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Deal or no dealWednesday 31st October 2018
The Chancellor of the Exchequer announced it as a Budget for the strivers, grafters and carers. A Budget ‘unashamedly’ for the British public that paved the way for a brighter future post-Brexit and aimed to ‘help working people keep more of their money’.
Not so, retorted Jeremy Corbyn: it was a budget of half measures and quick fixes – ‘austerity is not ending – because austerity has failed’, he said. He gave the Chancellor something of a roasting over much of the content and went on to comment that the deficit looked smaller because chunks of it had been moved into other people’s budget figures. Was this then a case of smoke and mirrors once again?
Initially, Chancellor Philip Hammond seemed only intent on praising the British public for their ‘hard work’ later announcing that ‘austerity is coming to an end but discipline will remain’. Ever-cautious, he found himself in a particularly tight corner for this year’s Budget – politically and fiscally. With a fractious party and febrile electorate to appease, Theresa May’s conference announcement that ‘the people need to hear that austerity is over’ was probably the last thing he wanted to hear.
Particularly as in all honesty he couldn’t be firm about anything. Announcements made now could quite possibly come unstuck once the country had crossed the Brexit Rubicon. In fact Philip Hammond was keen to impress that he was prepared to adapt his approach depending on the outcome of the Brexit negotiations. Which would most likely mean a whole new Budget in the spring.
He had some wriggle room, provided by better-than-forecast government spending figures with the Office for Budget Responsibility (OBR) admitting, prior to the Budget, that it had probably been too pessimistic – perhaps that Eeyore style is catching? And there was initially much speculation on what he might do with that ‘fiscal headroom’. However, in their initial comments following the Chancellor’s announcements the OBR noted that the government had already spent its so-called fiscal windfall – in June with the announcement that there would be £20billion extra funding for the NHS, which was expanded on today – leaving the finances pretty much as they were at the spring statement. According to the OBR, if you add in the policy announcements of today, the deficit remains largely unchanged in 2022-23.
The OBR have also cautioned that, as the Treasury was late in providing them with all the detail regarding the precise changes to Universal Credit, they have been unable to check if the figures add up. This means that the estimated impact on borrowing figures might change once they have properly worked through the detail.
It’s also worth noting that in a further comment the OBR has said that, although the Chancellor said if there was a no-deal departure from the EU the UK could manage: ‘a disorderly one could have severe short-term implications for the economy, the exchange rate, asset prices and the public finances. The scale would be hard to predict, given the lack of precedent’.
So what was in the Budget that would affect our financial planning? Directly, not a great deal but there were a couple of key announcements – notably that the previously scheduled increases to the income tax personal allowance and higher rate band would occur from April 2019 rather than 2020 (to £12,500 and £50,000 respectively).
In fact many of the announcements had already been made – including the one about a commemorative 50p Brexit coin but he didn’t mention that in the speech. There was no mention of pensions, despite increasing speculation that pension tax relief would be an easy gain for the government’s coffers – presumably with everything else the Chancellor had no stomach for the reaction to that. Schools received additional funding, strangely though this was less than the amount ear-marked for potholes. And for much of the detail on various tax measures, whether regarding tax avoidance or tax payments by tech giants, we were directed to the Budget red book.
Here are the bullet point announcements:
- Personal income tax allowance to rise from £11,850 to £12,500 in April 2019. Higher rate income tax threshold to rise from £46,350 to £50,000 in April 2019. This is a year earlier for both.
- National Living Wage increasing by 4.9% from £7.83 to £8.21 per hour from April 2019.
- Threshold for VAT registration to remain unchanged for a further two years. And reforms to the IR35 payroll rules to be extended to large and medium-sized firms in the private sector, from 2020.
- Entrepreneurs relief retained but minimum qualifying period extended from one to two years.
- Lettings relief to be restricted to properties where the owner is in shared occupancy with the tenant, from 2020.
- Employment Allowance to be targeted at small and medium businesses with an Employer NICs bill under £100,000 a year, from 2020.
- Beer, cider and spirits duty to be frozen.
- Duties on wine to rise in line with RPI inflation.
- White ciders to be taxed at a new higher rate.
- Tobacco continues to rise with inflation plus 2%.
- Fuel duty to be frozen for the ninth year in a row.
- Remote Gaming Duty to increase to 21% for online gambling for ‘fixed odds betting’, from 2019.
- Annual Investment Allowance to be increased from £200,000 to £1million for two years.
- Start-Up Loans funding to be extended to 2021 and contribution of small companies to apprenticeship levy to be reduced from 10% to 5%.
- Business rates for firms with a rateable value of £51,000 or less to be cut by a third over two years.
- £900million in business rates relief for small businesses and £650million to rejuvenate high streets.
- New 100% mandatory business rates relief for all lavatories made available to the public, whether publicly or privately owned.
- Private Finance Initiatives to be abolished. Existing contracts will be honoured. New ‘centre of excellence’ to manage existing deals.
- New 2% digital services tax on UK revenues of tech giants, from April 2020. Profitable companies with global sales of more than £500million will be liable
- 20-36 years railcard will be available across the network by the end of this year.
- Air passenger duty to rise in line with inflation, from 2020.
- New tax on non-recyclable plastics.
- No tax on takeaway coffee cups but this will be reconsidered if measures introduced by the sector makes insufficient progress.
- Universal Credit – initiative to receive an extra £1billion over five years to help claimants move to the new system. And a further £1.7billion each year to help taper rates.
- NHS – confirmed a £20.5billion real terms increase over the next five years. The NHS 10-year plan will include a new mental health crisis service with a comprehensive mental health centre in every part of the country.
- Extra £700million for care of the elderly and those with disabilities.
- Air Ambulance to receive a boost of £10million.
- Schools to receive £400million in funding.
- £420million to be made immediately available to local highway authorities to repair potholes.
- E-passport gates to be extended to travellers from the US, Canada, NZ, Australia and Japan.
- Extra £160million for counter-terrorism police.
- An extra £1billion for armed forces, for cyber capabilities and the UK’s new nuclear submarine programme.
- £10million for mental health care for veterans to mark the centenary of the Armistice.
- £1.7million in Holocaust education programmes to mark the 75th anniversary of the liberation of the Bergen-Belsen concentration camp.
- Extra £500million for Brexit preparations.