Top city firm EY analyses impact of the Autumn Statement
Experts of the leading professional services firm, EY, give their take on the Autumn Statement.
The Chancellor’s pledge to fund a boost in housing have been welcomed by the multinational, but it warns the measures do not stretch far enough.
Russell Gardner, Head of Real Estate at EY, said: “Measures to address the UK’s housing supply crisis are welcome, but must represent the start of a major commitment to building significantly more homes across the UK. The headline numbers are eye-catching but it requires a stretch of the imagination to believe that new homes supply can be unlocked for £23,000 each or an affordable house can be built for £35,000. We eagerly await the Housing White Paper and hope it contains more radical structural proposals.”
Caroline Artis, EY Managing Partner for London, argued that affordable housing is the most important issue in London and the Mayor should treat it as such, saying:
“Whilst the residents who currently find housing unaffordable will have cheered the announcement of £3.15bn towards 90,000 new affordable homes in London, they may also have noticed the announcement of a large-scale regional pilot of Right to Buy for Housing Association tenants which could remove an equal number of affordable properties from the available housing stock if any part of the pilot takes place in London.
“Affordable housing is the single biggest business issue for London and Sadiq Khan’s number one priority. City hall will want to make sure that all these measures create a larger pool of affordable housing , and not just a replacement for those which will be sold off.”
The city firm also noted that London was quietly rewarded in this Autumn Statement. As well as the housing announcements, the Chancellor referenced the high productivity in London as opposed to the poor productivity elsewhere.
Caroline Artis, EY Managing Partner for London said: “When Philip Hammond highlighted the poor UK productivity, the one city he did congratulate was London which has one of the highest levels of productivity in the world, and whilst his words emphasised the importance of the Northern Powerhouse and the Midlands Engine, his funding package for London housing, devolution of adult education and investment in R&D and Tech were clearly a quiet nod to London to continue with a model that encourages investment, and shows that London, and the UK are still open for business.
“Many of the announcements were a direct response to the things London had asked for and whilst there are still issues like the Business rate hike to address, City Hall will be quietly pleased”
INSURANCE PREMIUM TAX
The Insurance Premium Tax rise was criticised by David Bearman, Financial Services Tax Partner at EY, as arguing it would cause frustration for both insurers and customers:
“Both the insurance industry and UK customers will be frustrated with this further rise in IPT; the third in just 18 months. For insurers, this is particularly the case because the revenue raised by the last two rate rises barely covers the cost of implementation, and for customers because costs are reflected in their premiums. These incremental increases clearly reflect the fact that the Government is committed to not raising other taxes, meaning there is limited scope for revenue-raising measures. We are concerned that this will not be the last increase.”
Manish Gupta, Head of Infrastructure Corporate Finance at EY, comments: “The £450m for digital signalling will transform how the railway operates and will enhance capacity across the UK network.
“Currently at peak times and in key bottlenecks, the network is full and unable to keep up with growing demand from passengers. Digitising the signalling system will allow more trains onto the track and also provide a platform for closer co-operation between Network Rail, train operators and rolling stock providers with passengers also benefiting from improvements in the quality of real time travel information.”
Elsewhere on tax, the multinational welcomes the commitment to lowest to the lowest corporation tax in the G20 but said the rate is unlikely to fall below 17% despite Donald Trump’s pledge of 15%.
Chris Sanger, Head of Tax Policy at EY, comments: “The Chancellor’s recommitment to ensuring the UK will have the lowest overall corporation tax rate in the G20 may have felt like old news, given the PM’s statement on Monday. However, in describing this as the “overall rate” the Chancellor left himself room to avoid dropping below 17%, even if the US drops to 15% as promised by Donald Trump. The use of “overall” allows the inclusion of US state taxes, meaning that the UK rate could still pass this test.
“While any drop in corporation tax is always sure to be a headline grabber, most businesses want the Government to shift its focus onto reducing the employment tax burden. However, all we saw today was a slight increase to employers National Insurance Contributions – so no help there in offsetting the costs of the apprenticeship levy.”
Although the city firm said the plans to roll out faster broadband come at a good time, they believe focusing on speeds in rural areas must remain a priority.
Stuart Orr, Advisory Partner at EY, comments on investment in broadband: “Additional funds to fuel the rollout of faster broadband come at an important time. While the UK scores well compared to other markets in roll out of ‘entry level’ fibre broadband, other countries and their economies are already benefiting from extensive coverage of ‘full fibre’. At the same time, a continued focus on connectivity speeds in rural areas must remain a priority for providers.”
Following speculation about major change to pension policy, Jason Whyte, Director in EY’s Life & Pensions practice, argued the industry breathed a sigh of relief after no such change was announced, saying:
“If no news is good news, then Philip Hammond’s first Autumn Statement was a good one for the pensions industry. The Chancellor reserved his barbs for the opposition, and delivered the UK’s pension providers a respite from the constant change of the last few years. There was a moment of nervousness when he announced measures to tax salary sacrifice schemes in the same way as earnings, swiftly calmed by confirmation that pensions, along with childcare, cycle to work and ultra-low emission cars, would not be affected. We will have to wait for the consultation to learn how the government plans to tackle pensions scams – but moves to clamp down will be welcome and help to boost public confidence in the system.”
Chris Sanger, head of tax policy at EY, responded to the Chancellor’s decision to go ahead with controversial proposals to remove the tax and National Insurance advantages of salary sacrifice arrangements. He said:
“The effect of the change will apply income tax and Employers’ National Insurance Contributions to the higher of the value of the benefit received or to the amount of salary sacrificed.
“While he may have avoided undermining his environmental credentials by excluding low emission cars, the denial of relief for the many basic rate tax payers who benefit from salary sacrifice schemes sits oddly with a government committed to helping those who are ‘just about managing’.
“Salary sacrifice has been a great enabler, allowing lower paid employees to choose the benefits they want, something previously only possible for those nearer the boardroom. Denying relief when benefits are chosen in this way will also penalise those longer term employees, compared to new joiners who agree their benefits before they start work.”