Autumn Budget 2017 – Chancellor loosens the purse strings by £25bn

Philip Hammond's first Autumn Budget, with part of the new budget cycle designed to give greater certainty with decisions flagged further ahead of the end of one tax year and start of the next.

Article updated: 22 November 2017 3:00pm Author: Richard Stone

  • Cut to the Dividend Allowance as originally proposed in Spring budget reintroduced in small print
  • Privatisation of RBS to be restarted and we would urge government to use this as an opportunity to widen share ownership across UK
  • Housebuilders likely to benefit from 300,000 new homes and technology companies should see boost from £500m investment in sector

The Chancellor loosen the purse strings, slightly

The tax changes and additional spending commitments amount to an additional cost to the Exchequer over the next 5 years (to 2022-23) of £25bn, of which £18bn is additional spending commitments. This is significant in the context of official forecasts showing growth is expected to be lower and productivity poorer than previously forecast. Growth expectations for the UK economy for 2017 were downgraded to 1.5% and the growth rate is then expected to slow slightly taking until 2022 before the economy experiences a growth rate in excess of 1.5% per annum.

The main decisions contributing to this additional spending are £3bn of additional resources for the National Health Service, with additional capital spending on top of that. £3bn of additional spend over the next two years to prepare for the full range of Brexit outcomes and just under £1.5bn over the next five years to fund changes to the Universal Credit system to help alleviate some of the challenges which have received widespread recent coverage.

In respect of taxation, the main changes are the freezing of fuel and alcohol duties which will cost the Exchequer £4.3bn and £1.2bn respectively, and the removal of Stamp Duty for first time buyers on up to £300,000 which is expected to cost £3.2bn.

What does this mean for investors?

On the surface, there was little to concern personal investors. Capital gains tax rates and tax allowances all remained unchanged. There was no mention in the Budget or accompanying Budget document of the Lifetime ISA or of the Dividend Tax Allowance or Interest Income Tax Allowance which might therefore be assumed to be remaining at current levels. However, this is not the case.

Table 2.2 – released as a separate spreadsheet and not even referred to in the main budget document – shows the Government does intend to reinstate the proposed cut in the Dividend Tax Allowance from £5,000 to £2,000. This is very disappointing for personal investors who had previously cheered the Chancellor’s decision to drop this from the Finance Act rushed through before the snap general election. This reduction in the Dividend Tax Allowance will cost personal investors £3.4bn over the next five years – reducing the income personal investors are trying hard to generate from their assets. We would urge the Chancellor to reconsider this move and, as he did following the Spring budget, not impose this burden on personal investors. At a time when individuals need to be saving and investing more, this measure does nothing to encourage personal investors.

Personal investors may cheer the news, buried deep within the budget document, that the Government plans to restart the process of privatisation of Royal Bank of Scotland (RBS), which it rescued during the financial crisis. We would call on the Government to undertake this process through a large scale and populist privatisation process and using it as an opportunity to re-engage the public with share ownership helping widen share ownership across the UK. 

Personal investors will also be trying to identify the corporate winners and losers from the budget who may benefit from the Chancellor’s decisions. Housebuilders will be helped by the greater attractiveness of homes for first time buyers, companies investing in technology will be helped by further Government support and encouragement, for example in terms of research and development tax credits. Infrastructure companies, who assist with building new roads and rail links for example, will be boosted by the Governments continued and further investment in initiatives such as those centred on the ‘northern powerhouse’ and the ‘expressway’ link between Oxford and Cambridge.

So, in summary

Overall this was a Chancellor with relatively little room for manoeuvre, who used what room he did have primarily to increase spending along with some tax cuts – notably through freezing fuel duty increase and removing stamp duty for most first time buyers. He will likely be criticised for finding more funding for Brexit than he has to help solve the challenges faced by those on Universal Credit, and the risks to the UK economy remain heavily centred on the Brexit negotiations.

The reintroduction of the Dividend Allowance will be disappointing to personal investors. We asked for five things in our Budget Wishlist three of which the Chancellor has delivered on – increased incentives for technology companies and innovation to help boost productivity, greater investment in maths education which in turn should help increase financial literacy, and clarity over exiting incentives and tax structures for personal investors.

It is understandable that his one surprise ‘give away’ was to first time buyers with the intention of re-energising the concept that home ownership is an aspiration open to everyone. Looking forward we would hope that the privatisation of RBS will enable a new generation to engage in wider share ownership demonstrating that participation in the capital markets is equally open for everyone and should be encouraged as part of the long term savings aspiration for everyone trying to build a more secure financial future for themselves and their families.

All information given including prices, yields and our opinion is correct at the time of publication. Our opinions on investments can change at any time and for our latest view please go to To understand how our Investment research team arrive at their views please read our Investment Research Policy.

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Richard Stone

Chief Executive

Richard is a qualified chartered accountant who has held several director roles across the financial services sector. His responsibilities include all aspects of oversight, including the group's strategy for growth, and encompass control and management of the group's business.