And we're off
Hello and welcome to our Budget coverage. This is Philip Hammond’s second Budget of 2017 after he announced last November that he would be moving the main annual fiscal exercise to the autumn following the last Spring Budget in March. As the first Budget of a new parliament, following the snap election in June, it would traditionally be an opportunity for the chancellor to make big and bold decisions about taxes and spending.
But he is under pressure from all sides with the independent Office for Budget Responsibility expected to downgrade the outlook for the UK economy while public services are coming under increasing strain after years of cuts. Mr Hammond is also under intense scrutiny by pro-Brexit MPs who have increasingly turned on the chancellor over his support for a “soft Brexit”.
As Chris Giles, the FT’s Economics Editor, points out: “If Mr Hammond produces a safety-first Budget, he squanders his opportunity to decisively shape Britain’s future. But boldness risks backfiring, and steering a middle course threatens to satisfy nobody.” If you haven’t already you can read Chris's 10 things to look for here.
Markets keep watchful eye on sterling, FTSE edges higher
The FTSE 100 is outperforming its European peers in the final run-up to the Budget. London's main stock index is 0.6 per cent higher at 7,453.65, a seven session high. FTSE 250 is up 0.3 per cent.
Usually the pound is where the action is on Budget day. Sterling is up 0.1 per cent at $1.32343. The yield on 10-year UK gilts is flat at 1.29 per cent.
Here's what some of market watchers have to say this morning.
Kit Juckes, Societe Generale:
"Sterling's still very cheap and still reacts more to good than to bad news as a result. Today may just bring confirmation that the Chancellor has very little room for fiscal handouts."
Lee Hardman, MUFG:
"If the budget is badly received, there will be intensified pressure on Theresa May, particularly from hard Brexit supporters, to appoint a new Chancellor. The pound would likely prove sensitive to any further signs of political instability at this crucial phase in the Brexit talks."
Hammond hemmed in
The chancellor is facing a tricky balancing act. He is penned in by worsening economic growth forecasts just as the right-wing of his party is demanding he produce a transformative Budget to prepare the country for Brexit. He is facing political constraints imposed by a tiny Commons majority and the willingness of Eurosceptic Tory MPs to seize on any mistake to try to oust him.
You can read more of that here
Prepare for some economic gloom
Near the start of every Budget speech, the chancellor always rattles off the latest economic forecasts from the Office for Budget Responsibility. This year, they're not likely to be cheering.
We're expecting the growth forecast for this year to be downgraded from 2 per cent to about 1.6 per cent and the forecast for next year to be downgraded from 1.6 per cent to about 1.4 per cent. The longer-term outlook will probably look a bit more sluggish too, because the OBR has grown more pessimistic about the UK's capacity to boost productivity.
Confusingly, the forecasts for the public finances will probably look a bit better in the short-term, but not in the longer-term. Read the FT's Gemma Tetlow for more.
One of the key challenges facing the chancellor, much like his predecessors, is how to deal with productivity — or output per hour worked — which has persistently disappointed since the financial crisis. This matters because it is the key driver of economic growth.
While Britain is far from the only country to have experienced a slowdown in productivity growth since the crash of 2008-09, the deceleration in the UK has been sharper than in any other G7 nation.
Here's a chart:
Budget 2017: 10 things to look for
The FT's Chris Giles produced this handy list of what to look out for today, in all the key areas: housing, tax, growth etc.
Here's what he calls the main message:
The chancellor wants to signal that after a difficult year, things are looking up, with debt falling and Brexit-related uncertainties lifting. To offset bad news in the medium-term public finances, he will use a £5bn-a-year accounting change — by taking housing associations’ borrowing off the government’s books — to free up more money for housing, wages and healthcare.
Read the rest of it while you wait for the chancellor by clicking here.
What our readers want
We asked you what the chancellor should do for housing and productivity and this piece pulls together some of the answers.
Borrowing and growth forecasts - a reminder
The chancellor is almost ready to speak. Here are the last forecasts from the Office for Budget Responsibility as a reminder:
Hammond is on his feet
Hammond talks Brexit in preamble
The chancellor begins by talking about Brexit. He says the UK faces a future full of change, new challenges and opportunities. The government, he says, is seeking an implementation period, and that will be the "top priority in the weeks ahead". You can read more on that here.
But to be ready for every eventuality, Hammond says he will set aside a further £3bn, in addition to £700m already allocated, to Brexit preparations. Further sums will be added "if and when needed".
"No one should doubt our resolve", he says.
. . . and follows it with a promise of a technological revolution
The chancellor insists the Budget is about "much more than Brexit" and says Britain must prepare as the world is on the brink of technological change. He accuses the opposition Labour party of wanting to look to the past while the Conservatives look to the future. He says the UK is at the forefront of the change and says "we must invest for the future" but with a balanced approached to maintain "fiscal responsibility".
