In the post Brexit environment and with the next general election up to 3 years away, Phillip Hammond could, in his first budget, afford to disappoint those expecting the economy to receive a fiscal boost from new spending initiatives.
The circumspect tone of the 2017 budget seemed to blend with the caution most commentators express regarding the prospects for the UK economy. The absence of clear exit terms as the UK transitions away from EU membership into an unknown and uncertain trading entity, make his caution understandable. Perhaps he is also frustrated by the lack of a clear post Brexit agenda.
Some things are known
It is said the only certainties in life are death and taxes and so the good news in Phillip Hammond’s 2017 budget was that no changes to inheritance tax were proposed.
For the living the news wasn’t quite so good, as the chancellor made a series of changes to National Insurance (NI) rates for the self-employed and cut the tax free dividend allowance.
After a series of budgets that focused on reducing benefits, attention focused on controversial changes in the rates of National Insurance paid by the self- employed. Whilst this group do pay lower rates of NI than those employed, we should bear in mind that the 2.5m plus people affected do not receive statutory sick leave or holiday pay. Additionally self-employed parents are unable to claim vouchers for child care and do not enjoy the perks of the employed.
Closing the gap in the rates of NI paid between the employed and self-employed, will mean the exchequer shrinks the £5bn it loses each year due to the differential in NI rates between the two classes of employment.
We know that work pays, but this group will need to consider whether the administrative burden many self-employed occupations carry, will be justified as the higher NI charges take effect in 2017/18 and 2018/19*.
High fives for savers
The impact of personal taxation depends on the sources of your income. In spite of the cut to the tax free allowance on dividends, those who are retired and have accrued capital in ISA’s, are likely to see a lower proportion of their income paid away in tax than their employed, or self-employed brethren.
An ISA saver with £500,000 in ISA’s could enjoy an income free from personal taxes of around £20,000 pa. With a personal allowance of £11,500 (in tax year 2017/18) with which to offset against other income, our saver could source an income free from tax of £31,500. This is equivalent to approximately £41,000 of earned income.
Add in the residual value of the tax free dividend allowance (£2,000 as of 17/18) and £33,500 of tax free income becomes available. The benefit is doubled if your partner has also saved into ISA’s and has a source of non-savings income.
The chancellor also steered away from making changes to state benefits for the retired. Some commentators now see these benefits as too generous. For the first time, pensioners, according to the resolution foundation, now enjoy more disposable income than those working.
The savings environment supports the merits of thrift, but is it fair to those in work? It depends on which side of the divide you sit.
The merits of technology
It is a little too late for some, however the news in the budget that the government is to spend £500m on improving technical education for 16-19 year olds, is a bold attempt to improve the status of tech qualifications in the UK and is certainly a step in the right direction for the UK to build talent to compete in global markets.
The initiative will also help younger people in the UK overcome the relentless advance of robots across the workplace, much better you are able to programme them rather than work for them!
One step forward and one back for publicans
The Chancellor made a half-hearted attempt to cheer one sector of the UK economy giving 9 out of 10 publicans a £1,000 tax discount this year, but then quashed any enthusiasm for the measure by adding an extra 2p of duty on a pint.
All in all, we feel this was an uninspired, yet controversial (they often are) budget, but perhaps sensible given the many imponderables the UK economy is facing. It was also disappointing for those looking to the government to support and drive spending on green infrastructure and address an ailing NHS.
On this occasion we should perhaps be thankful that Phillip Hammond was caught between a rock and a hard place and not a rock fall.
* In commons statement on 16th March 2017 the chancellor told MP’s “There will be no National Insurance rate increases in this parliament.”
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