Budget 2017 Announced

Budget 2017

Philip Hammond’s first (and last) Spring Budget started on a positive note referencing a robust economy that has confounded experts.  Stating that we have a strong, stable platform from which to start negotiations, the Chancellor went on to make clear his intention to get Britain back to living within its means.

The Office for Budget Responsibility (OBR) has revised the current year deficit forecast from £68.2 billion as predicted in November 2016 to £51.7 billion.  However, the deficit for next year is forecasted to increase by £6.5 billion rather than shrink by £7.2 billion, this is due to a number of factors including timing of contribution requests from the EU, evidence of income shifting ahead of the dividend tax changes (introduced in April 2016), and changes in the timing of corporation tax receipts.

With total UK debt now at £1.7 trillion, it is not surprising that we are currently paying almost £50bn on interest alone.  To put the amount in context, this is almost the same as the UK’s defence budget.

Government spending and revenue

Chart 1 shows public spending by main function. Total Managed Expenditure is expected to be around £802 billion in 2017-18. 

Chart 1: Public sector spending 2017-18

 
 
 
 
 
 
 
 

 Mr Hammond aims to ensure we have a fair, stable and competitive tax system. 

 

The message that ‘Britain is open for business’ was reiterated as confirmation that the plan is still for corporation tax to reduce to 17% by 2020/21. 

Taking steps into the digital age has been widely publicised recently with the creation of digital tax accounts and the project ‘Making Tax Digital’.  For businesses with turnover under the VAT threshold, the date for this was 2018 and has now been pushed back 12 months to April 2019 as consultation from the business community raised fears that technology would not be ready to support such a move.

When referring to the fair part of the tax system, Mr Hammond said it is fair that ‘those with the broadest shoulders should bear the heaviest burden’ and that the top 1% of earners contribute 27% of all income tax.

Chart 2 shows the different sources of government revenue. Public sector current receipts are expected to be around £744 billion in 2017-18.

Chart 2: Public sector receipts 2017-18

 

Along the same ‘fairness’ thread, the Chancellor turned his attention to National Insurance and the difference between the employed and self-employed. 

The example provided was an employee earning £32,000 – between the employee and employer the total NIC’s collected would be £6,170.  For a self-employed person earning the same amount, the NIC’s would be just £2,300.

The difference between the systems used to be justified by the enhanced welfare benefits available to employees, however, the introduction of the single tier state pension has reduced this disparity, and a consultation is expected to discuss maternity and paternity allowances to bring them further into line.

From April 2018 Class 4 NIC’s will increase from 9% to 10%, with a further increase to 11% also expected.  Quite how this fits with the 2015 Conservative Manifesto where David Cameron promised that for 5 years ‘we will not raise VAT, National Insurance contributions or Income Tax’ remains to be seen.

A change to the newly introduced dividend allowance was not expected, but from April 2018, the available allowance will reduce from £5,000 to £2,000 in an attempt to discourage those operating through a personal service company.  The change is also expected to affect those with equity investments in excess of approximately £50,000 held outside an ISA wrapper.

The fact that is International Women’s Day did not go unnoticed with funds pledged to help various women’s causes, but most notably increases in childcare support helping women get back to work.

We will bring you more detail within the next couple of days as we have chance to digest the detail of the announcements.

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Budget 2017 Announced
Philip Hammond’s first (and last) Spring Budget started on a positive note referencing a robust economy that has confounded experts. Stating that we have a strong, stable platform from which to start negotiations, the Chancellor went on to make clear his intention to get Britain back to living within its means.
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