His says this Budget will "lay the foundations" and then throws in a joke about asking his colleague to bring some cough sweets in reference to Theresa May's disastrous party conference speech. The prime minister duly pops a packet next to the chancellor to raucous laughter.
Here's our coverage of Mrs May's speech in October.
More humour from Mr Hammond as he has a light-hearted dig at fellow cabinet member Michael Gove, introducing his next segment as the bit with all the "economicky words". He's referring to a story earlier this month (reported in The Times) that Mr Gove had been "auditioning" for the role of chancellor during a recent cabinet meeting.
Bad economic forecasts
The chancellor breaks the bad news: the OBR has revised down the outlook for productivity growth, business investment and GDP growth over the next five years.
GDP growth now forecast to be:
1.5% this year (down from 2% forecast in March)
1.4% next year (down from 1.6%)
1.3% in 2019 (down from 1.7%)
1.3% in 2020 (down from 1.9%)
1.5% in 2021 (down from 2%)
1.6% in 2022
A bit more on productivity and investment
Mr Hammond says the key to achieving the vision of a "fairer Britain" is more investment, and says improving productivity is a key goal of his.
That's why he plans to extend the national productivity fund for a further year, and expand it to over £31bn (from £23bn).
Read more on the challenge of fixing the regional R&D by clicking here.
Mixed fiscal forecasts
The fiscal forecasts look better in the short-term but worse in the longer-term.
Public sector net borrowing now forecast to be:
2.4% of GDP this year (down from 2.9% forecast in March)
1.9% next year (down from 1.9%)
1.6% in 2019/20 (up from 1%)
1.5% in 2020/21 (up from 0.9%)
1.3% in 2021/22 (up from 0.7%)
1.1% in 2022/23
Debt as a share of GDP is now set to start falling this year and forecast to fall to 79.1% of GDP by 2021/22. Mr Hammond lauds this as the "first sustained decline in debt in 17 years"
Another gag, related to driverless cars, is a 'Top Gear' (Jeremy, May, Hammond) reference. We won't bother repeating it.
Diesel vs electric cars
Tax rates on new diesel cars (but not vans) will go up 1 percentage point, until manufacturers can improve the technology and reduce emissions, while owners of existing diesels will have to pay more in road tax, achieved by moving the cars up a band.
£400m will be made available on boosting electric vehicle charge points.
The FT's Michael Hunter reports that sterling is slipping lower on the day during the Budget, falling 0.2 per cent to $1.3216, having been flat beforehand. The FTSE 100 is holding its highest levels of the day, up 0.6 per cent at 7,457.38
The moves followed confirmation from Mr Hammond that the independent Office of Budget Responsibility reduced the UK's growth forecasts.
Money for maths
It had been heavily trailed beforehand, but Mr Hammond has confirmed an extra £600 for schools for each pupil studying A-level maths. Some extra funding will go towards training maths teachers too.
Since Mr Hammond's big theme is how the UK should lead and embrace technological change (like driverless cars), he says funds for "retraining" workers who've been disrupted will be important. He re-announces a retraining partnership between the CBI and TUC, which was first trailed over the weekend.
Growth beyond London
New £1.7bn "transforming cities fund", designed to boost growth beyond the south-east. He also mentions HS2, and a few pounds towards improving wifi connections on trans-Pennine trains.
The government will also pay for new rolling stock on the Tyne and Wear metro.
Growth beyond England
Hammond says the Budget provides £2bn more in spending power for Scotland, £1.2bn for Wales and £660m for Northern Ireland.
Borrowing and GDP forecasts in charts
Keith Fray, our head of statistics, has prepped these two charts based on the latest OBR forecasts:
Mr Hammond defends the controversial Universal Credit benefits system as "overdue reform". But he promises to remove the seven-day waiting period at the start of the claim. He also promises to make advances to benefits more easily and quickly available. "This is a £1.5bn package to address concerns about the delivery of the benefit," he says.
Charities such as the Citizens Advice Bureau have been pushing for changes such as these for some time, though they would have preferred Mr Hammond to press pause on the entire roll-out.
Income tax changes
Hammond will increase the personal tax-free allowance to £11,850 from next April: a small increase from the current level of £11,500.
The higher threshold will increase to £46,350, from £45,001.
National Living Wage goes up again
The National Living Wage, the minimum wage for the over-25s, will rise from £7.50 to £7.83 in April, Mr Hammond announces. The policy was set in train by his predecessor Mr Osborne, who hoped it would break the UK out of its "low-pay, low-productivity trap". So far, low pay has got better, but not productivity.
Sin taxes - no change to alcohol
No increase to duties on most forms of booze, welcome news ahead of Christmas. White cider, however, will see an increase.
Rates on short-haul and long-haul air travel to be frozen, while rates on premium travel and private jets will go up.
He confirms another heavily trailed policy: a new railcard for the under-30s.
Sin taxes - fuel duties
... are frozen again.
