Spring Budget 2017

Various rumours were swirling around Westminster in the days before Philip Hammond rose to deliver his first Budget – confirmed as the last time a major fiscal statement will be made in the spring.

The Chancellor, still scarcely nine months in the job, has a reputation as a cautious man and in advance many expected that much of today’s speech would be laying the ground for the Prime Minister to begin formal negotiations for the UK to leave the EU.

That said, the day before Mr Hammond stood up to address the Commons, the Organisation for Economic Co-operation and Development (OECD) upgraded Britain’s growth forecast, which inevitably raised questions about whether there was yet room for manoeuvre.

Would the Government prove willing to make money available to shore up struggling services or answer the growing criticism over business rates reforms? Would it be tax rises or surprise giveaways bothering the headline writers?

Economic overview

In his opening statement, the Chancellor said that the resilience of the UK economy had continued to defy expectations and the country had enjoyed robust growth. Indeed, he noted that last year Britain’s growth was behind only Germany’s among the world’s biggest economies.

Mr Hammond confirmed that the Office for Budget Responsibility (OBR) had raised its growth forecasts for the year, with the economy now projected to grow by 2 per cent in 2017, compared with the previous estimate of 1.4 per cent. The independent body suggests growth next year will be 1.6 per cent and in 2019, 1.7 per cent.

But he made clear that there was no place for complacency in the current climate, acknowledging that levels of debt were still too high (peaking at 88.8 per cent next year), productivity needs to be improved and many families up and down the country continued to feel the pinch almost a decade on from the financial crash.

OBR figures also suggest that inflation will peak at 2.4 per cent this year, with expectations that it will drop off as we approach the end of the decade.

Trying to strike a balance between prudence and positivity, the Chancellor told MPs that the Budget presented an opportunity to put money into public services while ensuring that the nation continued to live within its means. Crucially, he said, the tax and spending plans would form the bedrock of the EU negotiations ahead.


Business and enterprise

Following several weeks of sustained criticism over the burden that business rates changes would place on many enterprises, Mr Hammond announced a three-point plan which he said would amount to an additional £435million support.

Any firm losing existing rate relief will be guaranteed that their bill will not rise by more than £50 a month next year. In addition, there will be a £1,000 discount for pubs with a rateable value of less than £100,000 and the creation of a £300million fund which will enable local authorities to offer discretional relief.

Business rates revaluation takes effect in England from April 2017, which will see many businesses facing significant increases in bills from the English business rates system.

The Chancellor made clear that a fair tax system was one of the best ways to make Britain a top destination for businesses. He reiterated the commitment made by his predecessor, George Osborne, to bring the Corporation Tax rate down to 17 per cent by 2020. A reduction to 19 per cent will take effect from next month.

A measure not mentioned directly in his speech, but that will have an effect on some businesses is the change to VAT registration from next month. According to the Budget papers the threshold will rise from £83,000 to £85,000, while the deregistration threshold will rise from £81,000 to £83,000.


Making Tax Digital

The government has introduced quarterly tax reporting for all businesses using the following criteria:

  • unincorporated businesses and landlords with turnover above the VAT threshold effective from April 2018
  • unincorporated businesses and landlords with turnover under the VAT threshold effective from April 2019
  • incorporated businesses effective from April 2020

This will be the most significant change in legislation of its kind since PAYE was implemented.


Transport and infrastructure

Acknowledging that congestion was an issue in large parts of the country, Mr Hammond said that some £690million would be made available to tackle traffic problems in urban areas and improve public transport.

£90 million will be available to tackle transport pinch points across the North, with the News and Star newspaper hoping that this will include road improvement work in Cumbria.

The Chancellor also announced a £270million investment to launch the Industrial Strategy Challenge Fund. This will help to keep Britain at the forefront of research into biotechnology, robotic systems and driverless cars. There will also be £90 million for 1,000 new PhD places.

An additional £200million will be ploughed into projects to help secure private sector investment in full-fibre broadband networks and £16million put aside for a 5G mobile technology hub.


Personal tax

Controversially, it was revealed that National Insurance contributions will rise for the self-employed.

