Philip Hammond’s first, and last, Spring Budget was big on laughs (at Jeremy Corbyn’s expense) but, as widely predicted, small on anything else. At a time of economic uncertainty with Brexit, now was perhaps not the time for anything radical, which was clearly the Chancellor’s view.
The Office for Budget Responsibility (OBR) upgraded the growth forecast for 2016/17 from 1.4% to 2.0% and Mr Hammond took great satisfaction in pointing out the UK’s growth is stronger than USA, Japan and France and is second only to Germany. The OBR also predicts a slowdown in growth for 2017/18 of 1.6%, rising steadily until it hits 2.0% again in 2021/22. A more conservative view on the economy’s growth prospects is also not particularly surprising.
Annual borrowing is to be £51.7bn in 2016/17, £16.4bn lower than forecast, with forecasts of an increase to £58.3bn in 2017/18, £40.6bn in 2018/19, £21.4bn in 2019/20 and £20.6bn in 2020/21.
Public sector net borrowing forecast is to fall from 3.8% of GDP last year to 2.6% this year, then 2.9%, 1.9%, 1% and 0.9% in subsequent years, reaching 0.7% in 2020/21.
Social Care, which was much talked about in the lead up to the Budget, was given a boost with £2bn extra funding over the next three years, with £1bn available in 2017/18 to allow local authorities to create new care packages. With an extra two million over 75’s in ten years’ time, funding was necessary but the question is whether or not this amount is sufficient.
It is hoped that the funding for Social Care will reduce the pressure on the NHS, which received a further £325m investment for the local Sustainability and Transformation Plans and £100m to Accident and Emergency departments to reduce waiting times.
Investment was also announced for education and skills, with maintenance loans for those attending technical courses at National Colleges and Institutes of Technology, like those available for University students. It was also announced that 110 new free schools would be created, on top of the 500 already announced. Free transport will be available for children entitled to free school meals, to their closest selective school (between two and 15 miles away).
The question is how to pay for these measures? National insurance for self-employed individuals will increase by 1% to 10% in 2018 and to 11% in 2019, but there is to be no increase to the rate of 2% that applies above the basic rate band, which allowed many of the self-employed to breathe a sigh of relief
The dividend allowance of £5,000, only introduced in April 2016, is to be reduced to £2,000, to counter the supposed tax benefits of operating as a limited company, from 2018. This is predicted to raise over £800m per year once introduced. Despite this, there are still opportunities to structure remuneration efficiently.
The personal allowance is to increase to £11,500 and the higher rate band to £45,000, all part of the government’s commitment to hit £12,500 and £50,000 respectively by the end of parliament.
There was some relief for smaller businesses, with a deferral in their Making Tax Digital requirements for a year, meaning those with turnover under the VAT threshold don’t have to worry about it until 2019. It seems as though the exemption limit of £10,000 turnover will, however, remain in place.
Businesses also were helped with £435m to support those affected by the business rates relief revaluation. Any business coming out of small business rates relief will pay no more than £600 extra in business rates than they did in 2016/17, with a further £300m provided to local authorities for discretionary relief.
So pretty much a “let’s not rock the boat” Budget, until some clarity is achieved on what Brexit will look like (we may have a couple more of these then!). With a second Budget due in November as we transition to Autumn Budget, it may be that Mr Hammond spends more time on his “Corbyn joke book” than he does on fiddling with the UK’s economy.