A summary of the Autumn Budget 2017 and what it means for U.K. exporters

A summary of the Autumn Budget 2017 and what it means for U.K. exporters
23 Nov 2017

The United Kingdom has a bright future. The fundamental strengths of the UK economy will support growth in the long term as the UK forges a new relationship with the European Union (EU). The Budget prepares for that: supporting families and business in the near term; setting a path to a prosperous, more open Britain; and building an economy that is fit for the future. It demonstrates the government’s commitment to a balanced approach to managing the public finances and supporting key public services. By investing in the future, the Budget will ensure that every generation can look forward to a better standard of living than the one before and ensures young people have the skills they need to get on in life. It backs the innovators who deliver growth, helps businesses to create better, higher paid jobs and builds the homes the country needs.

The Budget sets out actions the government will take to:

  • support more housebuilding, raising housing supply by the end of this Parliament to its highest level since 1970, to make homes more affordable in the long term and help those who aspire to homeownership

  • prepare for exiting the EU and ensure a smooth transition by setting aside an additional £3 billion for government

  • establish the UK as a world leader in new technologies such as artificial intelligence (AI), immersive technology, driverless cars, life sciences and FinTech

  • give everyone the skills to succeed in the modern economy and get better paid jobs

  • expand the National Productivity Investment Fund (NPIF) to support innovation, upgrade the UK’s infrastructure and underpin the government’s modern Industrial Strategy

  • invest over £6.3 billion of new funding for the NHS to improve A&E services, reducing waiting times and improving performance for treatment after referral, and to transform and integrate patient care

  • provide more support in the short term for households, reducing costs of living, and boosting wages for the low paid through the National Living Wage (NLW)

    Economic context

    The UK economy has shown its resilience, with solid growth over the past year and further increases in the number of people with a job. Gross domestic product (GDP) grew 1.5% in the year to the third quarter of 2017, employment remains near the record high set earlier this year and unemployment is at its lowest rate since 1975.

    The Office for Budget Responsibility (OBR) now expects to see slower GDP growth over the forecast period, mainly reflecting a change in its forecast for productivity growth. It has revised down its forecast for GDP growth by 0.5 percentage points to 1.5% in 2017, then growth slows in 2018 and 2019, before rising to 1.6% in 2022.

    Household spending continues to grow, having slowed since 2016 due to higher inflation caused by the depreciation of sterling. Business investment has grown moderately over the past year and net trade has started to make a positive contribution to GDP growth. Surveys of export orders in 2017 have been strong, with some reaching their highest level since 2011.

  • Outlook for the public finances

  • The government has made significant progress since 2010 in restoring the public finances to health. The deficit has been reduced by three quarters from a post-war high of 9.9% of GDP in 2009-10 to 2.3% in 2016-17, its lowest level since before the financial crisis.

    The government’s fiscal rules take a balanced approach to government spending, getting debt falling but also investing in our key public services like the NHS, and keeping taxes low.

    Compared to the Spring Budget 2017 forecast, borrowing is significantly lower in the near term. However, over the medium term the impact of a weaker economic outlook and the measures taken at the Budget see borrowing higher than previously forecast. The OBR expects the government will meet its 2% structural deficit rule for 2020-21 two years before target, in 2018‑19, and with £14.8 billion of headroom in the target year. Debt is forecast to peak at 86.5% of GDP in 2017-18, and is forecast to fall in every year thereafter to 79.1% of GDP in 2022-23.

  • Building an economy fit for the future

  • The Budget sets out a long term vision for an economy that is fit for the future – one that gives the next generation more opportunities. It is an economy driven by innovation that will see the UK becoming a world leader in new and emerging technologies, creating better paid and highly skilled jobs.

    To achieve this vision, the government has already set in train a plan to boost UK productivity over the long term. A key part of this is the NPIF, launched last year to provide additional investment in housing, infrastructure, and research and development (R&D). The Budget goes further, increasing the size of the NPIF from £23 billion to £31 billion. This investment will underpin the government’s modern Industrial Strategy and help raise wages and living standards. It means public investment as a proportion of GDP will reach its highest level in 30 years by 2020-21, excluding the exceptional years following the financial crisis. Further details of the government’s plan will be set out in the Industrial Strategy.

    Government action at this Budget to boost productivity includes:

  • Transport: A £1.7 billion new transforming cities fund through the NPIF to improve connectivity and support jobs across England’s great city regions

  • Research and Development: The largest boost to R&D support for 40 years with a further £2.3 billion investment from the NPIF in 2021-22

  • Long Term Investment: Unlocking over £20 billion of patient capital, over the next 10 years so that innovative high-growth firms can achieve their full potential

  • Emerging Tech: Leading the world in developing standards and ethics for the use of data and AI, and creating the most advanced regulatory framework for driverless cars in the world

  • Skills: Creating a new partnership with industry and trade unions to deliver a National Retraining Scheme, giving people the skills they need throughout life to get a well-paid job, and equipping young people with the science, technology, engineering, and maths (STEM) skills to become innovators of the future

  • A fair and sustainable tax system

  • The government remains committed to a low tax economy, cutting taxes for both working people and businesses to help respond to short term pressures. It has secured £160 billion in additional tax revenue, and these actions have also helped the UK achieve one of the lowest tax gaps in the world at 6.0% in 2015-16. The Budget takes action so that everyone pays their fair share, including those seeking to evade or avoid tax using offshore structures. The Budget will:

  • crack down on online value-added tax (VAT) evasion by strengthening and extending existing powers that make online marketplaces responsible for the unpaid VAT of their sellers

  • provide Her Majesty’s Revenue and Customs (HMRC) with additional resources including for new technology to further tackle avoidance and evasion risks

  • As the UK economy evolves, the tax system needs to evolve with it, to ensure that vital public services can be funded sustainably. The Budget sets out the government’s approach to ensuring that digital businesses will pay tax that is fair, given the value they generate.

  • increase the time limits for HMRC assessments of offshore tax non-compliance, and support new global rules to force the disclosure of certain offshore structures to tax authorities

Global economy

Global growth has strengthened in the first half of 2017. The OECD estimates that GDP growth for the G20 rose to 3.6% in the year to Q2 2017, up from 3.0% in Q2 2016. Growth has also become broader-based, as activity has strengthened in the euro area and Japan, and Brazil and Russia have emerged from recession. Growth has remained strong in China and firmed in the US. Higher global growth will benefit the UK economy. The OBR forecasts that global growth will be 3.6% in 2017 and 3.7% in 2018; these forecasts are both 0.2 percentage points higher than at Spring Budget 2017.