Philip Hammond has had a difficult inheritance. The British public’s decision to leave the European Union didn’t just terminate the Chancellorship of his predecessor, it also created an atmosphere of economic uncertainty and placed a strain on the public finances.
This was clear from yesterday’s Autumn Statement. The Office for Budget Responsibility – the independent body that provides the Government with economic forecasts for these occasions – has now substantially downgraded its growth figures for the next two years. At the time of the Budget in March, they expected the economy to grow by 2.2 per cent in 2017 and 2.1 per cent in 2018. Now they’ve reduced those forecasts to 1.4 per cent and 1.7 per cent respectively.
This lower GDP growth will mean that earnings won’t rise as quickly as previously expected, which in turn means that HMRC won’t get as much revenue from Income Tax and National Insurance Contributions as it had hoped. Instead, the Government will have to plump its coffers by borrowing more than it had previously planned: £20 billion more next year and £25 billion more the year after. The result is that, whereas the Conservatives had promised to eliminate the deficit entirely by 2019-20, they now expect to borrow £21.9 billion that year.
Despite this sombre backdrop, Philip Hammond did manage to pull out some welcome policies for motorists.
He froze Fuel Duty for another year, meaning that it will remain at the 57.95 pence per litre rate that George Osborne set back in 2011. After a year in which rising oil prices and a falling pound have pushed pump prices up by 7p per litre, it was good to hear the Chancellor scrap the increase that had been pencilled in for next April. This will save the average driver £130 a year.
Hammond also allocated more money for road building and improvements as part of his new infrastructure fund. He committed an extra £1.1 billion of funding ‘to relieve congestion and deliver much-needed upgrades on local roads and public transport networks’, as well as £220 million ‘to tackle key pinch-points.’ This is wise investment from the Chancellor. As we’ve pointed out before on this blog, infrastructure spending comes with what the economists call a ‘multiplier effect’ – we all get a lot of return for our money.
Speaking of wise investment, the Government is also putting more money behind electric cars, with £80 million to roll out more charging points across the country, 100 per cent first-year capital allowances for companies that install them, and – as of 2020-21 – new, lower Company Car Tax bands for ultra-low emission vehicles.
But it wasn’t just unequivocally good news for motorists. In order to fund some of his spending promises, Hammond is raising the Insurance Premium Tax rate from 10 per cent to 12 per cent as of next June, pushing up the cost of car insurance.
And the Chancellor also announced that many of those who get their cars through Salary Sacrifice schemes in future won’t enjoy the tax benefits available at the moment. From April 2017, they’ll have to pay Income Tax on the amount of salary they sacrifice, and their employers will have to pay National Insurance Contributions on it too.
Thankfully, existing Car Salary Sacrifice schemes won’t be hit by these changes until 2021, and ultra-low emission cars will be exempt from them entirely. Given the proposals outlined in HMRC’s original consultation document in August, these compromises are something of a relief. The outcome is perhaps better than we could have expected.
All of which means that this year’s Autumn Statement is something of a mixed bag – but aren’t they all? The new economic forecasts didn’t give Philip Hammond a lot of room for manoeuver, but he still found space for some policies important to motorists. It was, from our perspective, an encouraging start.