Coverage of George Osborne’s Autumn Statement will be dominated by his 180 degree u-turn on slashing tax credits (although shadow chancellor John McDonnell quoting from Chairman Mao’s Little Red Book should generate more than a few column inches).
Tax credits climbdown aside, the statement was more upbeat than recent versions, with evidence that Osborne has decided to loosen the austerity purse strings somewhat. That said, today was more of a mixed bag for the food and drink industry, which finds itself facing yet more costs without much progress on the long-awaited review of business rates.
So what were the key take-home points from the statement for the industry?
Improved consumer spending power
Osborne’s scrapping of the controversial £4.4bn of planned tax credit cuts will relieve fears that millions of low-earning families were set to see significant cuts to their incomes. Previous estimates had claimed more than three million stood to lose an average of over £1,000 a year if the cuts went ahead. Osborne still plans to cut £12bn from the welfare bill – but the tax credits cuts will now be rolled into the wider Universal Credit reform.
The basic state pension will also rise by £3.35 next year to £119.30 a week and the tipped rise in fuel duty did not materialise (though today’s OBR forecasts note government plans to unfreeze fuel duty in this parliament).
Improving economic indicators
Osborne’s tax credits u-turn – and a number of other spending measures, like £12bn in infrastructure investment, announced today – were made possible by the OBR giving the government an extra £27bn of headroom after upgrading deficit expectations thanks to better-than-expected tax receipts and continued low interest rates.
The big bombshell as far as business is concerned was the £3bn apprentice levy to be charged to big businesses to train three million apprentices by 2020. The tax will be levied on companies’ total payrolls and will be charged at 0.5% - though exemptions will be made for companies with wage bills below £3m, meaning 98% of companies are exempt.
The levy had been previously announced, but business had hoped the rate would be closer to 0.3% and there might be a sliding scale of contributions.
Today was also another damp squib as far as business rates were concerned, with the results of a major review of business rates now not scheduled to be announced until next year’s Budget. Osborne did pledge to plough ahead with the previously announced abolition of uniform national business rates – devolving power over business rates to local councils, which could see large differentials in business rates emerging on a geographical basis.
Part of this policy of business devolution will see Northern Ireland setting its own rate of corporation tax, which is scheduled to be 12.5%. UK corporation tax will drop to 18% as previously announced. Osborne also announced £12bn to fund a local growth fund and 26 new or extended enterprise zones.
Research grants replaced with loans
R&D grants will be replaced by £165m of loans to new companies as part of efforts to cut the Department for Business, Innovations and Skills’ budget by 17%.
Osborne pledged to keep fighting the 5% levy currently imposed on sanitary products, which is mandated by the EU. In the meantime, cash raised from the tax will all go to charities focused on women’s issues, such as Eve Appeal and Women’s Aid.