November 2016

Dods Monitoring: Autumn Statement speculation

Introduction

Agnes Chambre

Parliamentary Editor, PoliticsHome

Occasionally referred to as the ‘Budget lite’, the annual Autumn Statement is one of the two major fiscal

events of the year, and will take place on 23 November.

The first Autumn Statement was delivered in 1982 but they took on greater significance under Tony Blair’s

premiership. According to Blair’s chief of staff, Gordon Brown as chancellor wanted two set pieces a year ra-

ther than one, and Blair wanted to keep him busy so he had less time to spend plotting against him.

But the new Chancellor, Philip Hammond, appears less keen on the format. Some reports suggest this could

be his first and last Autumn Statement, as he has told colleagues he wants to scrap “gimmicks” and microman-

agement of the Treasury.

If it is his only one, it is likely to prove hugely significant for a number of reasons.

When Hammond took the reins at the Treasury, he immediately signalled a departure from his predecessor

George Osborne’s strategy by saying he was ready to “reset” fiscal policy in light of the vote to leave the EU.

In early November, the Financial Times and others reported that Hammond indeed informed Cabinet col-

leagues to expect a modest fiscal stimulus in his Statement as he sets out a new flexible framework. The pa-

per reported earlier this month that Hammond would not pursue a “fiscal splurge”. Instead he is set to unveil

a new programme of infrastructure spending expected to run to the low billions of pounds a year.

Overall, it will be a chance for the Chancellor prove that he and Theresa May have a strategy that can allay

business’ concerns about Brexit and convince them they do not need to leave the UK. Responding to Ham-

mond will be John McDonnell, who may have learnt some lessons from his last year when he made headlines

by inexplicably throwing a copy of Mao’s Little Red Book at Osborne.

The briefing below, collated by Dods Monitoring, is a round up of speculation on what may be announced as

Hammond takes to the dispatch box on November 23.

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Autumn Statement speculation

Public finances and taxation

On a broad level the signals from Hammond and other ministers appear to be that austerity is over with Ham-

mond saying over the summer that he may look to “reset fiscal policy”. The Chancellor is certainly expected to

announce a sizeable expansion in investment plans funded by new borrowing, as hinted through decisions

taken in the past month (including the Heathrow expansion and the £5bn boost to housing).

In his conference speech he said that the Autumn Statement would “set out our plan to deliver long-term fis-

cal sustainability……while responding to the consequences of short-term uncertainty” and confirmed that

Government would no longer aim for a surplus by the end of this Parliament.

However, during his recent appearance before the Lords Economic Affairs committee Hammond also indicat-

ed this didn’t necessarily mean “cavalier” spending and highlighted the Government had not abandoned the

surplus aim, just the timeline.

Public debt

A recent Resolution Foundation report has found that by applying average change in forecasts from the latest

Office for Budget Responsibility projection from March 2016 it is predicted that there will be £84bn additional

borrowing across the five-year period ending in 2020-21. This would mean that the UK in 2019-20 would have

a £13bn deficit.

Given that the Government is apparently no longer aiming for a fiscal surplus at this point, the report suggest-

ed that Hammond has a large ‘shopping list’ of possible policies including higher public investment, the rever-

sal of planned cuts to Universal Credit (a move back by the Centre for Social Justice), or the maintenance of

the Conservative’s manifesto promise to not increase income tax for the duration of the Parliament.

Monetary policy

During her speech to the 2016 Conservative party conference Theresa May suggested that in

relation to a monetary policy of “super low interest rates and quantitative easing…a change has

got to come”. Following this, George Freeman, the Conservative MP who chairs the No 10 poli-

cy board, confirmed to the Telegraph that the policy changes concerning quantitative easing

would be announced in next month’s Autumn Statement.

However, when pressed upon this point by Andrew Tyrie MP during a session of the Treasury

Select Committee, Hammond policy stated that this would not mean that the Monetary Policy Committee

(MPC) would be losing its independence. Rather, he suggested, the Government was to mitigate the

‘distributional impact’ of monetary policy by using fiscal policy.

EU funding

It was announced by the Treasury in August that all structural and investment fund projects that were signed

before the Autumn Statement would continue to be fully funded even after the UK’s exit from the EU. Ar-

rangements on whether to guarantee funding for any projects that are signed after that time will be an-

nounced in the 2016 statement.

