a formal order to go ahead with a scheme despite the concerns.
Mr Harra said that while there was a “sound policy rationale” for the Job Retention Schems, but that “the advice that we have both received highlights uncertainty around the value for money of this proposal”.
Mr Sunak himself said he expected a “dead weight” cost to the JRS scheme, as many companies who already plan to retain staff will reap the benefit.
Speaking to BBC Radio 4’s Today programme he stated his feelings that “without question” there has been “dead weight in all of the interventions we have put in place”. However, many economists and even the leader of the opposition, Labour leader Sir Keir Starmer voiced concerns that Government could not in fact afford the “dead weight”, stated his belief that the scheme should have been a targeted initiative and not a one size fits all payout.
However, the government have since responded through a Treasury spokesman who stated that the Government is confident the Job Retention Bonus scheme is the “right policy” to help protect jobs.
Having already been delayed, the UK Budget is now set to be further delayed as the new chancellor Rishi Sunak needs more time to prepare ahead of the official decisions.
This weekend, Transport Secretary Grant Shapps said: "I know that the Budget plans are well advanced but I also know that Rishi Sunak, the new Chancellor may want time…I haven't heard whether the date of March is confirmed as yet. He is probably looking at it, I should think this week."
Nimesh Shah, partner at Blick Rothenberg, had this to say for Finance Monthly: “We would expect a lot of the Budget material will already be in place, more so because a Budget was already planned before the election which had to be postponed.
He added: “However, any major changes and decisions that were to be announced would presumably need to be put on hold and assessed by the new Chancellor.
“There has been a lot of speculation around entrepreneurs’ relief being changed or restricted in the forthcoming Budget – it’s possible that any such changes which were driven by Sajid Javid could now be shelved, and delayed in their introduction until a future Budget.
“More recently, there has been suggestion higher/additional rate relief for pension contributions could be scrapped and a wealth tax on property introduced – surely such significant proposals would almost certainly need to be reconsidered by the new Chancellor.”
Nimesh said: “The Conservatives have promised not to raise income tax whilst, at the same time, have made some significant spending commitments. To bridge this gap, I think Gordon Brown’s 1997 strategy will be dusted off and replicated. That is, income tax rates will remain unchanged but revenue will be raised by adjusting threshold’s for existing tax reliefs and other such measures.
He added: “It is also possible that Boris Johnson could push to introduce his leadership pledge of increasing the basic rate tax band to £80,000 – this was expected to cost the Treasury around £8billion, and it still remains difficult to see how such a tax cut could be justified given the significant spending plans. However, nothing should be ruled out now as Boris Johnson could finally get his way with this measure.”
Following the autumn budget announcement yetrerday, Finance Monthly has heard the initial reactions from experts at top accountancy firm Crowe UK. From Corporate Finance to Small Businesses and IR35, there are tax implications for many…
Matteo Timpani, Corporate Finance partner:
Entrepreneur’s Relief (ER) remains an attractive, and essential, tax incentive that drives UK innovation and entrepreneurship. That said, it is disappointing to see amendments made to the relief which may impact the ability of certain individuals to benefit from it in the short term. There will be a number of mergers and acquisitions (M&A) transactions currently in progress which will likely be put on hold to ensure participants are able to qualify for Entrepreneur’s Relief in due course.
This change only emphasises the importance of business owners taking specialist advice, and being prepared, long in advance of the time they are considering succession and exiting their business. We await the specific details of when this change will be implemented but anyone who is considering selling their business in the next 12 months, and is unsure if they, their management team and/or other shareholders will qualify for ER, should seek advice now and consider immediately the implications of this change.
Tom Elliott, Head of Private Clients:
It is not surprising to see The Chancellor reaffirm the government's commitment to Entrepreneurs' Relief, albeit with tighter conditions (qualifying period doubled to two years). However, it might have been more effective if the minimum shareholding requirement was abolished altogether – this would incentivise all employee shareholders and not just the C-suite.
The changes to Capital Gains Tax (CGT) reliefs for the sale of main residences look like an attempt at modernisation. Lettings relief has changed so as not to apply to the AirBnB model - relief applies only for shared occupation. The shortening of the ‘period of absence’ from 18 to nine months for Principal Private Residence relief will need to be monitored closely, as any slowdown in the housing market (where it may take more than nine months to sell) may result in an overall reversal.
