08/03/17Budget 2017: Everything you need to know
The Chancellor, Philip Hammond, started his first Budget in a bullish mood, listing the ways the economy had exceeded expectations.
He also reported that on International Women’s Day, that there is now a higher proportion of women in work than ever before.
It wasn’t all good news though, he went on to explain “that our job is not done” highlighting, amongst other things, the issues young people have when they leave education, high levels of debt and low productivity.
In a moment of self-deprecation, Mr Hammond then turned to his “spreadsheet bit”, as he outlined the key economic statistics published by the Office for Budget Responsibility (OBR).
Mr Hammond reported that the OBR has raised its growth predictions.
In 2017 it expects the economy to grow by 2%, rather than the 1.4% previously predicted.
In 2018 growth is expected to slow to 1.6%, before rising to 1.7% in 2019, 1.9% in 2020 and 2% in 2021.
The OBR has also said that that annual borrowing in 2016/17 will be £51.7 billion; £16.4 billion lower than forecast.
The figure will rise to £58.3 billion in the following year and then drop to, £40.6 billion in 2018/19, £21.4 billion in 2019/20 and £20.6 billion in 2020/21.
The Chancellor emphasised that borrowing was still too high, with the country in debt to the tune of nearly £1.6 trillion. However, debt is expected to peak at 88.8% of economic output next year and will then start to fall.
Inflation, the enemy of savers and those on fixed incomes, will peak at 2.4% this year.
It is then predicted to fall to 2.3% in 2018 and 2% in 2019.
That means, for the next two years at least, inflation will remain higher than the Bank of England’s 2% target.
Following protests from the business community about the large increases some have seen in their rates, the Chancellor announced that:
- No business losing small rate relief will see their bill increase by more than £50 per month; with a further cap on subsequent increases
- Pubs with a turnover of less than £100,000 rateable value, will get a £1,000 discount on their rate bill in 2017
- Local authorities will get access to a £300 million fund to help special cases of hardship
The Chancellor confirmed that since 2010, £140 billion has been raised by tackling tax-avoidance.
A further clampdown will include action to stop businesses converting capital losses into trading losses, tackle abuse of foreign pension schemes and introduce UK VAT on roaming telecoms services outside the EU.
These measures are expected to raise an additional £820 million.
It was confirmed that Corporation Tax will fall to 17% by 2020.
Mr Hammond said: “The difference in National Insurance Contributions is no longer justified by the difference in benefits entitlement. Such dramatically different treatment of two people earning essentially the same undermines the fairness of the tax system.”
The Chancellor explained that an employee earning £32,000 per year would attract National Insurance contributions, between him and his employer, £6,170. However, a self-employed person, earning the same, would only pay £2,300.
To address this unfairness, he therefore confirmed that Class 2 National Insurance Contributions, a flat rate paid by the self-employed who have profits more than £5,965, will be abolished.
He then went further to confirm Class 4 National Insurance Contributions, paid by self-employed people with profits over £8,060, will rise from 9% to 10% in 2018 and 11% in 2019.
He confirmed: “The combination of the abolition of Class 2 and the Class 4 increases I have announced today, raises a net £145 million pounds a year for our public services by 2021/22, an average of around 60p a week per self-employed person in this country.”
People working through limited companies and investors
The tax-free dividend allowance, which was introduced by George Osborne and set at £5,000, with a tax rate of 7.5% over this allowance, will be reduced to £2,000 from April 2018.
The previously announced rise to £11,500 was confirmed.
Mr Hammond also confirmed that the threshold will increase to £12,500 and that workers would not start to pay 40% tax until the earn £50,000 by 2020.
The Chancellor confirmed that the National Savings & Investment (NS&I) bond will be launched in April 2017 and pay 2.2% gross per annum.
He didn’t though, make any announcement that the maximum which can be invested will rise above the £3,000 figure previously announced.
It was confirmed that the tax-free childcare policy will launch next month for working families with children under 12, providing up to £2,000 a year for each child to help with childcare costs. From September, the childcare offer will double, from 15 to 30 hours a week for working families with 3 and 4 year olds, worth up to £5,000 for each child. will be able to claim 30 hours of free childcare.
Alcohol and tobacco
Mr Hammond announced there would be no increases, on top of those previously announced, on alcohol or tobacco.
Education formed a large part of Mr Hammond’s speech. He announced that:
- The government will allow the creation of selective schools and 100 new free schools
- Universities would be asked to sponsor free schools
- Barriers to the setting up of faith schools will be removed
- A new T-Level qualification would be introduced to promote technical education and every student will be entitled to a three month work placement
- Training for 16-19 year olds will increase by over 50%
- All pupils in selective education, who receive free school meals, will also, in the future, get free transport to and from school
These measures came after the Prime Minister’s announcement that £5 million would be invested in internships, helping people back into work following a career break.
Care of the elderly
The Chancellor announced that social care in England would receive an additional £2 billion over the next three years; the first £1 billion will be made available in 2017/18
He was however keen to point out that social care needed a longer-term strategy and the government will set out the options for funding care in a Green Paper later in the year. He did however confirm that the options would not include a “death tax”.
In what was low key Budget, apart from the numerous gags, and unlike his predecessor, Mr Hammond failed to pull any rabbits from his fiscal hat.
It was also the first Budget in recent memory to make no major changes to the UK pension system.
Remember though, we have two Budgets this year, with another in the Autumn, the measures announced then will be particularly interesting, especially in relation to social care.