The new Chancellor of the Exchequer Philip Hammond has delivered his first Autumn Statement, stating that the UK economy is forecast to be the fastest growing major economy in 2016, however the Office for Budget Responsibility has forecast growth to slow and inflation to rise over the next two years. Growth remains positive and employment is set to rise steadily over the next 5 years, with half a million more people to be in work by 2021.
The government has cut borrowing by nearly two-thirds since 2010, but will no longer aim for a budget surplus by 2019. New fiscal targets are needed to provide the flexibility to support the economy and create space for more investment in roads, rail, research, and housing. As such, the government has set new fiscal targets which aim for 2% underlying deficit and debt falling by 2020, and a balanced budget afterwards.
The Personal Allowance - the amount of money employees can earn before they start paying Income Tax - will be raised to £12,500 and the Higher Rate Threshold - the point at which a worker pays a higher rate of tax - will be raised to £50,000 by 2020-21.
In addition, the National Living Wage for over 25s will increase from £7.20 to £7.50 per hour.
The National Minimum Wage will also increase:
from £6.95 per hour to £7.05 for 21 to 24 year olds
from £5.55 per hour to £5.60 for 18 to 20 year olds
from £4.00 per hour to £4.05 for 16 to 17 year olds
from £3.40 per hour to £3.50 for apprentices
In infrastructure, a new National Productivity Investment Fund will provide £23b of additional spending, ensuring the UK’s economy is fit for the future. This will provide additional spending in areas such as transport, digital communications, research and development and housing.
In terms of business, corporation tax is set to be cut to 17% by 2020, plus £400m will be provided through the British Business Bank to invest in growing innovative firms.
Leading accountancy firm Wilkins Kennedy LLP believes that weakened currency and outdated business rates have already posed a threat to retailers, who until now have largely been absorbing the additional costs against their bottom line profits. The firm asserts that now, the latest round of pay increases could mean considerable price raises or shutting up shop become the only options.
According to Wilkins Kennedy, even though the Government imposed “transitional relief” as a way of revaluating business rates, businesses in London actually saw their costs soaring. It meant that retailers in prime locations such as Oxford Street would face businesses rate hikes of 50%.
Phil Mullis, partner and head of retail and wholesale at Wilkins Kennedy, says: “The Government has been under pressure for quite some time to reform the outdated rates system and until they do many retailers could find themselves worse off. What’s more, the depreciated value of currency has burdened retailers, because they are under obligation to absorb shortfalls and keep their prices low. Now, increased wage rises will leave retailers no choice but to increase prices.
“Unless the Government steps up with a more solid support structure for retailers, these latest wage increases could mean an uncertain future for retailers. It will be interesting to see the long term effects from the changes and how smaller businesses will benefit.”