Rebecca Durrant, Private Clients partner:
It was pleasing to see the personal allowance and higher rate tax brackets raised a year early, but it will be interesting to see whether the Chancellor treats this as a ceiling. Rates could now be frozen for following years, which would turn the tax cut into a hike very quickly. In the mid to long-term, this may not protect the inflationary impact that a no deal Brexit may have.
Phil Smithyes, Managing Director, Crowe Financial Planning
The move to raise the personal tax allowance to £12,500 and raise the higher rate tax threshold to £50,000 from 6 April next year is a move that should be welcomed by most pensioners, making their pension savings go that much further.
Under the pensions ‘freedom and flexibility’ rules, individuals could take up to £16,666 each tax year from their pension fund before they begin paying income tax. This is achieved through a combination of 25% tax-free cash (£4,166) and the new £12,500 personal tax allowance. Careful planning will help pensioners money go that further and minimise their liabilities to tax in retirement.
Susan Ball, Head of Employers Advisory Services:
In April 2017, the government reformed the IR35 rules for engagements in the public sector and early indications are that this has resulted in an increase in compliance within the public sector. This will now be replicated for the private sector, but a reasonable implementation period is vital so the effective date of 2020, and the fact the rules will only be extended to large and medium sized private businesses, are both sensible steps. The Chancellor clearly took on board the feedback from the consultation process over the summer. Engagers should start planning now based on the experience of the public sector in order to have an effective procedure in place for the start date of April 2020.
Laurence Field, Corporate Tax partner:
The Chancellor's statement was made against a background of political uncertainty, mixed economic signals and an increasingly protectionist agenda from many of our trading partners. Tax is one of the most politically high profile things a government can do, and this was one of the most political budgets a Chancellor has had to deliver for decades.
The UK doesn't raise enough tax to keep providing public services at the current level, especially given the aging demographic. A tax system that raises more tax will need to be more efficient, perceived to be more fair and find new 'pockets' of wealth or bad behaviour that can be taxed without political risk.
An autumn budget also has the advantage of kicking the can down the road given that the majority of changes will only kick in from April next year if not later. However, this is the first glimpse we have of the type of post Brexit fiscal landscape the government wants to create.
The announcement of a potential digital services tax (DST) makes sense. Global companies need to be seen to be paying their 'fair share'. They don't have votes, so are an easy target. Playing tough with the digital services tax is politically attractive even if this causes conflicts with other tax jurisdictions. It is unlikely such measures will find much opposition in Parliament given the ground has been well prepared. How our trading partners (and particularly the US) react will be the real challenge. Retaliatory measures will not help the British economy. Therefore by outlining a timetable to introduce measures in 2020 he has provided cover for trying to get international agreement. Talking tough, but deferring action makes other parts of the Budget more palatable.
Elsewhere, plastics have found themselves in the environmental firing line and it was an easy, and politically popular decision, to try and find ways of taxing its use. Requiring more usage of recycled plastics is a way of stimulating that industry while being seen to be tough on pollution. The challenge with all sin taxes is that if they are too effective, the source of revenue will dry up. The damage that plastics can do is all too obvious, the Chancellor is no doubt sincere in his desire to reduce our use, but would no doubt be grateful if industry doesn't take action too quickly.
The UK’s Finance Bill received Royal assent yesterday, meaning investors can no longer benefit from tax-efficient schemes like VCTs and EIS in low-risk investment. Chris Sutton, Head of Leisure & Hospitality at MHA MacIntyre Hudson comments below.
The Finance Bill has now received Royal Assent and will bring the ‘risk-to-capital’ condition for venture capital trusts (VCTs) and enterprise investment schemes (EIS) into effect. This aims to focus investment into high risk companies striving for long term growth and development and means schemes will no longer qualify if there’s no significant risk that investors could lose more of the capital invested than the net investment return (income, capital growth and tax relief). This measure eliminates the tax advantages sought by some investors in low risk asset-backed funds.
Although this impacts genuine investments made by more risk adverse investors, it also addresses the danger that the schemes are used for tax avoidance purposes.
