On Wednesday 8 March 2017, the Chancellor, Philip Hammond presented the Spring Budget to the House of Commons. You can watch the full statement here, and read about the key proposals below.
Office for Budget Responsibility Key Forecasts:
The UK economy is forecast to grow by 2% in 2017 which is an increase from 1.4% which was forecast in the Autumn Statement 2016.
Real wages are forecast to rise in every year to 2020-21, and inflation is forecast to shrink to 2% by 2019.
The budget deficit is forecast to fall to 2.6% of GDP in 2016-17 and to 0.7% in 2020-21 – which will be the lowest amount in over twenty years.
Debt as a proportion of national income is forecast to begin falling in 2018-19 – the first fall since 2001.
Key Tax and Income Figures:
Personal Allowance – The personal allowance threshold for income tax will rise to £11,500 from April 2017, and will further increase to £12,500 by 2020. This means the amount that someone can earn tax-free in 2017-2018 will be over 75% higher than in 2010. Raising the personal allowance for basic-rate and higher-rate taxpayers will cut income tax for 31 million people across the UK.
National Living Wage – the NLW will increase to £7.50 in April providing an income boost of £500 this year for a full-time worker.
Combined, these measures will benefit over 29 million people in the UK and will mean that a typical basic-rate taxpayer will pay £1,000 less income tax than they would have done in 2010.
Corporation Tax - In 2010, corporation tax was 28% but from April 2017, the budget proposes that it will fall to 19%, and in 2020, it will be reduced again to 17%. The proposed rate of 19% this year will be the lowest rate of corporation tax for any country in the G20 group.
Reduction of tax-free Dividend Allowance:
Currently those receiving income from dividends will have a tax-free allowance of £5,000. From April 2018, the Government has proposed that this allowance will be reduced to £2,000. This would reduce the tax differential between the employed and self-employed on the one hand, and those working through a company on the other. It would also ensure that support for investors is more effectively targeted and will make the amount of income they can receive tax-free fairer and more affordable.
The latest estimates of dividend income published by HMRC suggests that over 60% of dividend income is received by those with a personal income of £50,000 per year or more. Indeed, the Chancellor stated that around half the people who will be affected by this measure are directors and shareholders of private companies with the other 50% being investors in shares with holdings worth over £50,000.
This would mean that from April 2018:
- A basic-rate tax payer (i.e. 20% income tax on earnings over £11,500) who receives £5,000 in additional dividend income will have to pay £225 on tax for their dividends from April 2018.
- A higher-rate tax payer (i.e. 40% income tax on earnings over £32,001) who receives £5,000 in additional dividend income will have to pay £975 on tax for their dividends.
In reality, if we take into account the increased ISA allowance (rising to £20,000 this year) and further increases to tax-free personal allowance, a £2,000 dividend allowance will continue to mean that over 80% of investors will pay no dividend tax.
Business rates relief:
At the Budget in 2016, the government announced reductions in business rates relief which were worth almost £9 billion over the course of this Parliament. This included permanently doubling Small Business Rates Relief to 100% and extending the thresholds of this relief to ensure that 600,000 businesses will not pay business rates again.
The government listened to the concerns of businesses ahead of the business rates revaluation which will take effect from April 2017. In light of this, the Government committed £3.6 billion transitional relief announced last November, and will now provide an additional £435 million for further support to businesses who might face increases in bills. This includes:
- Any business coming out of Small Business Rate Relief will see their bill increase by a capped amount of £50 over the next year. Subsequent increases will be capped at the transitional relief cap, or £50 a month – whichever is higher.
- To better support local pubs in the community, there will be a £1,000 discount on business rates bills in 2017 for all pubs with a Rateable Value of less than £100,000 which equates to 90% of all pubs.
Local Government will be fully compensated for any loss in income due to the revaluation measures, and will be provided with a further £300 million fund to provide discretionary relief to individual cases who are hit the hardest in their areas.
Key Spends announcements:
£300 million to support 1,000 new PhD places and fellowships focused on STEM subjects.
£690 million competition for local authorities across England to tackle urban congestion.
Social Care – the Government has announced it will provide an additional grant of £2 billion to social care funding in England with £1 billion to be made available over 2017-2018. This will help ensure councils can take immediate action and work with NHS representatives in the CCGs to consider how the funding can be best spent and to ensure that best practice is implemented. This is in addition to the £7 billion extra spending power to the system over the next three years and a further £100 million to be made available immediately for up to 100 new triage projects in A&E in England in time for Winter 2017.
National Insurance Contributions:
They say a lot can change in politics over the course of a week! Since the Budget on 8 March, you will have seen the news that the Chancellor has since decided not to proceed with reform proposals to the Class 4 NIC measures. You might wish to watch the Chancellor’s statement to the House by following the link here:
The Chancellor will consult more widely over the summer on options to address the difference in benefit entitlement between employed and self-employed people and I hope you will take the time to contribute your thoughts to the consultation when it opens. Once these pieces of work are complete, I understand that the Government will then set out how it intends to take forward any reform proposals in this area.