Autumn Statement – what's the impact on your investments?
Today’s was a fairly lacklustre Autumn Statement offering very little to investors.
Whilst GDP growth is forecast to slow, it is still expected to be the fastest in the developed world. Next year's fall to 1.4% isn't particularly welcome, but after the sharp fall in Sterling versus most major currencies earlier this year it was to be expected. The knock-on impact of falling growth is a slower path to a balanced budget, which now won't happen until sometime during the next Parliament. In fact, public sector debt is now expected to peak at 90.2% in the 2017/18 financial year.
Infrastructure, banking and employee benefits
Infrastructure spending again came to the fore. Roads, housing and broadband should all receive funding. If these plans come to fruition, the construction sector could be very busy over the next decade and may well be a good place to be invested.
Bank bashing seems to have ended; I can't remember the last budget or statement that didn't include new taxes on the sector so today was a welcome relief. However, the insurance sector has been hit with a 2% increase to insurance premium tax from June 2017.
The biggest announcement affecting many will be the restrictions of employee benefits via salary sacrifice. Pensions, low-emission cars, bicycles and childcare are still allowable but everything else has essentially been banned from April 2017. Using shares as a form of payment to employees is also being scrutinised, and National Insurance thresholds are being equalised between employer and employee.
The major chunk of the statement was aimed at measures to boost productivity and long-term innovation. A new national productivity investment fund of £23 billion will be invested over the next five years into research and development and innovation, building on the strength of science and technology.
There will be an injection of £400 million of venture capital money through the British Business Bank in order to invest in small, growing, entrepreneurial technology companies. This is expected to unlock further funding from institutional investors. The chancellor is keen to attract longer-term, patient investors to help fund these small businesses. It is the type of business often found in the Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS). Indeed, some EIS portfolios specialise in technology – examples are Deepbridge Technology Growth and Parkwalk Opportunities. There were many other measures aimed at boosting the fortunes of these high-tech companies with spending on improving the fibre network and 5G.
It is always difficult working out how many of the announcements are new, or just rehashes of previous policies. However, what is clear is that the tax take is falling, and the government needs to plug a hole. Lowering corporation tax to 17% by 2020 is a boon to all (profitable) companies and shareholders, but is partially offset by the increase in NI and insurance premium tax.
Tax avoidance received a decent mention in today's statement, with new measures and fines aimed at tax avoidance schemes eventually banned by HMRC. As has been recently mentioned in the press, draconian penalties are now on the table for investors who cheat the system.
In my view, this continues to highlight the benefit of government-sanctioned tax planning tools. Obviously ISAs and pensions are the most widely used, but venture capital trusts and the enterprise investment scheme are gaining in popularity and crucially continue to have the backing of government and HMRC.
The message from this government is clear: it doesn’t intend to hand over any tax cut for high earners. If you want to reduce the tax you pay, you have to use your own initiative. And if you decide to do so by investing in small companies, you’ll have the government’s support, in the form of significant tax relief.
Finally, a new National Savings bond will be introduced next year. The limit will be £3,000, so won't be of much use to many, especially as it will tie your money up for three years.
Please note this article is based on our current understanding of the announcements in the Autumn Statement of 23 November 2016. Tax benefits depend on circumstances and tax rules can change.
Photo credit: Chatham House