The leisure and hospitality sector is deemed a high risk business venture and has used EIS to raise funding which can’t be obtained elsewhere for some time. However, there are many asset-backed schemes with exposure to pubs, where the company holds freehold and/or long leasehold premises. Although there is a perceived market risk of downturns in property values, this doesn’t outweigh the tax relief obtained on the original capital investment and these types of schemes are unlikely to satisfy the risk-to-capital condition.
The legislative changes were originally mentioned in November, resulting in significant investments into ‘low-risk’ schemes at an earlier stage in the tax year than seen previously. Downing Pub EIS, for example, has attracted £10m investment in the 2017/18 tax year but has already raised concerns over the proposed changes. It will now have to consider how it builds the business in a higher risk area of the market.
The City Pub EIS - tranche 3 is fully subscribed and its Information Memorandum includes details for the proposed strategy to satisfy the new rules. The scheme will include investments in companies which acquire pub properties not currently trading, or unlicensed premises which require conversion. This increases the underlying risk factor.
Investment options are likely to be reduced from now on and some investors may feel that they have missed the boat.
The effect of Brexit and waning consumer confidence in restaurant businesses is already starting to be felt with chains such as Byron Burger at risk of administration and rapidly closing outlets. These imposed restrictions could further curtail the ability of new businesses within the sector to raise the necessary funds for growth and development.
In the 2018 Spring Statement, Chancellor Phillip Hammond confirmed his commitment to bolster business and stated that there was ‘light at the end of the tunnel’. We will have to see how this plays out in the coming months, but we expect that more funds will seek advance assurance from HMRC on the eligibility of their schemes before seeking further funding from investors.
Various expert Partners at Crowe Clark Whitehill, a leading audit, tax and advisory firm, share their expectations below ahead of the UK Chancellor Phillip Hammond's Spring Statement tomorrow.
Dinesh Jangra, Partner, Head of Global Mobility Solutions, calls for measures to help the UK retain and attract talent and investment: “Let there be no doubt, UK PLC will benefit immensely from the world’s best talent being here. The question is what role can the UK tax system play in encouraging this?
Regardless of what is announced in the Spring Statement, Brexit looming in the background and this is causing concerns around the UK’s attractiveness for talent and investment. With that in mind, I would like to see the UK tax system in the area of mobility (expatriate tax breaks) being reviewed to enhance UK attractiveness. The tax effectiveness of non-domicile status has been eroded over time and while we have overseas workday relief and temporary workplace relief, I question if they are enough to continue to attract the best talent to the UK. Often, employers take on the UK income taxes due in respect of employees under tax equalisation arrangements so more UK tax breaks can reduce overall employer tax costs.”
Stacy Eden, Head of Property and Construction, calls for a stamp duty cut and a freeing up of Green Belt land to reinvigorate housebuilding: “An SDLT reduction would free-up liquidity in the market, which will ultimately increase housing transactions and sales, which are currently at extremely low levels. We may even find that it raises more money. There is a broader concern that our tax system is not favourable to property investors and developers, which is not surprising given we have one of the highest property taxes amongst OECD countries.”
“I’m looking out for the Chancellor’s approach to simplifying the planning process. He could reinvigorate UK housebuilding by freeing up more areas of Green Belt land. Investing in planning departments to try and get closer to housebuilding targets is of great importance. We are currently well short of targets and this is contributing to higher house prices in certain areas.”
Rob Marchant, VAT Partner, calls for VAT reform to stimulate the residential build-to-rent market: “It may be an ambitious ask, but I would like VAT changes to encourage the residential build-to-rent market. If rental income were treated as zero-rated rather than VAT exempt, it would allow landlords to reclaim VAT on running, management and repair costs.”
Matteo Timpani, Partner, Corporate Finance, calls for Entrepreneurs Relief to be expanded: “I would like to see the government retain and even expand the reach of Entrepreneurs’ Relief (ER) and other tax reliefs, aimed at rewarding enterprise for UK entrepreneurs.
Recent soundings around restrictions to Enterprise Investment Scheme (EIS) relief and other reliefs designed to foster growth in the UK economy can cause uncertainty among a community of risk accepting entrepreneurs, the success of which, in the mid-market, drives our economy.
The government should be careful not to underestimate how much of an incentive ER is for business owners to drive growth and ultimately create wealth and jobs for the UK economy as a whole.”
