Analysis of the latest UK and international economic indicators
Documents to download
Autumn Budget 2017: A summary (488 KB, PDF)
Autumn Budget 2017 was presented by the Chancellor of the Exchequer to Parliament on 22 November. At the same time the Office for Budget Responsibility (OBR) published updated forecasts in its economic and fiscal outlook.
- The price at which first-time-buyers become liable for stamp duty land tax (SDLT) will rise to £300,000. The relief will not apply for purchases over £500,000. This change costs around £600 million per year.
- Fuel duty will be frozen for the eight successive year, costing around £800 million per year.
- Duty rates on beer, cider, wine and spirits have been frozen, costing around £200 million per year.
- Tobacco duty rates will increase by 2% points above RPI inflation until the end of this Parliament. Hand rolling tobacco will increase by an additional 1% point. The Minimum Excise Tax for cigarettes will rise to be set at £280.15 per 1,000 cigarettes. These changes raise around £40 million-£50 million per year.
- Annual increases in business rates will be determined by the CPI measure of inflation from 1 April 2018. Business rates are currently increased by RPI, a measure of inflation that is generally higher. This change has been brought forward from 2020.
- An expansion of the 100% business rates retention pilot in London, which is now planned to cover all the London boroughs as well as the Greater London Authority.
- The frequency with which business rates revaluations happen will increase. Revaluations will happen every three years following the 2022 revaluation.
- Various measures to tackle tax avoidance and evasion have been introduced.
- Corporate indexation allowance frozen from January 2018. This removes the relief for inflation when calculating chargeable gains of companies, and raises increasing amounts each year, with around £500 million in 2022/23.
- Income tax personal allowance and higher rate tax threshold to rise by inflation to £11,850 and £46,250 respectively in April 2018.
- Departments will no longer have to reduce their spending by £1.1 billion in 2019/20, as was previously planned.
- A saving of £1 billion in 2017/18 from departmental budgets.
- £1.5 billion of additional spending is planned in both 2018/19 and 2019/20 to allow the Government to prepare for Brexit.
- NHS to receive additional day-to-day spending of £400 million this year, £1.9 billion in 2018/19 and £1.1 billion in 2019/20. The NHS will also receive additional capital spending, peaking at around £1 billion in 2020/21.
- Changes to Universal Credit, costing around £300 million per year:
- removing the 7 day wait so that entitlement starts on the day of application
- increasing the amount that can be advanced before payment begins
- those already on Housing Benefit will continue to receive their award for the first two weeks of their Universal Credit claim
- to support these changes the Government will roll out Universal Credit more gradually between February 2018 and April 2018, and roll-out to all jobcentres will be complete in December 2018
- A package of measures were announced on housing:
- A new Land Assembly Fund will receive £220 million in 2019/20 and £355 million in 2020/21. The new fund will enable Homes England to work alongside private developers to develop strategic sites.
- An average of £210 million per year will be spent between 2018/19 and 2020/21 to accelerate the building of homes on small, stalled sites, by funding on‑site infrastructure and bringing brownfield sites back to use.
- Housing Infrastructure Fund will be increased by £215 million in 2019/20 and
£710 million in 2020/21.
- Housing Revenue Account borrowing caps lifted for councils in areas with affordability pressures, allowing them to build more homes.
- The Scottish Government (£2 billion), Welsh Government (£1.2 billion) and Northern Ireland Executive(£660 million) will receive additional funding largely through the Barnett formula. The funding represent a total for the four years 2017/18, 2018/19, 2019/20 and 2020/21. Some of the additional funding is for Financial Transactions – which are sometimes referred to as ‘net lending’ or ‘policy lending’.
- The first departmental spending totals for 2022/23 suggest a fiscal tightening. Day-to-day (resource) spending is set to fall as a share of GDP and by 0.5% in real terms per person. Capital spending will rise by slightly less than GDP.
- On the recommendation of the Low Pay Commission, the national living wage – the minimum level of hourly pay for over 24s – will increase from £7.50 to £7.83 from April 2018. The national minimum wage: for 21 to 24 year olds will increase to £7.38 per hour (from £7.05); for 18 to 20 year olds will increase to £5.90 per hour (from £5.60); for 16 and 17 year olds will increase to £4.20 per hour (from £4.05); for apprentices will increase to £3.70 per hour (from £3.50).
- £2.3 billion of funding has been allocated from existing capital budgets for research and development in 2021/22. £7 billion has been allocated from existing capital budgets for the National Productivity Investment Fund in 2022/23.
