Philip Hammond’s first budget was, to a great extent, business as usual , says John Stepek. Here, he goes through the main points and explains what it means for you.
Philip Hammond: political stability is at a premium
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The most welcome announcement from chancellor Phillip Hammond during his first Autumn Statement was that it'll also be his last. From now on, there will be one budget in autumn each year, followed up by a "Spring Statement". That sounds like a case of "meet the new boss, same as the old boss", but Hammond insists the spring statement will purely be about addressing the Office for Budget Responsibility's (OBR) latest economic forecasts. Meanwhile, having the annual budget in autumn will give businesses and individuals time to plan for changes well before the new tax year begins. It's a great move if he can make it stick any respite from the hyperactive showmanship of the George Osborne and Gordon Brown eras will be extremely welcome, particularly as political stability is at a premium right now.
Otherwise, it was disappointingly business as usual to a great extent: lots of talk of grand schemes, a fair bit of tweaking aimed primarily at scoring political points, and the odd stealth tax slipped in.
Hammond kicked off by telling us about the post-Brexit hit to the public finances outlined by the OBR. Behind the usual ridiculously precise figures (borrowing will now be £17.2bn in 2021/22 for example) the basic message was clear we're not going to have a recession (which is what the Treasury had originally predicted in case of Brexit), but we're not aiming to balance the books by the end of this Parliament anymore. All told, the public finances will be down £122bn by 2021, compared to what was expected in March, the national debt will stand at nearly £2trn by the end of Parliament, and our debt-to-GDP ratio is set to peak at just over 90% in 2017/18.
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Of course, there's a "high degree of uncertainty" to those forecasts, and given that they are almost always wrong even at the best of times, it would be a mistake to set too much store by them. But with those sorts of debt figures, Hammond had to continue to give some sort of impression of fiscal prudence, even as he abandoned the idea of moving into surplus before the end of parliament.
So rather than talk about spending, he talked about investing' in improving Britain's dire productivity through upgrading its infrastructure. He announced £23bn to be spent on innovation and infrastructure over the coming five years.
Various parts are earmarked for improving the roads, commercialising research and development, delivering a railway line between Oxford and Cambridge, and upgrading Britain's telecoms infrastructure, including 5G mobile. And a £2.3bn housing infrastructure fund is designed to help provide 100,000 homes in "high-demand" areas, while there's £1.4bn for 40,000 extra "affordable" homes.
The ridiculous help-to-buy scheme remains (a taxpayer subsidy for housebuilders masquerading as a helping hand for first-time buyers), but the good news for investors is that there were no major changes to the Individual Savings Account (Isa) or pensions regime (though there was one sneaky change to the pensions allowance see box below). Irritatingly, the Lifetime Allowance remains in place, but on the positive side, higher-rate tax relief also remained untouched. This of course, cannot be guaranteed, so if you're a higher-rate taxpayer, it's still worth trying to take advantage of your allowance while it lasts.
Companies: winners and losers
In terms of individual investment sectors, Tom Stevenson of Fidelity International suggests that while housebuilders could benefit from plans to boost building, a better option might be "companies supporting and exploiting construction in various ways tool makers, engineers, repair providers". Those that can win work on favoured infrastructure projects such as improving roads and digital networks should be best positioned to take advantage.
As far as the losers go, insurers are unlikely to welcome the rise in the insurance premium tax which will drive up prices for their customers insurance market researcher Consumer Intelligence reckons that the rise in insurance premium tax (which stood at 6% until November 2015, and is now rising to 12% from April 2017) will add around £15 a year to the average car insurance premium, and about £2.50 a year to home insurance. Meanwhile, a rise in the National Living Wage while not unexpected will put pressure on staff costs in the service sector.
However, probably the most obvious loser of the day was the estate agency sector. The government is set to ban letting agents from charging fees to tenants. Instead, landlords who are likely to be much tougher negotiators will have to cover any costs. As a result, the likes of Foxtons and Countrywide saw their share prices tumble. It's also a clear message to any remaining would-be buy-to-let tycoons out there if you didn't already realise that the government has it in for you, you should do now.
The Autumn Statement and your money
Pensions and savings
The government will not abolish the "triple-lock" (whereby the state pension rises by at least 2.5% a year, or by wage or price inflation whichever is highest) during this parliament. However, it will be "reviewed" come 2020, for which any sensible voter will read "scrapped".
As for private pensions, the only minor change was a cut in the Money Purchase Annual Allowance. Currently you can contribute £40,000 a year to a pension (as long as you earn at least that much), but once you start to draw down your pension fund, that allowance falls to £10,000 and from April next year, it will be just £4,000. In short, the move is likely to encourage people to think twice about starting to withdraw money in their 50s and early 60s.
As a sop to savers, the government will launch a savings bond through National Savings & Investments, which will pay out 2.2% a year on up to £3,000 (though given that inflation looks set to rise above that level next year, that may not be as appealing as it looks today).
Salary sacrifice
The range of non-cash benefits eligible for "salary sacrifice" is being cut back, but the most significant ones pension contributions and childcare arrangements will still benefit from the scheme.
Income tax
The income-tax-free threshold will rise from £11,000 to £11,500 in April, while the minimum wage will rise form £7.20 to £7.50. Meanwhile, the 40% tax threshold will rise to £50,000 by 2020. The employer and employee national insurance thresholds will be equalised at £157 a week.
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John Stepek is a senior reporter at Bloomberg News and a former editor of MoneyWeek magazine. He graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.
He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news.
His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.
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