An attack on the self-employed and small business owners and a breach of a manifesto pledge!
Is that how some will see this Budget?
Philip Hammond, the Chancellor of the Exchequer, delivered his first Budget today. This Budget is historic for several reasons. It will be the last Spring Budget – from now on the Budget will be delivered in the Autumn. It’s also the last Budget to be delivered before Brexit is triggered and the UK begins negotiations to leave the EU.
There have already been several spending announcements. £500 million additional spending for schools in England and £320 million for 140 free schools (and that includes Grammar Schools promised by the Prime Minister).
We also know that the personal allowance for basic rate tax payers will rise to £11,500 from April with the threshold for higher rate tax payers rising to £45,000, except in Scotland where it will remain at £43,000 over which tax will be paid at 40%
It’s also important to note that some of the measures the Chancellor announced apply only to England as the responsibility for these areas lies with the devolved administrations in Scotland, Wales and Northern Ireland. However, some of the spending plans announced will trigger additional payments to the devolved administrations and the Chancellor outlined these.
The Economy
The Office of Budget Responsibility provides the Chancellor with the information on the state of the UK economy. The Chancellor advised that this year the economy would grow at a rate of 2%. He said it would fall back to 1.6% next year, grow to 1.7% them to 1.9% before returning to 2% growth in 2021/22.
Inflation is predicted to rise to 2.4% in 2017/18 before falling to 2.3% and then back to 2% in subsequent years.
Personal taxation
Those who are self-employed pay what’s known as Class 4 National Insurance Contributions (NICs). These are currently less than the NICs paid by those in employment. The Chancellor announced that the rate will rise from 9% to 10% of profits in April 2018 and to 11% of profits in April 2019. This would appear to be in breach of the Government’s Manifesto commitment that they would not increase National Insurance Contributions during this Parliament. The Government expects to raise £145 million through this increase by 2021/22 and an average cost of 60p per week to those affected. The Chancellor did point out that there would be no change to those whose income does not exceed £16,250.
There is no change to National Insurance contributions paid by employees or employers or changes to income tax or VAT.
Savings
There is currently a tax-free allowance of £5,000 on dividends paid to shareholders and directors of small private firms. This is to be reduced to £2,000 from April 2018. The chancellor forecasts that this will raise £2.63 billion by 2021/22.
Many consider this to be a further attack on the owners and directors of small limited companies who fund their income party through dividends.
Alcohol and Tobacco
There is to be no increase in duty on alcohol or tobacco on top of those previously announced, however, these is to be a new minimum excise duty on cigarettes based on a packet price of £7.35.
The previously announced increases mean that tobacco will rise at 2% above Retail Price Index (RPI) inflation, with a packet of 20 cigarettes costing 35p more. Duty on Beer, Cider, wines and spirits will increase by the RPI inflation and that will mean a rise of 2p on a pint of beer, 1p on a pint of cider, 36p on a bottle of whisky and 32p on a bottle of gin.
Oil and Gas
In an effort to assist the North Sea Oil and Gas industry, the Chancellor said he would investigate the use of tax incentives to make it easier for producers to sell oil and gas fields to help them keep productive for longer. He is to set up a panel of experts to assist in this investigation. This move is seen as a means of allowing the sale of older fields rather than their decommissioning which would potentially cost the tax payer money. If the fields produce for longer under a new smaller owner, they will generate revenue for the Treasury.
Provisions specific to England
The Chancellor announced several measures specific to England. These include:
An extra £2 billion on Health & Social Care over the next 3 years.
£100 million to place more GPs in Accident & Emergency Departments
£110 million for new free schools
£126 million fund to upgrade existing schools
£435 million for those affected by the business rates revaluation
Pubs with a rateable value of more than £100,000 to receive a £1,000 reduction on the rates they would have paid
Rate rises for businesses losing small business relief to be capped at £50 a month
Benefits to the devolved administrations
As mentioned above, as a result of some of the spending plans announced by the Chancellor and through the operation of the Barnett Formula, the Scottish Government will receive an additional £350 million over the next 3 years. This figure is in addition to the additional £800 million the Scottish Government will receive as announced in last year’s Autumn Statement.
You can read the Chancellor’s speech, in full, by clicking here.
If you would like to read the full Budget provisions, you can do so on the Treasury’s website. You will find that by clicking here.
Finally, if you would like to view the economic forecast data produced by the Office of Budget Responsibility, you can do that by clicking here.
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