In the face of allegedly weak opposition, and with economic figures from the Office for Budget Responsibility looking rosier than expected, Chancellor Philip Hammond may have been bargaining for a relatively serene Spring Budget debut. But, while it is difficult to please everyone, the backlash and fallout from his Wednesday address at the despatch box has come from all angles – even within his own party – and it’s fair to say he’s hit the headlines for the wrong reasons.
With many Budget speeches, policies which are announced are often half-baked, or will never see the light of day at all. In fact, it generally feels like 90 per cent of what is said will have little effect one way or the other at household level. But that said, I thought I’d pick the bones of the 2017 Spring Budget now that the dust has settled, and dissect the policy changes which are most likely to affect you.
The biggest headline grabber was the announcements that Class 4 National Insurance contributions will be rising to 10 per cent next April, and increasing further still to 11 per cent in April 2019. But the other point of controversy was that the tax-free dividend allowance will be slashed from £5,000 to £2,000.
In short, this was a grisly Budget for the self-employed, who will likely be hit by both of the above. The rationale was somewhat understandable. The self-employed now enjoy greater access to the state pension, while there is little doubt that, in some cases, the option of self employment can present an easy (and sometimes shady) means of reducing tax liability. But at a time when the economy faces uncertainty, the dynamism the self-employed bring to the economy will be crucial, and it seems ill-advised to mock the hand that, ultimately, will feed.
Investors, savers and pensioners
Investors and those in retirement will also be hit by the cut to the tax-free dividend allowance. In fact, it is likely to affect over 2 million individuals, who, on overage will have to cough up an extra £315 in tax each year. But, for those with larger portfolios, the damage could be in the thousands.
The other point of concern for some pensioners will be the introduction of a new sliding scale on probate fees for estates worth more than £50,000. Costs are currently capped at £215, but the new sliding scale will see exposure to this cost rise significantly, and many critics have labelled it an increase to ‘death tax’.
Some relief for savers was the confirmation of the new NS&I savings bond, which will offer a rate of 2.2 per cent if you are willing to tie up your money for three years. It will be available for a 12-month period from April.
It wasn’t all bad news, and there was the confirmation that the personal allowance will be increasing to £11,500 for the next tax year. This figure will also be rising to £12,500 by the conclusion of the parliament. The other point of interest was that the ISA allowance will be rising to an impressive £20,000 from April – an increase of nearly £5,000 from this past financial year. This is good news for savers and investors, and with new categories of ISA offering better rates, it could be an ideal work around for those who suffer from the cut to the tax-free dividend allowance.
Other cost increases
The Chancellor struck a somewhat upbeat, even light-hearted tone when addressing the House of Commons. But the reality is that, for families already dealing with rising inflation, there isn’t a whole lot to laugh about. And the following will only squeeze budgets further:
- Increase in car insurance premium tax, which will add about £110 to household bills each year
- Alcohol duty increases: 2p more for a pint of beer, 8p on a bottle of wine, 10p on champagne/prosecco and 36p for a bottle of whiskey
- Cigarettes will be going up 35p a packet, with a new minimum duty of £5.37
- An extra 20 per cent for roaming outside Europe from August
All in all, it re-emphasised that, despite better-than-expected figures for Government borrowing, the public finances are still in a perilous state, and we as households are in for challenging times. All we can do are the little things: switch utility providers, services high-interest debts, look for decent savings rates and live within our means. Every little helps!
This is a collaborative post.