Emma Wall: Hello and welcome to Morningstar Series "Market Reaction". I'm Emma Wall and I am joined today by Morningstar Investment Management's Mark Preskett to talk about the Autumn Budget 2017.
Mark Preskett: Hi.
Wall: So, I thought I'd kick us off with housing, because that was arguably the sector that received the most attention in Philip Hammond's Budget this afternoon. There was a very important pledge to help first home buyers by abolishing stamp duty for any property worth less than £300,000 specifically for first time buyers, and indeed so that Londoners don't get left out, any property worth £500,000 or less will see abolishment of stamp duty for the first £300,000. But that wasn't the only way that he helped people to get on the housing ladder.
Preskett: Absolutely. So previously it's all been about, last year was about Help to Buy and extending that programme and financing that programme. He came under a little bit of criticism because people were looking at that stamp duty legislation and also house building, building properties out there. So, Philip Hammond pointed out the Conservative track record he is quietly proud of: building 1.1 million homes since 2010, but the latest pledge for £44 million infrastructure fund and building 300,000 new homes every year from around the mid-2020 definitely stacks up in terms of the number of houses being built.
Wall: It’s easy enough to make a pledge though, isn’t it? But whether we see the reality of those 300,000 homes built per year over a certain five-year period is another thing.
Preskett: Absolutely. I mean, the problem has been local authorities and getting planning permission for these houses to be built big, big schemes, high density housings in urban areas. The devil is in the details about how they are going to push through these quite aggressive targets on homebuilding.
Wall: Without of course touching the green belt.
Preskett: Absolutely, yeah.
Wall: And then looking at taxes. We saw taxes raised on tobacco and on cheap booze, but they have been frozen he said in support of the Great British pub, but I think the support of the Great British drinker as well on whiskey, wine, beer and cider. Where we have seen tax raises for the individual, is for anyone that still drives a diesel car, the duty on those will go up. And also, there are incentives for car manufacturers to get their plans in line to produce clean engines those that do use diesel in a cleaner way. This was all part of an ongoing theme about clean air and indeed there were measures to support electric vehicles, weren’t there.
Preskett: Absolutely. So, you definitely feel there is a sort of shift in sentiment around, clean energy, efficient driving and getting our streets cleaner and pollution down and so the electric, 40 million invested on electric charging points, another 500 million in electrical car infrastructure. So, its definitely a step in the right direction in terms of that sort of moving to more cleaner British roads.
Wall: And this was quite niche investment electric vehicles as you say 40 million for charging points around half a million into electric vehicle innovation. There was also a further 500 million into artificial intelligence, fiber broadband and tech startups. But all of this is only supporting a particular type of British business, a niche small business. There wasn’t much for the corporate sector as a whole, was there?
Preskett: Absolutely. So, the last two years its all been about these big corporation tax cuts. So, we saw corporation tax in the budget in 2015 go from 20% down and then last year they have ended up plumping on the 17% number, this coming in 2020. This year there wasn’t really anything to do for big business and I think maybe that was around the initial hit around Brexit sort of forced Philip Hammond to bring in another corporation tax cut, but here there was a few micro legislations, little bit around taxation. But most of his points were around non-action, no change to the VAT threshold for small businesses for example, he is not actually doing anything, he's just maintaining a relatively attractive level for small businesses.
Wall: For most of our viewers the thing that will impact the most and will be the best music to their ears was the change to the personal tax rates. And that has seen the personal allowance rise in line with the Conservatives pledge at the beginning of the government to £11,850 from April and the higher rate tax band will move to £46,350. They are also pledges to support the NHS and indeed education with £600 for every student studying Maths A-Level for schools. But perhaps the thing we haven’t talked about which is biggest takeaway from this is the economic backdrop. Because Brexit looms ever closer and it has actually impacted the forecast for growth for the UK hasn’t it.
Preskett: Absolutely. I thought it was quite interesting, the Philip Hammond's very first statement was around Brexit, was around increasing the budget for the Brexit negotiations. And then he moved on sort of the OBR forecast, this is the government's independent body forecasting growth. And they were very conservative numbers. The Bank of England has growth forecast out to 1.7% out to 2020. These were materially lower around 1.4% down to 1.3% in 2018-2019. So pretty aggressive downgrades in our growth outlook. And against that we've got this picture that the Conservative government has pledged to reduce debt levels.
That’s been at the heart of everything as they were bringing debt down. So, Philip Hammond was quite proud in talking about how debt-to-GDP levels will have peaked and will be falling over the coming years. But those falls are still pretty low. Compared to debt-to-GDP levels from 1980s and 1990s even up to the mid-2000s were around 50%. And we're now up into the 90% level or pretty much there, he is forecasting it going to 86.1% in 2020, it’s a tiny shift down and compared to other European nations we still have a problem with high debt and low growth.
Wall: Mark, thank you very much.
Preskett: Thank you.
Wall: This is Emma Wall from Morningstar. Thank you for watching.
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