As fiscal statements go, the Spring Budget was hardly ground-breaking – but then “Spreadsheet Phil” did have that low-key numbers-focussed reputation of his to maintain. At least his jokes raised a smile or two on the benches (or in Theresa May’s case, a full-on eyes-skywards shoulder chuckle…!)
Following the news that the economy is performing better than expected – the 2017 OBR forecast growth is now 2% vs prior estimation of 1.4% and deficit reductions remain achievable – the Government’s main message was “let’s stick to the plan”… but what does this mean for us? Here are some of the main points:
If you’re employed…
As expected, the tax free allowance is set to rise to £11,500 for basic rate taxpayers on 6th April, rising to £12,500 by 2020-21. The threshold for 40% higher ratepayers will go up from £43,000 to £45,000 by the same time (the additional rate of tax of 45% remains payable on taxable income above £150,000 for all UK residents)
The National Living Wage rises to £7.50 an hour in April per last November’s Autumn Statement but it is unclear whether the rise will be enough to meet the target of £9/hour by 2020 on its current trajectory.
For those with children under 12, tax-free childcare will be rolled out from next month, the relief being 20% of the costs of childcare up to a total of £10,000 per child per year. The scheme will therefore be worth a maximum of £2,000 per child (£4,000 for a disabled child) and from September – in England only – free childcare will double from 15 – 20 hours for working families with 3 or 4year olds
If you’re in business…
There was a trio of measures around business rates – a hot topic of late – with £435m for firms affected by increases in business rates, including £300m hardship fund for worst hit and the promise that rate rises for businesses set to lose their existing relief will be capped at £50 a month. In addition, pubs with rateable value of less than £100,000 will receive a one-year £1,000 discount on rates they would have paid.
For businesses below the VAT registration threshold, there is a delay by a year the introduction of quarterly reporting at a cost of £280m.
But the biggest news was that the main National Insurance contribution rate paid by the self-employed (Class 4 NICS) will rise in the next few years, from its current level of 9% to 10% in April 2018, and then to 11% in April 2019 for those earning more than £8,060. The level for employees is 12% so this is billed as a move towards fairness – but the self-employed will surely shout about the other benefits their employed counterparts enjoy to offset the current deficit, such as sick pay, holiday, pay, paternity leave, etc.
There’s no denying that this move was a departure from the Conservative Party election manifesto which promised not to raise direct taxes, and in addition for those operating under Limited Company status who will see their dividend nil rate band fall from £5k to £2k from 2018/19.
The chancellor should not forget that growth in self-employment has driven our labour market in recent years and punitive rises in tax will make many people have second thoughts about striking out on their own,” Chris Bryce, chief executive of IPSE.
Given the level of the dividend nil rate band it is not surprising that the taxpayers who benefitted most from this measure were owner-managers of companies. This will surely deter new starts, and it’s hard to reconcile how this fits with the Government’s stance that SMEs are the “lifeblood of our economy”
And in better business news, delivered without the usual backbench fanfare, fuel duty is frozen for the 7th year in a row.
If you’re saving…
From 6th April, the promised NS&I three-year bond paying 2.2% will be available on savings up to £3,000 plus the amount that can be saved in a tax-free Individual Savings Account (ISA) is rising from £15,240 a year to £20,000 – but those with more than £50,000 in stocks and shares outside ISAs will be affected by the cut in tax free dividend allowance.
For those aged 18-40, a new Lifetime ISA will be available from April 2017 where individuals may contribute up to £4,000 per year up to the age of 50, and receive a 25% bonus from the government. Funds can be used to buy a first home at any time from 12 months after opening the account and can be withdrawn from age 60 completely tax free.
The best of the rest…
- The traditional ‘sin taxes’ on alcohol and cigarettes are not rising, but a new tax is being introduced in the form of the sugar tax, one of the few flagship policies of David Cameron continued by May. This is set to deliver lower tax receipts than expected because producers are actually reducing the sugar in drinks – good to see that the policy is working from a moral angle, if not a fiscal one.
- International Women’s Day was celebrated with a £20m fund to combat violence against girls, a £5m for ‘returnships’ helping people back into work after a career break and £5m for projects to celebrate the centenary of the 1918 Representation of the People Act.
- In Education, the introduction of T-levels – technical qualifications, an alternative to A-levels – for 16- to 19-year-olds was announced, alongside funding of £320m for 110 new free schools to take the total to 500. To tackle the productivity gap, Skills got a further boost with £300m for 1,000 new PhD placements and £270m for disruptive technologies (should we expect to see driverless vehicles on the roads soon, then?)
- Infrastructure sees £90m for the north and £23m for the Midlands for “pinchpoints” on the national road network plus £200m for local projects to leverage private sector investment in fibre broadband networks and £16m for a 5G hub;
- With regards to the NHS & Social Care, whilst an announcement of a multi-year capital programme is to be deferred to later in the year, Hammond did promise £2bn for social care and £100m for new triage programmes at English hospitals next winter
All of these spending pledges are allegedly to be funded by the increases in tax revenues announced in the Budget, including new anti-tax avoidance measures which will raise an extra £820m by 2021.
At a local level here in Wales, some were disappointed at the lack of an announcement on the Swansea Bay City Deal or Tidal Lagoon. Liz Maher, president of the South & Mid Wales Chambers of Commerce, stating that “Many of the Chancellor’s announcements were specifically for England and while supporting businesses in England may have a knock-on effect in Wales, the £200m boost to the Welsh Government finances over four years is nothing to get excited about.”
Many of the promises made in the Autumn Statement – which we covered in our iNsight magazine issue 10 – were reaffirmed with no changes. Notably the housing market didn’t get a mention – maybe no news is good news – and there were no changes announced to benefits, despite the Tories keenness to appear “tough on welfare”. Nor did the JAMs – the Just About Managing families, a favourite soundbite of May’s – get any airtime.
The other elephant in the room was the “B” word. That’s B for Brexit, by the way, and in that regard, we can only hope that Hammond’s low-key steps to secure a sound economy will see us straight – which is undoubtedly why this was a reassuringly bland budget devoid of headline grabbing “rabbit from the hat” announcements much beloved of former Chancellors. We’ll have to wait a while – post the triggering of Article 50 – until the Autumn Statement to see if “sticking to the plan” was indeed a sane strategy.
Lisa Entwistle is a partner at Evans Entwistle Chartered Management Accountants & Tax Advisors, based in Penarth.