I guess no Budget Statement is ‘normal’ but today’s felt particularly odd. Philip Hammond seems to have done away with the ‘rabbit in a hat’ approach, where something likely to be universally welcomed is revealed at the end. That’s not to say he didn’t put on a show though.
For someone who was regularly characterised as ‘humourless’ when he took office, it almost felt like the Chancellor had spent as much time working on his jokes as on his economic plan. At times his digs at the Labour party went above and beyond the usual back-and-forth that is normal in the House of Commons – an indication of the Conservative party’s low opinion of the current threat posed by the opposition.
The economic data in the UK, as we all know, has been surprisingly resilient compared to dire forecasts ahead of the EU Referendum last summer. This message was reinforced by the Office for Budget Responsibilities forecasts, with estimated GDP growth for 2017 now back at 2%, unemployment to keep falling, and real wage growth to continue. One irony is that this is going to be the first year in a decade where we meet the EU’s target for the budget deficit. Oops!
Philip Hammond took a pretty conservative approach to this positive news, making no significant alterations to the plans outlined in the Autumn. The policy changes he did announce were well-telegraphed ahead of time.
The word "fairness" was used a lot, and this Budget was really a collection of small tweaks, focussed on addressing social issues.
The word "fairness" was used a lot, and this Budget was really a collection of small tweaks, focussed on addressing social issues. A couple of examples are:
- T-levels to be introduced alongside A-levels. These will be practical and technical educational courses, giving students a more structured way to get a vocational qualification. Established in order to help level the playing field for vocational vs. academic studies.
- Self-employed National Insurance contributions to increase. Addressing "fairness" by trying to equalise the tax difference between employed and self-employed doing similar jobs. Being self-employed at the moment results in paying less National Insurance than that a similar PAYE employee. This used to be due to differences in pension benefits, but these have now basically gone. There was also an implication that there may be more to come here over the next few years.
A full list of these can be found here (although they have really had to get granular to get to 21 items – most of these wouldn’t have made the list in the last few years). Below are the points we think impact investors.
1. In 2017/18, the personal allowance - the threshold at which people start to pay income tax – is rising to £11,500 and the higher tax rate threshold increases to £45,000. That’s more money, either tax free or on which you’ve paid less tax, in your pocket for you to invest!
2. The pledges in the Conservative manifesto made at the last election to raise tax thresholds were reaffirmed. Under these, the personal allowance will rise to £12,500 per annum by the year 2020. Along the same timeline, the 40% tax rate would not kick in until £50,000. Again more money to invest, perhaps.
3. The benefits of the dividend allowance have been reduced from £5,000 to £2,000. While this will hurt investors, the Chancellor argued that the increase in income tax threshold and the ISA allowance rising to £20,000 for the tax year 2017/18 (up from £15,240 in 2016/17) should help.
4. From April, the NS&I (National Savings & Investments) bond announced last autumn by Hammond will be available and will pay 2.2% on deposits up to £3,000.
5. To help protect consumers, the government is bringing forward a planned green paper, in which it is looking to take steps to protect consumers from unexpected fees or unfair clauses, simplify terms and conditions, and give consumer bodies greater enforcement powers. Financial services firms will be in scope.
6. No change to the annual and lifetime pension contribution allowance. Unlike in previous budgets, the annual allowance remains unchanged at £40,000 and the lifetime allowance remains at £1mn.
7. And if you’re planning to move your pension abroad, be aware that if you’re seen to be doing this to reduce your taxable income, there will be a 25% payment due on any qualified recognised overseas schemes.
Overall, it was a bit of a holding pattern of a Budget – probably to be expected from a government that is facing economic uncertainty in the near future, feels little pressure from the opposition, and is worried about social inequality.
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