KPMG’s Greg Jones offers his views on the UK Autumn Statement 2016
UK Chancellor Philip Hammond delivered his first Autumn Statement on 23 November 2016 and proudly declared it will be his last. Moving the Spring Budget to later in the year and scrapping the Autumn Statement itself would he said allow more time for fiscal measures to be debated before the beginning of the next tax year. It will also be a great relief to taxpayers and their advisers alike, for whom the present bi-annual budget exercise leaves no time to catch one’s breath (and get some work done) in-between tax changes.
That wasn’t the only surprise in Mr Hammond’s only Autumn Statement – apparently the UK’s productivity lags behind even that of France. Zut alors! To help close this gap, Mr Hammond announced a £23 billion National Productivity Investment Fund to be spent on innovation and infrastructure over the next 5 years.
All of which was not much consolation to the so-called JAM’s - those in Britain who are Just About Managing, and for whom it was hoped Mr Hammond would provide a much needed boost. Mr Hammond was able to announce that fuel duty remained frozen for the seventh successive year, and that £2.3 billion Government funding would be set aside for a new housing infrastructure fund. However, what JAM’s need is more disposable income which means, in a nutshell, less tax. What Mr Hammond has done – carrying on the work begun by his predecessor – is to significantly increase the thresholds at which people pay basic or higher rate tax. At present an individual starts to pay tax in the UK at £11,000 of income: this will increase next year to £11,500, nearly a 5% rise. The 40% starting threshold will in turn increase from £43,000 to £45,000 – a saving of £400 in tax. And by 2020 the Government has committed to increasing these thresholds further, to £12,500 and £50,000 respectively. These will give JAM’s more meaningful elbow room in managing their finances.
Should these measures go further? Probably: if you take an Isle of Man resident individual earning £20,000, he pays tax of £1,050. A UK resident individual – even enjoying Mr Hammond’s enhanced personal allowance – will pay £650 more in tax.
It is obviously important from the point of view of the Isle of Man’s competitiveness that we can offer lower tax rates and thus the promise of more disposable income, to attract well-paid workers to our shores.
But for the JAM’s in Britain, this is where I believe the Chancellor should concentrate his efforts.
Mr Hammond’s other spending plans, on transport technology and infrastructure (£1.4 billion), full-fibre broadband and 5G network trialling (£1 billion), research and development (£2 billion) and support for culture and heritage projects (£10 million) are all vital to fund a vibrant and inclusive society, but are of little value to someone struggling to make ends meet. A JAM on the Breadline?