Johnathan Dudley, Partner, Head of Manufacturing, calls for clarity around pensions for SMEs: “With Brexit on the horizon and the possibility of yet another general election, what businesses really need is a period of stability and for politicians to provide some certainty.
Provided this ‘certainty’ is forthcoming, I would expect to see further changes to pensions provisions, aid for businesses to strengthen their international trade capabilities and the tightening of provisions to IR35 and tax evasion rules around employment and self-employment.
Many SMEs have invested time and effort into dealing with pension auto-enrolment duties and a relief for these businesses around payroll provision would be welcomed and well deserved.”
Caroline Harwood, Partner, Head of Share Plans and Reward, calls for clarity about remuneration in light of the Rangers EBT case: “During 2017 we saw the introduction of yet more measures to tackle remuneration structures designed to avoid tax, including a charge on all outstanding ‘disguised remuneration loans’ made to employees by Employee Benefit Trusts (EBT) or other third parties, as well as the new ‘close company gateway’.
The Supreme Court decision to favour HMRC in the ‘big tax case’ against Rangers FC brought the ‘redirection principle’ into the foreground, in ruling that payments via EBTs qualified as taxable income. Initially, the interaction between this new case law, the disguised remuneration rules and arranging such salary sacrifice into a pension scheme, was unclear.
HMRC have made statements as to how they expect these rules to interact in certain cases in the future, but formal clarification in the Spring Statement would be welcomed.”
Despite some positive economic data in the run up to today’s Budget, the Chancellor has reinforced his steady approach while making some small but significant pro-business adjustments, according to accountancy firm, Menzies LLP.
Business rates
The Chancellor has announced a £600 a year cap on business rates for smaller retailers that stand to lose the small business rate relief. Local authorities are also being given a £300 million pot to support local business.
“The Chancellor has acknowledged that the business rate systems needs fundamental reform and has promised to address this in time. However, in the short term, this cap is not enough and will only deliver limited savings for SME businesses. This will disappoint those expecting big rates increases.”
Self-employment
In the interests of ‘fairness’, the Chancellor has opted to increase National Insurance Contribution rates payable by self-employed workers to 11% by April 2019.
“Care needs to be taken to ensure that self-employed workers aren’t unduly disadvantaged. For this reason, the consultation announced to take place this summer is welcome. In particular, employers will also need to be reassured that they will still have access to this valuable and flexible employment pool.”
Tax-free dividends
The Chancellor has announced plans for the tax-free dividends allowance to reduce from £5,000 to £2,000 in April 2018.
“Before 2016, basic rate tax payers paid no tax at all on dividend payments. Since then, a tax liability has been introduced in stages; first with an exemption on the first £5,000. Now this exemption has been reduced to £2,000, which suggests it could even be removed altogether in time.
“This is a stealth tax on basic rate tax payers. It will also hit employees of companies that encourage wider share ownership and make it harder for employers to create meaningful incentives.”
Brexit negotiations
The Chancellor stopped short of doing anything further on Corporation Tax, which is planned to decrease to 17% by 2020.
“Corporation tax was mentioned several times in the Chancellor’s Statement and this is probably because the government is considering using it as part of Brexit negotiations. Further measures to reduce the administrative burden of R&D tax relief could also be used in this way.”
Apprenticeships and technology training
The Chancellor is intending to go ahead with the introduction of the Apprenticeship Levy in April 2018 in its current form. He also announced the introduction of T-Levels; new, skills-focused qualifications to be attained through the further education system.
“The introduction of T-Levels is good news but it will be some time before any benefit is felt by employers. It means that 13,000 qualifications will be replaced by just 15 and this will certainly bring greater focus, which will help employers to understand and recognise these new qualifications.”
(Source: Menzies LLP)
In light of the UK’s Chancellor Philip Hammond’s Autumn Statement today, where he vowed to make the UK economy "resilient" in its exit from the EU, and noted an expected economy of higher borrowing and slower growth, Finance Monthly has heard from several sources who have given their opinions and comments on the Chancellor’s announcements. The comments below range regarding the productivity investment fund, tax free personal allowance, and the new NS&I savings bond, to the fintech sector, economic forecast, IR35 tax legislation, and general funding in infrastructure, R&D and more.
You can read about the key points delivered in Hammond’s Autumn Statement here.