- A package of measures were announced to support teaching of Maths and Computer Sciences including:
- Expanding the Teaching for Mastery maths programme
- Schools and colleges receiving an extra £600 for every extra pupil who decides to take Maths or Further Maths A levels or Core Maths
- Every secondary school to have a fully qualified computer science GCSE teacher
The Government’s spending and tax measures are costed in the Budget scorecard. The Budget also includes departments’ spending allocations for resource and capital. The departments’ allocations include some changes not included in the scorecard. The OBR point out, for instance, that £1 billion has been added to the resource reserve from 2019/20, but this isn’t included in the Budget scorecard. The reserve is an amount not allocated to departmental programmes, which provides a margin to cover emergencies and genuinely unforeseen contingencies.
OBR forecasts for the economy
The Office for Budget Responsibility (OBR) published a new set of forecasts alongside the Budget. Their previous set of forecasts were from March 2017.
Key change: productivity growth lowered
The main feature of the new forecasts was the significant downgrade the OBR made to its assessment of the economy’s potential to be more productive – as measured by output produced per hour worked – over the longer term.
Previous OBR estimates had productivity growth rising back toward its historical average of around 2% per year. However, productivity growth has over the better part of the past decade has been lower than this. This led the OBR to conclude that “the recent weakness will indeed prove more enduring” and to lower its productivity growth forecasts by 0.6 percentage points to 1.1% on average starting from 2018. 2017 saw an even more severe downgrade to 0.0%, reflecting weak data in the year to date.
GDP growth downgraded
A knock-on effect of this was for GDP growth forecasts to also be lowered in every year, and more noticeably from 2019 onwards. Annual growth is now forecast to average 1.4% per year for the period 2018-2021 compared with the 1.8% average in the OBR’s previous March 2017 forecast.
The overall size of the economy, based on the level of GDP, is now forecast to be 2.1% lower in 2021 than anticipated in March.
Unemployment rate forecasts cut
The OBR lowered its forecasts for the unemployment rate by at least 0.5 percentage points in every year of the forecast period (2017-2022). This is largely due the OBR reducing the rate of unemployment at which it believes wage growth would start to accelerate. In other words, it considers unemployment to be sustainable at a lower rate than before.
Other changes to forecasts
The OBR’s economic forecasts also stated that:
- Annual average earnings growth forecasts were lowered in every year, mostly due to lower productivity growth expectations. Increases in average earnings are not anticipated to be above the inflation rate until 2019.
- CPI inflation forecasts are broadly unchanged from 2018.
- Business investment growth forecasts were raised substantially for 2017 (after revisions to past data) but lowered by more than 1 percentage point in each subsequent year. Annual rises now forecast to be within the range 2.3-2.5% over the forecast period, 2017-2022.
OBR forecasts for the public finances
The OBR also published new public finance forecasts alongside the Budget.
Less borrowing forecast in 2017/18; more from 2019
Better-than-expected tax revenues have led to the OBR to lower its forecasts for public sector borrowing in 2017/18, while forecasts for 2018/19 are broadly similar.
However, the OBR increased its forecast for public sector borrowing in the later years of the forecast. Revisions relating to changes in the economic forecast – most notably the lower productivity growth – play a significant role in the increase.
As noted above, the OBR’s revision to productivity and, in turn, GDP growth, lowers the forecast for taxes and raises borrowing. By 2021/22, the OBR’s productivity revision adds around £26 billion to borrowing.
Positive improvements to the OBR’s assumptions about elements of the labour market offset some of the additional productivity-related borrowing. Classification changes, such as English housing associations moving from the public to private sector, also reduce public sector borrowing.
Taken all together, these changes mean that the OBR forecasts that borrowing in 2021/22 will be around £13 billion higher in 2021/22 than the OBR thought in March 2017.
Debt forecasts lower due to accounting changes
The classification changes mentioned above have reduced public sector debt by a little over 3% of GDP. This more than offset increases in forecasted annual borrowing from 2019/20 and an increase in the size of the Bank of England’s scheme providing cheap loans to banks.
Fiscal targets forecast to be met
The OBR believes the Government is on course to meet its targets covering public sector borrowing, debt and welfare spending.
For more on the Government’s targets see the Library briefing The Office for Budget Responsibility and Charter for Budget Responsibility.
The following Library briefings provide background information on housing supply. They haven’t been updated since Autumn Budget 2017, but should provide useful context:
The following Library briefings provide background information on business rates. They have been updated since Autumn Budget 2017:
The theme for the Budget debate on 27 Monday 2017 is Global Britain. Below is some related information:
Documents to download
Autumn Budget 2017: A summary (488 KB, PDF)
To support the self-employed through the coronavirus outbreak the Government has introduced the Self-Employment Income Support Scheme (SEISS).
Financial Indicators: Data from FTSE100, as well as oil prices and gold prices.