The Chancellor, Philip Hammond, delivered his Spring Budget today. The Budget had a strong emphasis on the economic forecast, announcing and confirming measures to ease business rates, raise productivity in the UK and reduce Corporation Tax.
Key Points from the Spring Budget 2017
Despite Brexit fears, the UK’s economic growth picked up through 2016. As a result of this, the Office for Budget Responsibility has now upgraded its forecast for growth this year from 1.4% to 2%. The Chancellor stated that GDP grew by 1.8% over the year as a whole and employment reached a new record high of 31.8 million people. Mr Hammond identified Britain’s growth in 2016 second only to Germany amongst the major advanced economies.
Savings and Personal Allowance
This Budget emphasised the Government’s commitment to supporting savers, stating the recent pension reforms mean that 98% of adults now pay no tax on their savings.
The Chancellor also reaffirmed an increase in the amount savers can add tax-free into an ISA account, from £15,240 to £20,000 from 6 April 2017. The Budget also highlighted the launch of the new Lifetime ISA for those aged between 18-40, which allows savings of up to £4,000 each year with a bonus of up to £1,000 a year on these contributions.
The amount you can earn before paying Income Tax (the Personal Allowance) will also go up to £11,500 this year, with the promise this will rise again to £12,500 by 2020-21.
Business Rates and Corporation Tax
In the Budget, the Chancellor stated “we cannot abolish business rates as they will fund Local Government.” However, he specified that he wants the business rate system to be fairer. Mr Hammond set out three features to address the hard cases the revaluation had raised:
- Any business coming out of a small business rate relief will benefit from rates not increasing by more than £50 a month
- There will be a £1,000 discount on business rate bills for all pubs with rateable value of less than £100,000
- A £300 million fund will be made available to councils to allow them to provide discretional relief
Following on from the Autumn Statement, the Government will cut the rate of Corporation Tax to 19% from April this year and then again to 17% in 2020. Mr Hammond used the Budget to explain this would allow the UK to retain a highly-competitive business tax regime and highlight the UK as one of the most open economies in the world.
The Chancellor announced a significant cut in the tax-free Dividend Allowance from £5,000 to £2,000 from April 2018. The cuts will mean company directors and shareholders will see a dramatic fall in the amount of dividend they receive. Labelling the system as unfair, Mr Hammond said “I have decided to address the unfairness and at the same time raise some much needed revenue.”
In a bid to “reduce the tap in rates paid by the self-employed and employees, to reflect the introduction of the new State Pension to which the self-employed have the same access” Mr Mr Hammond announced the rate of Class 4 National Insurance Contributions will increase from 9% to 10% in April 2018 and then to 11% in April 2019.
Defending the increase the Chancellor argued “the tax system needs to be fair and sustainable in order to support economic growth and maintain the UK as one of the best places in the world to set up and grow a business.”
Chris Leyland, Deputy Chief Investment Officer at True Potential Investments, said:
“It is positive to see the Chancellor has delivered what many people in the UK were looking for, helped by good fiscal and GDP news with the Office for Budget Responsibility dramatically upgrading its 2017 UK growth forecast from 1.4% to 2.0%. The Chancellor’s speech delivered as expected with no surprises.
“The market reaction has been subdued with the FTSE 100 closing very slightly down. Gilt yields rose over the day as some investors were anticipating a greater reduction in borrowing.
“Moving forward, we believe any news surrounding Brexit will likely be the main driver of UK stock markets, although the UK will continue to be influenced by various overseas factors.
“The key for investors here is not to be invested in one area, but to use diversification to reduce risk. Our True Potential Portfolios aim to take diversification to a new level, particularly around investment style, whilst also aiming to reduce risk and give clients good outcomes.”
“For investors, we’re delighted to see the annual ISA allowance reach £20,000, this is something we’ve long campaigned for, more opportunities for investors to shelter their savings.
“It is disappointing that the dividend income allowance has been drastically cut after just a year, though investors still have 12 months before this comes into effect.”