Thursday, March 9, 2017
Evolution, not revolution
Philip Hammond's first and last Spring Budget was a quiet one, with no major changes to tax or pensions
Doing his 'spreadsheet bit' the Chancellor acknowledged that the Office for Budget Responsibility had been too gloomy in its forecasts for growth immediately post-Brexit. The OBR now expects the UK economy to grow by 2% in 2017, up from 1.4%. But it also sees growth slowing in the following years, such that the level of GDP in 2021 will be about the same as at Autumn Statement.
So the economic forecasts are broadly unchanged - and the same is true of tax policy.
There were only two significant new measures:
Firstly, the tax-free dividend allowance will be reduced from the current £5,000 to just £2,000 from April 2018. This is designed to address what the Chancellor perceives as unfairness around Director / Shareholders’ tax advantage, although it will also affect investors with holdings in equity funds or direct shares.
It's disappointing that so soon after the allowance was introduced - and the tax credit on dividends removed - the benefit is being largely withdrawn. But the effect will be small: of the order of hundreds of pounds, not thousands.
Secondly, self-employed class 4 National Insurance contributions will increase from 9% to 10% from April 2018, and to 11% a year after that. This will narrow the tax gap between the self-employed and employed. That said, the change will be introduced at the same time as flat rate class 2 NICs are removed. So again, the effect will be limited.
Measures previously announced and confirmed yesterday include:
- A new three-year NS&I account paying interest of 2.2% on balances up to £3,000
- A reduced Money Purchase Annual Allowance (from £10,000 to £4,000)
- An increase in the ISA allowance to £20,000; and the introduction of the 'Lifetime ISA' - both from 6 April this year
The Chancellor gets another go later in the year, with a fresh Budget. Given the motivation - to announce tax changes well in advance of the start of the tax year - it's likely to be a bit more interesting.
Until then we're happy with boring: it makes planning a lot simpler!