Brexit pervaded Chancellor of the Exchequer Philip Hammond’s first – and last – Autumn Statement. Whilst unveiling a raft of spending plans on transport, infrastructure and housing, he emphasised Brexit’s potential impact upon the UK’s finances, providing a downbeat assessment of the UK’s economic outlook and underlining the uncertainties clouding the UK’s future path.
According to the Office for Budget Responsibility (OBR), the UK’s economic growth will be 2.4% lower over the next five years because of Brexit. The OBR believes that changes to trading agreements could curb growth in the UK’s export and import activity for the next decade, and growth in real earnings is expected to lag inflation. The OBR raised its forecast for economic expansion in 2016 from 2% to 2.1%, but cut its prediction for growth in 2017 from 2.2% to 1.4%. Looking further ahead, the UK economy is expected to grow by 1.7% in 2018, 2.1% in 2019 and 2020, and 2% in 2021.
The Chancellor warned that the UK’s financial position has deteriorated and the Government will have to borrow over £120 billion more than previously calculated. The OBR predicts that borrowing will reach £68.2 billion this year, falling to £59 billion next year and £46.5 billion in 2018-19. The Chancellor warned that the deficit will not be cleared by the previous target date of 2020, but pledged to clear it “as early as possible” after that.
The Chancellor increased the tax-free personal allowance from £11,000 to £11,500 from April 2017. The National Living Wage will rise from £7.20 per hour to £7.50 per hour, to take effect in April 2017. Insurance premium tax will increase from 10% to 12% from June 2017 and curbs were announced on “salary sacrifice” schemes. The scheduled increase in fuel duty was cancelled for a seventh consecutive year. The current Autumn Statement and Spring Budget are to be scrapped and, from 2017, the Budget will take place in the autumn, with a brief “Spring Statement” from 2018.
Mr Hammond insisted that June’s unexpected Brexit vote had made it “more urgent than ever” to tackle the UK’s long-term weaknesses, including the productivity gap, the shortage in housing, and imbalances in economic growth and prosperity. For now, given the backdrop of uncertainty, the Chancellor appears to be treading a cautious line in order to provide himself with maximum flexibility in future.