Under proposals, Class 2 NICs will be abolished from 2018. Class 4 NICs will increase from 9 per cent to 10 per cent next April and to 11 per cent in 2019. It should be noted that only a self-employed individual with profits exceeding £16,250 will be affected by the change.

Trying to defend what will undoubtedly be a contentious move, the Chancellor said that the “unfair discrepancy” in contributions between different groups of workers could no longer be justified. Critics have suggested the move has broken with a commitment in the 2015 manifesto.

The Chancellor indicated that a report on taxation of the self-employed and company directors will be released in the summer and there are indications that contributions could be brought in line with those applied to employees.

In more positive news, the personal allowance will rise to £11,500 – the seventh consecutive increase.

The Chancellor reiterated the Government’s previous commitment to increase the allowance to £12,500 and the higher rate threshold to £50,000 by the end of the Parliament in 2020.

There was a boost for road users with confirmation that vehicle excise duty for hauliers and the HGV road user levy will both be frozen.

The Chancellor also announced there would be no change to the previous planned duties on alcohol and tobacco. There will, however, be a new minimum excise duty on cigarettes based on a £7.35 packet price.

It should also be noted that, as previously agreed in the last Autumn Statement, Insurance premium tax will rise from 10 to 12 per cent as of June.


Pensions and savings

In what is likely to be an unpopular move, Mr Hammond confirmed that the tax-free dividend allowance for shareholders would be cut from £5,000 to £2,000 from April 2018. Currently dividend income above the £5,000 threshold is taxed at 7.5 per cent for basic-rate taxpayers.

The Treasury said that the change would “ensure that support for investors is more effectively targeted”, but critics fear it will further hurt entrepreneurs in particular director shareholders.

There was a reminder that the Lifetime ISA would become available on April 6th. This will enable younger adults [18 to 40-year-olds] to save up to £4,000 a year and receive a bonus of up to £1,000 annually on the contributions. Funds can be withdrawn tax free to put towards a first home or saved until a person turns 60.

It had previously been agreed that the ISA allowance will rise to £20,000 from April 6th.


Public spending

Mr Hammond had faced some pressure from his own MPs to plough more revenue into public services.

In an attempt to address criticism that institutions were buckling beneath the strain, the Chancellor confirmed an extra £216million for school maintenance and £320million funding for an additional 140 free schools (on top of the 500 previously announced). There has been some controversy, however, that some of these are set to be selective.

In an attempt to address the mounting crisis in social care, Mr Hammond announced there would be an extra £2billion in funding over the course of the next three years. A Green Paper will be published later this year with a view to drawing up a long-term funding plan.

The NHS itself will receive a £425 million investment over the course of the next three years.

Tax-free childcare will provide up to £2,000 per year in childcare support for each child under the age of 12. In additional, working parents in England will be able to apply for an additional 15 hours’ free childcare for three and four-year-olds (thus bringing the total to 30 hours a week.)

There will also be £500million investment in technical education for the nation’s 16 to 19-year-olds.


Tax evasion, avoidance and aggressive tax planning

The Chancellor said that a fair tax system required people to pay their dues and a series of measures to curb abuses of the system are expected to raise an additional £820million for the Treasury.

A raft of measures to tackle non-compliance were announced, including preventing businesses converting capital losses into trading losses, curbing abuse of foreign pension schemes, introducing UK VAT on roaming telecoms services and imposing new financial penalties for professionals who help facilitate a tax avoidance arrangement that is later defeated by HM Revenue & Customs.


Summary

In his closing remarks, Mr Hammond struck an optimistic tone. Whatever the uncertainties surrounding Brexit, he told MPs that the UK should be confident that our best days lie ahead of us.

It would be fair to say that the Budget was not strewn with giveaways, but the Chancellor did try and take the sting out of some of the main criticisms levelled at the Government in recent months – including its handling of business rates reform and the sluggish response to a mounting care crisis.

That said he is also likely to have stirred up fresh controversies and the decision to increase National Insurance for the self-employed is perhaps evidence that in the current climate tough choices will still have to be made.


View official documents and full Statement