More money for the NHS
An additional £2.8bn for NHS England. Less than it wanted. Hammond also refers to an additional £10bn over the course of the parliament to support the NHS transformation plan.
Mr Hammond says the country's small businesses give the economy its vibrancy and resilience, but are under pressure. He promises to bring forward the switch from RPI to CPI, which he says is worth £2.3bn to business over the next five years. This is something business lobby groups such as the CBI and BCC have been calling for.
More from the markets
The FT's Michael Hunter says there has been a modest reaction to the speech so far. The FTSE 100 is at a renewed session high - up 0.7 per cent at 7,460.91 - as the speech continues. Sterling remains down 0.1 per cent at $1.3229, having been flat on the day before the cuts to the UK's growth forecasts were announced.
The FTSE 250 is up 0.3 per cent at 20,007.56.
Gilt yields are now marginally lower on the day as demand for government debt picks up. The yield on benchmark 10-year UK sovereign debt is now down 1 basis point on the day at 1.27 per cent.
Gilts maturing over two years are yielding 0.46 per cent, down 2bp.
Hammond's housing plan
He says "successive governments over decades" have failed when it comes to providing enough homes, especially for young people. "This is a complex challenge and there is no magic silver bullet."
His "ambitious plan" includes:
- £44bn of capital funding to boost the housing market
- Target of 300,000 net new homes per year by the mid-2020s
- New SME housebuilding fund
- £2.7bn to more than double housing infrastructure fund
- £1.1bn to 'unlock strategic sites'
- £1.5bn to help small developers build more homes
New report commissioned to look into why so many plots with planning permission have not been developed.
He talked about changing planning laws, but only urban, high density areas, not the greenbelt.
He also announced a new power for local councils to charge a 100% council tax premium on empty properties.
Stamp duty changes for first time buyers
First-time buyers will no longer pay stamp duty on homes up to £300,000. It will also be waived on the first £300,000 of a home in London up to a total value of £500,000 to help those buying in the capital.
"We are at a turning point in our history and we resolve to look forward not backwards . . . to build a country fit for the future." And that's the end. Housing clearly the biggest focus, with the stamp duty changes the most eye-catching.
Watch Chris Giles on our Facebook livestream
Our economics editor Chris Giles gives his quick summary and verdict on what happened in the UK's autumn Budget. You can view it here.
"The house builders will be very happy with the chancellor", says Noble Francis, a housing expert and economics director at the the Construction Products Association, on Twitter.
More market reaction - unhappy builders, happy airlines
The FT's Michael Hunter says shares in housebuilders are falling on news of an urgent review into land hoarding in the sector - or the gap between the number of sites with planning permission and those in development.
Shares in Persimmon Homes are down 1 per cent, having been modestly higher before the announcement.
Shares in Berkeley Group, which were up by more than 1 per cent earlier, are up 0.4 per cent on the day.
Elsewhere, airline stocks are higher after the freeze to short-haul air passenger duty
EasyJet is up 2.5 per cent and IAG is up 0.5 per cent.
At the end of the speech, the pound is modestly higher -- up 0.1 per cent at $1.3248, as it recovers from pressure in the immediate aftermath of reduced growth forecasts.
"Battening down the hatches"
Reaction here from Lucy O'Carroll, Aberdeen Standard Investments chief economist:
“The Chancellor has tried to present this as a visionary, forward-looking Budget, but he’s really battening down the hatches. There’s a flurry of policies on everything from maths to artificial intelligence and transport links. But the OBR’s downgraded forecasts demonstrate that the scale of the challenges the UK faces far outweighs the impact of the measures he’s outlined."
The Budget in full
If you are a glutton for detail, or punishment, you can read the entire Budget statement here.
FTSE 100 off session highs
The FTSE 100 is up 0.5 per cent at 7,448.93, off session highs
Growth downgrades overshadow everything else
With significant cuts to the economic outlook, Chris Giles sums up the Budget: "Yes it's all terrible. But here's our plan." Real money, he says, is going into transport and science training. The OBR will need to see evidence it'll work before forecasts improve.
Here are some of the key points:
Underpinning the whole Budget was a deep downgrade in economic forecasts, not just for the near-term but the longer-term too.
- Hammond's big focus was housing, with a promise of £44bn in total (the devil will be in the detail) to boost housing supply up to 300,000 homes a year. There was also a promise of planning reform, but not in the greenbelt.
- The eye-catching promise was to abolish stamp duty for first-time buyers on homes up to £300,000
- There will be £3bn set aside for Brexit preparations
- Another push on infrastructure spending
What was missing?
- We didn't hear anything about public sector pay, in spite of growing pressures on the chancellor to ease the wage squeeze
- There was some speculation before the Budget that Hammond would try to reform tax rules for the self-employed in the private sector. He seems to have decided now is not the time.
That's it from us. Thanks for joining.
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