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Corporation tax and NI

In the immediate aftermath of the Brexit vote former chancellor George Osborne suggested he could cut cor-

poration tax to 15 per cent. However Hammond has since distanced himself from those remarks and said he

would stick to the schedule of reducing it by 17 per cent by 2020. This would find favour with top UK and mul-

tinational businesses according to an Ernst Young survey which found they would prefer a cut in national in-

surance instead.

Tax simplification

A group of 14 senior business leaders, including the deputy chairman of the Institute of Directors, has called

for "far-reaching" reform of taxation in the statement. The letter reads: "Few areas are in as urgent need of

reform as our excessively complex tax system, which does not sufficiently distinguish between SMEs and mul-

tinationals or recognise the impact of small businesses on job creation".

Property tax

Questioned at MIPIM UK about the damage high levels of taxation were having on the property sector, Com-

munities Secretary Sajid Javid said Hammond’s statement next month was the “first opportunity” for reform,

adding that “It will give the Chancellor an opportunity to allay some of those concerns.”

Business

Business groups have presented a broad shopping list for the Chancellor ahead of the statement.

The Institute of Directors, Grant Thornton and the entrepreneurs group Prelude are among those recom-

mending changes to national insurance, corporation tax and business rates. Longer term, their report calls for

consultation on a new "SME tax" to replace corporation tax for small firms, which would be simpler to admin-

ister, as well as a US-style "S Corporation" system designed to shift the tax burden for firms with less than 100

shareholders onto their owners through their tax returns.

Many are calling on Hammond to make a commitment to increase public spending by £6bn, increasing infra-

structure investment and using business rates to boost private investment.

There are also calls for targeting research and development spending as a stated percentage of GDP whilst

other measures include a commitment not to introduce any new input taxes on business, reform business

rates to exclude plant and machinery from valuations, allowing apprenticeship levy paying businesses to sup-

port ‘high quality workplace and vocation training’ as well as apprenticeships.

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Defence

National shipbuilding strategy

The National Shipbuilding Strategy was announced in the 2015 Strategic Defence and Security Review. It

would ‘”ay the foundations for a modern and efficient sector capable of meeting the country's future defence

and security needs”. Chaired by Sir John Parker the 2016 Budget stated that he would present his findings by

the Autumn Statement 2016.

Military and emergency services charities

The Treasury had invited military and emergency services charities and other “related causes” to apply for

funding from fines levied on banks that manipulated Libor, the inter-bank lending rate. They stressed the clos-

ing date was 15 September 2016 to “allow enough time to consider all bids ahead of the Autumn Statement”.

Health

NHS funding

The Guardian has reported that in discussions with NHS chief executive Simon Stevens , May stated that the

NHS would not receive any extra funding as part of this year’s Autumn Statement. Instead she is reported as

suggesting that the NHS should instead seek to urgently save money through efficiencies.

However, as Dods’ health consultant Adam Wright has written, the mounting pressure, including from the in-

fluential health select committee, and other key health organisations may see a surprise cash boost for the

NHS come November.

Infrastructure and industrial strategy

Industrial strategy and innovation

During a recent committee session, Minister for Universities, Science, Research and Innovation Jo Johnson

stressed plans for an industrial strategy “must command the support of successive Administrations, must be

built on strong foundations of engagement, discussion and careful consultation across the Government and,

indeed, across the country”.

He told the committee that innovation would be at the heart of the industrial strategy and said a discussion

paper would be published around the time of the Autumn Statement , with a fully-considered paper published

in early 2017.

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Infrastructure spending

Following the “reset” announcement from Hammond, there has been speculation this

could mean increased spending on infrastructure, especially given the Government’s new

commitment to industrial strategy.

An expert from Legal and General has suggested Hammond may have £40bn to spend on

projects in the Autumn Statement. Any money there was available to spend on infrastruc-

ture seems more likely to be spent on “modest” rather than big projects, as Hammond told the Lords Com-

mittee:

“I think there is a role for big strategic projects, but they are unlikely ever to be able to contribute to fiscal

stimulus because of the timelines involved. I am also a great believer in what I will call for shorthand purposes

the Eddington principle: that often it is modest, rapidly deliverable investments that can have the most imme-

diate impact, particularly on the road network but also, in some places, on the rail network.”

