Autumn Budget 2018: Key points from the Chancellor’s speech

The key points from the Chancellor’s speech: 

• The OBR is forecasting unemployment to fall to just 3.7% in 2019 (currently 4.0%), and predicting sustained real wage growth in each of the next five years. The GDP growth forecast is now 1.6% for 2019, up from 1.3% previously. 
• The OBR says that the national debt peaked in 2016 at 85.2% of GDP, and are predicting it will fall to 75.0% in 2023. 
• £20.5 billion of extra funding for the NHS was announced over the next five years. An additional £1 billion will go to the Ministry of Defence over two years, including funding for cyber warfare capabilities. 
• A £400 million one-off payment to UK schools was announced; plus £420 million for potholes and minor road repairs. 
• The annual investment allowance for businesses was increased to £1 million for two years, up from £200,000. 
• Large tech firms will pay a 2% tax on their UK digital services revenues from 2020. Start-ups will not be impacted. This is expected to raise £400 million a year. 
• A £675 million future high streets fund was announced, to help councils draw up plans for redeveloping shops as homes. There was also a one third cut in the rates bill for small retailers over the next two years. 
• An additional £500 million was added to the housing infrastructure fund to develop new homes. 
• The national living wage will increase by 4.9% to £8.21 per hour from April 2019. 
• The personal tax allowance was raised to £12,500, and the higher rate threshold increased to £50,000; both introduced from April 2019. 

Chief Economist comments: 

The Chancellor finished his speech with the words: “austerity is coming to an end, but discipline will remain”. This was appropriate as today’s Budget was a case of some generosity, but with new taxes as well. Higher income tax allowances should give a Conservative party heavily divided by Brexit something positive to unite around, and please the newspaper headline writers. However, in the absence of a Brexit deal, the Chancellor was not in a position to be more generous. 

Many companies now face an increased pay bill as a result of the hike in the living wage. I expect this to be felt widely across the economy, but so will the increased consumer spending power that comes with higher pay. This will be especially true if the OBR is correct in its forecast that sustained real wage growth is coming. That would bode well for future GDP growth, which tends to be stronger when pay increases outpace inflation. 

Overall, the Chancellor has delivered a moderately encouraging Budget speech.