CEO and Co-Founder of MoneyFarm, Giovanni Daprà:
Tax free personal allowance
By raising the tax free personal allowance and higher rate threshold, the government is providing Brits a terrific opportunity to save and invest more money. By 2020 when these changes are in full effect, people earning £30,000 will have close to an additional £300 in their purse each year while those earning £50,000 will be as much as £1,700 better off. Investing this money for the future, as it is earned, is an incredibly easy way to grow wealth over time.
News savings bond
The new savings bond announced today is a reminder from the government that interest rates are low so Brits need to consider an alternative to cash savings. Chancellor Hammond has provided a potential solution in terms of capital preservation – however a 3 year term at 2.2% will tie up money. Some expectations suggest inflation may shoot above the target 2% during that time frame, in which case locking money into this bond may hinder wealth growth.
This is one option but each individual needs to look at their personal circumstance and financial goals to see if a savings bond is a good solution for them. There are other alternatives to cash savings in the investment market, the growth of robo-advice has helped make this more affordable.
Kerim Derhalli, CEO and Founder of invstr:
Much has been made of the recent dip in venture funding within fintech, but we’re simply observing the typical cycle of an innovative environment. The fintech boom has seen rise to many impressive products, but also a large quantity of lower level pretenders who will, naturally, fall by the wayside. Venture capitalists have now reached a point where only the best ideas with real longevity will find funding.
The key for foreign investors looking to invest in the booming UK fintech scene is consistency. By essentially maintaining the status quo in today’s statement, Mr Hammond has gone a way to restoring calmer waters following the tidal wave of concern following Brexit and Donald Trump’s election. The reality is that, despite various forecasts, no one really knows what Brexit means so businesses will look to reduce their own volatility until details emerge.
The City is going to remain the hub of finance and fintech, irrespective of Brexit. The likes of Barclays and HSBC have already said as much. If a fintech start-up wants to succeed it needs to be where it’s at – which is the UK. For now, the outlook doesn’t look too bad.
Markus Kuger, Senior Economist at Dun & Bradstreet:
In the UK government’s first major economic statement since the shock Brexit vote, Chancellor of the Exchequer Phillip Hammond has announced a series of new measures designed to alleviate the economic pressures facing businesses in the UK. Firms looking to combat the continued slowdown of business growth and navigate fluctuating global markets should turn to data as the key to unlocking smart growth and mitigating risks.
A bleak forecast was expected from the UK government, and similarities with the US, following the surprise ascension to power of Donald Trump, won’t go unnoticed in the globalised business world. It’s also important to note that the long-term impact of Brexit is yet to be felt, as Article 50 is only likely to be invoked in Q1 of next year.
With levels of uncertainty remaining very high, Dun & Bradstreet is maintaining its ‘deteriorating’ outlook for the UK’s country risk rating. The two downgrades we have made to the UK’s rating since the referendum make the UK the worst performing economy in 2016, in terms of rating changes. In this light, we remind companies that it’s crucial to carefully assess growth opportunities, while preparing for the far-reaching negative implications of Brexit.
Geoff Smith, Managing Director of Experis UK & Ireland:
In response to the £23bn Productivity Investment Fund
It’s pleasing to see the Government pledge billions of pounds worth of investment into the tech and science sectors in a bid to create more highly-skilled and better-paid jobs. Despite high employment levels in the UK, productivity remains low, part of which is down to the rise in low-paid, low-skilled jobs, following the economic crisis, so it’s encouraging to see the Chancellor attempt to turn things around.
However, if we’re to see an improvement in wages and living conditions, it’s vital that we upskill the tech sector as quickly as possible. Organisations are struggling to find the right talent, and as a result, demand and remuneration for IT professionals continue to grow, with cloud, IT security and mobile skills most in demand, according to our recent Tech Cities Job Watch research.
Upskilling will be vital to success for businesses that want to retain their best talent. By offering the right training and development opportunities, organisations can support their employees in learning the latest skills as these evolve. This needn’t be a complicated or expensive process – a lot of the skills that IT professionals already have are easily transferrable.
To take advantage of the Government’s funding boost, businesses need to think about building their optimum teams for the future. We work closely with our customers to ensure they have a long-term workforce solution in place when it comes to anticipating what skills will be needed three to five years from now, and the IT know-how required to deliver business success.
