An underwhelming Autumn Statement – and that's probably for the best

Philip Hammond managed to underwhelm pretty much everyone with his first Autumn Statement. And that’s probably just as well. But he did have one very good idea, says John Stepek.


Philip Hammond: there's nothing wrong with being boring
(Image credit: 2016 Getty Images)

Oh Phil, you big tease.

For a moment yesterday, I thought that our new chancellor had granted my one Autumn Statement wish. He said that it was going to be his last one.

Turns out he was winding me up (sort of). The Autumn Statement will now become the annual Budget (giving people time to plan for changes before the tax year ends in April).

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

But there'll still be a Spring Statement. Hammond says he'll only use it to address the Office for Budget Responsibility's (OBR) latest forecasts, rather than introducing hundreds of new tax laws twice a year.

Nice plan. We'll see if he can stick to it. As to the rest of the Autumn Statement well, I think he probably managed to underwhelm just about everyone.

Is that a bad thing? Maybe not

Steady as she goes is probably a good idea

I've already covered the big picture stuff from the Autumn Statement on the MoneyWeek website. You can take a look there, but to sum up, it turns out that Britain is still skint.

So while Hammond talked a big game on infrastructure and the rest, it wasn't exactly a full-on Keynesian blowout. In fact, as Capital Economics points out, "all current sending and tax measures in the Statement summed close to zero". All the "stimulus" will come from that added investment via the "National Infrastructure Fund" which is simply extra money borrowed to spend on roads, telecoms and housebuilding.

The honest truth is that this probably makes sense. Markets are in a rather febrile mood right now, and the last thing they're emotionally equipped for is more fireworks from Britain.

So until the path to Brexit is clearer (and that's not something Hammond can dictate), and the bond market has decided which way it's going, then he can't be blamed for taking a gradual "evolution rather than revolution" approach. The fireworks can wait until the Budget in 2017 (his whole plan to move to a Spring Statement only starts in 2018).

I have to admit that I was a bit disappointed though. There was still a lot of sneakiness in this Statement. There's the ongoing campaign to make our tax system a 'guilty until proven innocent' one, for example. Basically, anyone involved in even thinking about doing a bit of tax planning that HMRC can get sniffy about is facing increasingly stringent penalties.

I wouldn't mind this so much, except that the primary reason that there's so much scope for tax planning (or used to be) is because of the epic complexity of the UK tax code, which has been contorted by decades of showbiz chancellors trying to court favour with special interest groups of various kinds. So crack down on tax avoidance if you want, but please unwind some of that complexity while you're at it.

Meanwhile, insurance premium tax which I bet not one in ten consumers in the UK even knew existed until a year or so ago is going up fast. It stood at 6% last November, is 10% just now, and will rise to 12% from June.

This is irritating because it's a clear case of an "under-the-wire" tax rise. I'd guess that the majority of people have no idea why or if their insurance premiums rise from year to year, and if they do go up, they'll blame the insurer. My heart does not exactly bleed for the insurance industry, but it's always obnoxious to see a chancellor trying to pull the wool over the voters' eyes.

Still it's another really good reason to shop around the next time your renewal is due.

Why the letting agent reform is such a good idea

There is one (small) reform that I did like, however, and I want to look at in more detail this morning, because for me it illustrates a "good" change that the government can make without actually really having to do anything. I'm talking about the letting agent reforms.

The move to ban letting agents from charging fees to tenants (which means landlords will have to pick up the bill instead) is a good idea. Some people seem to be getting a little confused about this with a fair bit of knee-jerk huffing and puffing about pointless government intervention gone mad and so on so I'll explain my reasoning here.

The problem at the moment is that, in London particularly, demand for rental property is high, and as we all know, property is not fungible one house is not the same as another.

As a potential tenant, if you spot a place that you like, at a rent you can afford, then you don't have time to quibble about fees for references or guarantors or paperwork. Because if you don't pay up, someone else will. You're a captive market.

And as a tenant can't request another letting agent who charges more competitive fees perhaps, then the letting agent effectively has a monopoly on that property. So they can charge what they like. And some of them do. (Andrew Ellson in The Times found one agent charging £420 for changing a name on a tenancy agreement).

That's a dysfunctional market. The obvious way to improve it is to ensure that the person who employs the agent the one with the ability to shop around for that service is also responsible for paying all of their fees.

So the key point here is not that landlords will pass the costs onto tenants in the form of higher rents, as the various press releases from vested interests that hit my inbox yesterday bemoaned. Landlords will charge whatever the market can bear.

The key point is that the power of competition and increased scrutiny will be brought to bear on a group of middlemen who are currently able to exploit inefficiencies in the structure of the market to their own advantage, by charging both sides of the transaction for doing the same job, effectively.

And at the end of the day, chances are that fees will come down, because the agents won't be able to justify them to their end-clients the landlords.

That's why the big estate agents saw their share prices tumble yesterday. Because investors know where the excess profits in this little portion of the rental market are going, and they also realise that this won't continue in a more efficient market.

So this is one of those rare reforms that should make an existing market work more efficiently, to the overall benefit of all parties involved, and it won't cost the taxpayer anything or add a whole load of complexity to the system.

If Hammond could do a bit more of that, and a bit less of the stealth tax nonsense, we might actually get somewhere.

John Stepek

John is the executive editor of MoneyWeek and writes our daily investment email, Money Morning. John 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. John joined MoneyWeek in 2005.

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.