Chancellor of the Exchequer, Philip Hammond had the unenviable task of delivering his Budget today. On the one-hand, he had to present weaker economic data, whilst at the same time prepare the UK for Brexit and address some of the longer term structural problems with the UK economy.
Economic Forecasts Downgraded
The Office of Budget Responsibility (OBR) has reduced the UK economic growth forecast for 2017 from 2% to 1.5%. Forecasts were also reduced for future years by approx. 0.5% pa.
Public Finances Under Pressure
Mr Hammond signalled his determination to maintain a grip on public finances with a commitment to run a budget deficit of less than 2% of GDP by 2020/21. However, this represents a considerable slippage from the Conservatives original target of a budget surplus by the end of the Parliament. OBR forecasts indicate that debt as a proportion of national income should peak in 2017/18. Despite pressure on public finances, there was an extra £1.6b for the NHS and £350m over the winter (£350m was the weekly saving claimed by Brexit campaigners in the Referendum campaign in 2016).
Productivity Growth Weak
For several years the UK has struggled to improve productivity growth. To help address this weakness, Hammond focused his Budget on technological advancement. The national productivity investment fund is now to last a year longer than expected and increased to £31b from £23b. The Chancellor also announced his backing for the northern powerhouse and Midlands engine initiatives, as well as £300m for the High Speed 2 project to support the north of England. There was also a package of measures to boost education – £42m for teacher training and £177m for maths teaching.
Brexit
Whilst there was scant detail regarding progress on negotiations, Mr Hammond set aside an extra £3bn for Brexit preparation and indicated that the government is ready to allocate further sums, if and when needed.
Housing
The UK housing market has attracted criticism as first-time buyers struggle to get on the housing ladder, a lack of affordable homes for key workers and a shortage of social housing. Accordingly, the Chancellor announced that over the next five years, the government will commit a total of at least £44bn of capital funding, loans and guarantees to support the UK housing market. In addition, there will be no stamp duty for first-time buyers on property up to £300,000. To discourage landlords from leaving properties empty, local authorities are to be permitted to charge double council tax on empty properties.
Personal Taxes
The personal allowance is set to rise to £11,850 from 5th April 2018 from £11,500 currently. Th higher rate tax threshold will increase to £46,350 from 5th April 2018, up from £45,000 currently.
Social Inequality
The Universal Credit benefit system is being reformed with an additional £1.5b to reduce waiting times for applicants and address recent criticism. The National living wage will rise from £7.50ph to £7.83ph from April 2018.
Business Taxes
Mr Hammond announced that business rates will be indexed by CPI rather than RPI inflation, which should save businesses money over time.
VAT has been criticised for distorting business activity with large numbers of small businesses reluctant for their turnover to exceed the VAT registration threshold. Accordingly, Mr Hammond confirmed that whilst the VAT threshold will remain at £85,000 for the next 2 years, it could potentially be reduced or reformed in future.
Tax Avoidance
Income tax will be charged on royalties paid offshore on UK based sales from 5 April 2019.
Pensions
To the relief of the pensions industry, there were no significant announcements.
Cars
To help accelerate the roll-out of electrical vehicles, the Chancellor announced £400m for electric car charging infrastructure. On the other hand, diesel cars are to be taxed more heavily.
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