In response to the changes to IR35 tax legislation
While HMRC’s intentions to amend existing IR35 legislation in a bid to crack down on tax avoidance should be lauded, we’re concerned about the impact that the change in regulation will have on the IT sector. In an industry where organisations are already struggling to find the right talent, there is a serious risk of ‘brain drain’, whereby projects could be ground to a halt until they find individuals willing and able to work under the new regulations. In fact, we wouldn’t be surprised to see how such a change might encourage existing IT professionals to set their sights abroad to countries courting their talent in a post-Brexit world.
To mitigate against any likely risk, organisations should prepare for these changes now, and also optimise their use of talent for the long term. This can be done in various ways. Firstly, invest in Employed Consultants (ECs) that are permanently employed by recruitment companies and sit outside the scope of the legislation. ECs will be a steady investment for any project, and will offer organisations cost savings and flexibility. Secondly, if developed correctly, Statement of Work projects that clarify deliverables/results, resources, costs, and timelines will help ensure that all Personal Service Company (PSC) work is compliant with IR35 requirements. Finally, consider implementing a Managed Service which will help reduce the time taken to process a high number of contractors, by transferring all the admin and risk to the master vendor.
Lucy-Rose Walker, CEO of Entrepreneurial Spark:
The Chancellor’s pledge to provide an economic environment that drives productivity and supports growth sounds great for entrepreneurs, but we’re keen to see more support for early stage and scale-up businesses in the form of tax relief, access to finance and support for employing and developing people.
On broadband investment
Technology is a great enabler for business growth and here at Entrepreneurial Spark we’re seeing growing momentum across the UK in the technology sector. Investing in broadband will help more internet based businesses to grow, however many of our Chiclets and alumni are facing issues in accessing basic broadband services, so access for all should be prioritised before investment is made into 5G networks. We are currently looking to the future to help entrepreneurs right across the UK through a virtual business growth enablement programme so access to broadband is essential to help us deliver this.
On R&D funding
Investment into R&D is crucial for British firms to compete in a global economy. The commitment of £2 billion per year in tax breaks between now and 2020 for research and development will certainly help, however we’d like to see more done to help start-ups and scale ups access finance to help them grow.
On regional investment
The increased support for economies outside of London will help to strengthen entrepreneurship and economic growth across the UK through schemes such as City Deals and investment into regional transport infrastructure.
On the British Business Bank VC Fund
Unlocking £1bn in finance for growing firms through the British Business Bank as venture capital funding is a great step forward in helping start-up and scale-up businesses to invest in growth.
On Corporation Tax
Sticking to the previously announced tax roadmap is a good move for the Chancellor, reducing corporation tax to 17% by 2020 as previously planned is crucial at this time of uncertainty for British business. We hope this will see continued investment into UK start-ups.
Jake Trask, currency analyst at UKForex:
Sterling fell this afternoon as Philip Hammond announced a raft of measures in an effort to stave off a potential post-Brexit slowdown as we head into 2017.
The pound jumped earlier, as measures to tackle a lack of productivity were announced. However, this good news was tempered by the feeling that the statement didn’t go far enough with regards to infrastructure projects and other measures to promote growth. After an initial snap higher, the pound fell away as investors were left disappointed by the Chancellor’s stimulus package.
Ben Brettell, Senior economist at Hargreaves Lansdown:
We might have a new chancellor but Philip Hammond’s speech today came straight out of the George Osborne playbook.
Like his predecessor he was keen to stress the economic positives in his opening remarks, highlighting that the IMF predicts the UK will be the fastest growing major economy this year, with employment at a record high.
To be fair to Mr Hammond, the economy has proved surprisingly resilient in the wake of the vote to leave the EU. Nevertheless forecasts were unsurprisingly downgraded, to 1.4% next year and 1.7% the year after.
Also predictable were the abandonment of the commitment to eradicate the deficit by 2019/20 and the announcement of a mild fiscal stimulus, focused on housing and infrastructure, and with an emphasis on regional development and improving productivity.
This focus on productivity was welcome, and long overdue. The UK has fallen behind in productivity for too long, though it should be noted that promising to tackle the problem is much easier than finding a solution.