He expanded upon his intention to spend more in the country’s infrastructure, stating that it ’languishes near

the bottom of the developed-countries’ league table after decades of under-investment.

Communities and housing

Housing

In contrast to Osborne’s Help to Buy mortgage guarantees and Help to Buy Isa, which did little

to address underlying supply, Hammond might deliver government intervention to boost the

number of homes being built. In September, Hammond said that the UK’s housing shortage

was part of a “toxic mix” of factors harming the economy. May has talked about the state as a

vehicle for “righting wrongs, challenging vested interests, taking big decisions” – perhaps the big state will

make its powers felt in the housing market.

In his speech to party conference Communities Secretary Sajid Javid also announced measures to encourage

house building. These included a £3bn ‘Home Builder Fund’, a new initiative to ‘take Government-owned land

and partner with contractors and investors to speed up housebuilding’ and measures to encourage urban re-

generation and building on brownfield sites. The housing white paper is due to be published alongside the

Statement.

Northern Powerhouse

The CBI has called for £425bn of planned infrastructure investment to boost the Northern Powerhouse switch-

ing the emphasis from London and the south-east of England to the west, Midlands and north.

Science and research

Science funding

The science and research sector have raised a number of concerns about the impact of Brexit, including the

potential for a funding gap once EU finance streams are cut off. Consequentially, the Government have guar-

anteed capital for projects which are reliant on EU funding – such as Horizon 2020 – until the point at which

the UK departs the EU. Considering this, it is unlikely therefore that the Autumn Statement will include any

further announcements on the science and research budget.

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Third sector

Small Charitable Donations and Childcare Payments Bill

The Small Charitable Donations and Childcare Payments Bill 2016-17 would make a number of amendments to

the legislation which underpins the Gift Aid Small Donations Scheme (GASDS), introduced in April 2013. The

purpose of these changes is to simplify the scheme and extend access to smaller and newer charities.

The Bill would also make a few technical amendments to the legislation which establishes Tax-Free Childcare,

the Government's scheme to support parents' childcare costs, scheduled to be rolled out from early 2017. The

final costing of the Bill is to be ‘subject to scrutiny by the Office for Budget Responsibility, and will be set out at

Autumn Statement 2016’.

Tampon tax

The Tampon Tax Fund, a £15m fund for women’s charities that was equivalent to the amount of VAT HMRC

estimates is raised from the sale of sanitary products, was announced in the 2015 Autumn Statement. The

Department for Culture, Media and Sport has opened a competition to find an experienced grant maker who

will be able to distribute £3m of the fund to “charities working with disadvantaged women and girls” with a

successful applicant expected to be announced in the 2016 Statement.

Libor levy funding

The HM Treasury had invited military and emergency services charities and other “related causes” to apply for

funding from fines levied on banks that manipulated Libor, the inter-bank lending rate. They stressed the clos-

ing date was 15 September 2016 to “allow enough time to consider all bids ahead of the Autumn Statement”.

Energy

Carbon price support rates

The 2016 Budget stated that the Government would set out the long-term direction for carbon support rates

in this year’s Autumn Statement. The carbon price floor is currently £18 per tonne of CO2 and this rate is fro-

zen until 2020. There are reports that the CPF will feature within the Autumn Statement.

Energy delivery landscape

The 2016 Budget stated that the “Department of Energy & Climate Change will take steps to improve the cus-

tomer experience and coherence of its consumer policy delivery” and would set out the future of consumer

facing functions including those currently undertaken by E-Serve through the Autumn Statement 2016. With

DECC now disbanded this is now uncertain.

*******************

Dods will be covering the Autumn Statement live on the day, with the statement due to follow PMQs on Wednesday

23 November, at approx. 12.30pm.

All key documents will be sent out to our subscribers of Dods News with a round up all key announcements and stake-

holder reaction delivered by the end of the day.

For any further questions please contact your Political Consultant.

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Dods Monitoring will be producing a range of briefings on key Government

legislation, policy, Brexit and parliamentary procedure in the coming months.

This briefing has been compiled by Monitoring Content Specialist Thomas King

For any further questions please contact your dedicated political consultant.