In his first Autumn Statement since being appointed chancellor, Hammond addressed the House of Commons yesterday (23 November) and announced the new fund will be spent on innovation and infrastructure over the next five years, in a move he described as “investing today for the economy of the future”.
The new fund will include an extra £2bn spent on R&D per year, £2.3bn on housing infrastructure to deliver 100,000 new homes in areas of high demand, £1.4bn to deliver 40,000 new affordable homes and more funding for English local transport networks and “digital infrastructure”.
Hammond said: “It is a privilege to report on an economy that the IMF predicts will be the fastest growing major advanced economy in the world this year.
“We choose this Autumn Statement to prioritise additional high-value investment that will directly contribute to raising Britain’s productivity. The key judgement we make today is that our hard won credibility on public spending means we can fund this commitment in the short-term from additional borrowing while funding other new policies from additional tax and spending measures.”
Hammond added that he had written to the National Infrastructure Commission to ask for recommendations on the future needs of the country, using the assumption that the government will invest between 1% and 1.2% of GDP per year from 2020 on economic infrastructure covered by the commission.
Hammond announced lower independent growth forecasts from the Office for Budget Responsibility (OBR) than previously predicted, which he in the main put down to “lower investment and weaker consumer demand driven respectively by greater uncertainty and higher inflation resulting from sterling depreciation”.
Forecasted growth for 2017 is 1.4%, a fall in 0.7% from this year’s forecast of 2.1%. It is expected to rise to 1.7% in 2018 and 2.1% in 2019. Hammond said the Brexit vote will equate to a loss in growth of 2.4 percentage points for the period, which experts immediately said will lead to a £122bn “Brexit black hole” in borrowing.
Hammond highlighted that we are lagging 30 percentage points behind Germany in terms of productivity, 20 behind France and eight behind Italy.
BPIF chief executive Charles Jarrold said: “I think Hammond is clearly responding to the uncertainty that surrounds the economy. As we all know, the forecasts are predicting lower growth than they were before and he is responding to it in a fairly responsible manner, which is to say that the government can take some of the slack.
“We welcome the fact that the government is talking about an industrial strategy but how that will shape up remains to be seen. What we would like to see is a strategy that creates an environment where it is easy for people to invest.”
Jarrold added that he was pleased to see Hammond address the issue of rising business rates, capping rate rises next year to 43% instead of 45%, but that these were “mild steps” to address what is a real concern for the BPIF’s members.
Responding to the statement, Unite assistant general secretary Tony Burke said he was led to believe he would be hearing about an industrial strategy but had “got nothing”.
Burke said: “There was nothing in terms of helping manufacturing and industry, nothing about skills. We were supposed to be hearing statements on the Apprenticeship Levy but nothing, we just got debt rising, borrowing up, GDP falling and a new national fund of £23bn. Well what does that mean?”
In last year’s Autumn Statement, Hammond’s predecessor George Osborne fixed the bill for the Apprenticeship Levy at 0.5% of an employer’s pay bill.
As expected, the chancellor abolished Osborne’s aim for a fiscal surplus by 2020, but announced a draft charter for budget responsibility with three rules: budget finances to return to balance as early as possible (cyclically adjusted borrowing below 2% by the end of this parliament), public sector net debt as a share of GDP to fall by the end of this parliament and welfare spending to be within a cap set by the government and monitored by the OBR.
Other measures of note from the chancellor included an expected cut in the rate of corporation tax, from 20% to 17% by 2020, and an increase in the rural rate relief for SMEs, giving SMEs in rural areas tax breaks worth £2,900 a year.
To make up the tax shortfall, a number of new tax avoidance measures will be introduced, along with employer and employee national insurance thresholds being brought up to the same rate and a rise in insurance premium tax from 10% to 12%.
There will also be a funding boost for management skills across businesses and a £400m injection into venture capital funds to help prevent start-up technology firms being acquired by multinationals.
In an amusing twist, Hammond stated that this was his first and last Autumn Statement, as the twice-yearly budget is to be abolished from next year and replaced by one all-encompassing budget, set to take place in the early Autumn.
In his response to the statement, shadow chancellor John McDonnell said it showed the abject failure of the last six years of Tory government and that the government was unprepared to handle the “greatest economic challenge of a generation”.