Danny Cox, Chartered financial planner at Hargreaves Lansdown:
We saw from the popularity of the NS&I ‘pensioner’ bonds introduced back in January 2015, how savers are desperate for a better return on their cash. With no end to low interest rates in sight a new bond aiming to pay 2.2% over 3 years and a limit of £3,000 is a decent gesture, but with inflation rising and heading toward 3%, its unlikely money in this new bond savings will do anything but go backwards.
Ray Withers, CEO of Property Frontiers:
This statement was less show-stopping than usual, though not without its moments. Hammond is apparently keener on setting top-level economic policy than laying out specific spending measures, which will sensibly (if less entertainingly) be left for individual departments. His overarching themes included easing pre-referendum austerity commitments, more (and less glamorous) spending on infrastructure and housebuilding, and help for struggling families.
The best way to help working people is simply to fix the economy, and we are hopeful that Hammond's moves on that front will be successful.
More interestingly for those of us in the industry, however, the Chancellor today cemented the place of housebuilding as the cornerstone of Mrs May's refashioned 'working for everyone' economy.
There is important work to be done on that front. 'Just about managing' families are more than twice as likely to rent privately as to own their own homes and the Treasury is clear about its intention to help would-be buyers get a foot on the ladder.
The main pledge today - a £2.3bn fund for 100,000 new homes in high demand areas - is relatively substantial, but even smarter is the focus on infrastructure spending in ways and places that support new development.
An encouraging takeaway from this supposedly final autumn statement is a clear indication that the government understands the need to make the rental sector more affordable in addition to beefing up its traditional focus on housebuilding.
With landlords still reeling from Osborne's final statement, we had been hoping that Hammond's first would also offer them some conciliatory breathing room in this area. A reversal of the recent changes around stamp duty and tax relief on mortgage payments, as a string of industry bodies have called for, was always a long shot and did not happen.
Indeed, the prospect of a silver lining of any kind faded fast with news overnight heralding a now-confirmed ban on lettings fees. The Chancellor in fact targeted landlords specifically with the rebuff: 'landlords appoint letting agents and landlords should meet their fees'.
A ban of this kind is something that has been the subject of debate for some time, and so not altogether surprising. Scottish renters already benefit from something similar, while English households reportedly face average fees of £337 per year. Some of those fees are indeed overinflated, but the key question is: who will eat the cost?
It is not difficult to imagine a farcical parlour game in which the Treasury passes the cost from tenants to agents, who pass it to landlords, who in turn pass it back to tenants. The only part of the chain at no risk of incurring the cost is the Treasury itself, and indeed a subsidy for agents to charge extortionate fees is ridiculous.
But this is indicative of a wider and more worrying misunderstanding in the government's handling of the private rental market: it is largely treated as a zero sum game in which losses for landlords are automatically wins for tenants. That is not the case.
With any luck, the repercussions of this new ban will focus the debate on the balance of pressures affecting every part of the rental supply chain - including landlords. Recent moves giving the Bank of England powers to limit overstretched buy-to-let mortgages, for example, seem like a better way of discouraging the darker side of the rental market than squeezing profits for all landlords.
We wish the Chancellor great success with his new program, and have faith that the pendulum will swing back if the desired corrections to the housing market do underwhelm. In the meantime it is not such a bad time to be a landlord: mortgage rates are at historic lows, and Savills projects rent increases of around 19% across the country in the next five years.
On a more local and self-centred note, we are delighted at the confirmation of a £27m expressway connecting our hometown of Oxford with Cambridge via Milton Keynes. Congestion is probably the main constraint on the UK's twin knowledge economies, and shortened commutes will be a welcome boost to our own staff morale, when it eventually happens.
Charles Owen, Founder of CoInvestor:
Hammond’s announcement to reduce the Money Purchase Annual Allowance is likely to come as a blow to those who currently benefit from double tax relief on their pensions. However, significant tax relief can still be found through investing in alternative assets, such as those under the Enterprise Investment Scheme and Venture Capital Trusts.
It is becoming increasingly important that investors assess how they can diversify their portfolio to protect themselves against economic volatility. Our research has shown that half (48%) of mass affluent Britons who decided to act on pensions freedoms now feel more in control of their own investments and 38% have already benefitted from alternative tax-efficient investments. Considering the decreasing state support and the growing mistrust in pension schemes, we expect this trend to continue as Britons look to take growing their pensions into their own hands.
