Autumn Statement: UK's Hammond reveals the bill for Brexit

The bill for Brexit was revealed on Wednesday as UK Chancellor Philip Hammond said the government would require an extra £122bn in borrowing and growth would slow to 1.4% next year.

In his first set piece speech since becoming finance minister, Hammond said the slowdown would be the result of weaker consumer demand and uncertainty about what kind of deal Britain would strike with the European Union since voting to leave in June.

He added that the key driving factors were the plunge in the pound and higher inflation since the referendum result.

“While the Office for Budgetary Responsibility (OBR) is clear that it cannot predict the deal the UK will strike with the EU, its current view is that the referendum decision means that potential growth over the forecast period is 2.4 percentage points lower than would otherwise have been the case,” Hammond told parliament.

The extra borrowing was significantly higher than the £100bn expected by the City, as Hammond kicked his predecessor George Osborne's plan to balance the books by 2020 into the long grass saying he would not expect this to happen until some time in the next parliament – at least a decade away.

Cumulatively between now and 2021 government borrowing would be £216bn, the chancellor said.

To put his own stamp on the statement, Hammond introduced three new rules: for borrowing to be below 2% of GDP by the end of the parliament; for public sector net debt to be falling by the same time; and a monitored cap on welfare spending.

National debt to rise

As economic growth slows, OBR forecast that debt would rise from 84.2% of GDP last year to 87.3% this year, peaking at 90.2% in 2017-18 as the Bank of England’s monetary policy interventions approached their full effect.

In 2018-19, debt was projected to fall to 89.7% of national income - the first fall in the national debt as a share of GDP since 2001-02, Hammond said.

In a widely-trailed statement that contained few surprises or gimmicks, Hammond confirmed the creation of a £2.3bn housing infrastructure fund to build 100,000 new homes in areas of high demand. An extra £1.4bn has been earmarked to build 40,000 new affordable homes.

There was, however, a sly tax rise in the form of an increase in insurance premium tax to 12% from 10% which irked insurers and contradicted government claims that Hammond would deliver measures to help those struggling to make ends meet.

It also took the shine off plans to save drivers £40 off car premiums annually by abolishing whiplash claims.

Hammond also announced a £23bn National Productivity Investment Fund but gave no details on how or where this money would be spent.

A £1bn pure fibre and 5G mobile signal infrastructure fund will be used to invest in rolling out broadband across the country, he added.

He confirmed a rise in the minimum wage to £7.50 and hour from £7.20, which would create a small lag on future increases needed to hit a government target of £9 by 2020.

Estate agents were also banned from charging letting fees in an attempt to ease pressure on families struggling to get on the housing ladder and forced to rent. Tenants have been paying fees of up to £500 for reference checks and inventories.

Hard-pressed savers, who haven't seen a decent interest rate for cash in almost a decade, were thrown a small bone in the form of a new three-year 2.2% National Savings bond in which they can invest up to £3000.

Fuel duty will remain frozen for the seventh successive year, saving drivers £130 a year on average, Hammond said.

He also scrapped the usual format of Spring Budgets and Autumn Statements. After the 2017 Budget there will be on fiscal policy event in the Autumn and a review of OBR forecasts in the Spring.