‘Prudent’ and ‘balanced’, the words Tory chancellor Philip Hammond used to describe the future running of Britain’s economy during last year’s Autumn Statement.
Emphasising the notions of ‘living within our means’, ‘extending opportunities’ and building a ‘stronger and fairer’ Britain, the 2017 Spring Budget has reiterated the stance taken last year.
Philip Hammond has stuck by his reserved approach to running the economy in order to ensure the UK has ‘enough resources in reserve’ and enough fiscal headroom to cope with the implications of Brexit over the next two years. He highlighted that Britain has a debt of nearly £1.7 trillion – around £62,000 for every household in the country.
Therefore, instead of borrowing, the chancellor is sticking to his plan, and has opted to increased taxation to raise extra finances for social care, education and business rate relief.
And, despite Brexit, the UK economy has grown faster than expected. The UK was the second-fastest growing economy in the G7 in 2016 and the growth forecast for 2017 has been upgraded by the Office of Budget Responsibility from 1.4% to 2%.
But many will rightly point out that the budget deficit was meant to be eliminated at the end of last parliament, but will continue to persist half-way into next parliament.
However, despite the marginal improvements, these announcements undoubtedly gave the chancellor not only confidence in his financial plan, but also greater flexibility in regards to financial management of the economy. He was quick to assert that he was continuing with his plan – ‘undeterred by any fluctuations and undistracted by reckless policies.’
As promised, many of the announcements were ‘business as usual’ and mostly confirmations of what had already been laid out or expected, such as the rise in the national living wage to £7.50 in April, investment in infrastructure, productivity, technology and education, as well as tax penalties
The most prominent announcement from the budget was an extra £2bn for social care – however, this will be delivered over three years, and for many is too little – too late.
To provide a more comprehensive and holistic view of the budget, we have outlined the major points covered – and what can be expected.
Small business tax & Making Tax Digital
For unincorporated businesses and landlords below the VAT registration threshold, Hammond will delay by a year the introduction of quarterly reporting, at a cost of £280m to the exchequer. This means these businesses have an additional year to prepare for the Making Tax Digital (MTD) process.
Business rates
The chancellor announced that he will provide £435 million to support businesses affected by business rates relief revaluation, as well as announcing three measures for England:
Tax
One of the central themes of the overall budget was ‘fairness’ within the financial system – and crackdowns on tax avoidance have since become a key part in boosting the finances in chancellor’s coffers. The top 1% now pay 27% of all income tax according to the chancellor, and £140bn has been raised since 2010 by tackling tax avoidance evasion and non-compliance.
The chancellor has also pledged to allocate £820m of tax avoidance measures to clamp down on businesses converting capital losses into trading losses, as well as introduce new financial penalties for professionals who create tax avoidance schemes that are subsequently defeated by HMRC.
In addition, the tax free dividend allowance drops from £5,000 to £2,000 from April 2018, effectively reducing the amount of money directors and shareholders of companies can take out tax free.
On a more positive note, tax-free childcare will soon be available to working parents, providing them up to £2,000 a year in childcare support for each child under 12. Parents will also be able to receive up to £4,000 for disabled children up to the age of 17.
Self-employment
Initially the self-employed faced an increase in their National Insurance (NI) contributions as the Chancellor looked to address the ‘unfairness’ in the NI system. The government planned to raise Class 4 National Insurance Contributions (NIC) from self-employed people from 9% to 10% from April 2018, and a further 1% from April 2019; while Class 2 NICs would have been abolished.
The purpose of these changes was to minimise the differences in benefits and contributions between the self-employed and employed, and would have raised raising £145m a year by 2021-22.
However, the government announced a U-turn on this measure following criticism that the increase broke a pledge made in the Conservative’s 2015 general election manifesto. The Chancellor intends to use the Autumn Budget to set out further measures which will fund the money lost from withdrawing the planned NI contribution increase.
Infrastructure, Transport & Technology
In line with the Chancellor’s objectives to reinvest in people and infrastructure, the government will introduce £270 million to launch the Industrial Strategy Challenge fund. The funding will focus on research and innovation in universities and businesses, helping these organisations to further develop artificial intelligence, robotics, energy efficient solutions and alternatives.
With regards to transportation infrastructure, the chancellor has announced £690 million for new local transport projects to reduce congestion, £220 million to improve ‘pinch-points’ on national roads, as well a support for local projects over the next year.
Also, £16 million will be allocated for a national 5G Innovation Network to trial new 5G technology, as well as £200 million for local projects to build powerful, full-fibre broadband networks.
NHS Investment
Along with the £2 billion for adult social care over the next three years, the government will allocate £325 million to be invested in local Sustainability and Transformation Plans. These are NHS plans for improving patient services in local regions.
£100 million will go to A&E departments to provide more comprehensive and readily available services ahead of next winter.
Pensions and savings
The Lifetime ISA will be available from the 6th of April this year, allowing younger adults to save £4,000 each year and receive a bonus of up to £1,000 a year on their contributions. The funds can be withdrawn tax-free to put towards a first home or saved until a person turns 60.
Careers, education and schools
New ‘T-levels’ for 16-19 year old technical students will be introduced from autumn 2019. Students will be able to choose from 15 different, career-orientated routes. The purpose of the new T-levels are to thoroughly prepare students for the working world, and the training period will be increased by over 50%.
In addition, the government will also provide maintenance loans for students doing higher-level technical courses at colleges and institutes of technology, in line with the existing model for university students.
Schools will receive £536 million, with £320 million going to new free schools, while £216 million will be invested in school maintenance.
Ultimately, the changes outlined are far from unexpected and echo the aims and objectives set out in Philip Hammond’s autumn statement last year. What many will be wondering however, with the UK’s departure from the EU coming ever closer – are these aims and objectives enough to ensure both stability and success in the future?