Our thoughts on some of the Budget measures.
There are usually a few wagers placed on how long the Budget speech will last, and while I would never advocate such a frivolous use of your spare cash, I do like to keep an eye on the clock. It ticked on for nearly an hour this year, the speech starting with the usual round of Office for Budget Responsibility forecasts and statistics. The ever-changing nature of these rather undermines their usefulness and, to be frank, I nowadays pay little attention to the actual figures. It’s the direction of travel that is more telling and, as there is a fair amount of encouraging data, we can forgive the Chancellor for concentrating on these numbers. I don’t know about you, but I think I’d rather this was all just published before the Budget and left to the economists and political commentators to mull over. The speech could then run to a more easily digested half-hour.
So, leaving aside deficit figures, borrowing rates, GDP, and all the rest, what was announced? The one item that has received the most attention is the revision to National Insurance Contributions for the self-employed, and please forgive me if this starts to get a bit technical. In a move that is ostensibly designed to remove an inequality, Class 4 self-employed NICs will be increasing. Currently, the self-employed pay a lower rate of NICs than the employed who, in return, get more state benefits – until the advent of the new flat-rate State Pension this included the Second State Pension. The amount of Second State Pension you got depended on salary and therefore the amount of NICs paid. The Second State Pension has now gone and we have the flat-rate State Pension, which the employed and self-employed alike will get, provided enough years of NICs have been paid. And there is the rub – it is based on the number of years of payment rather than the amount paid, hence the Chancellor’s move to equalise; of course, that equalisation was not a reduction in the rates the employed pay, but an upping of the self-employed rates which will increase to 10% in April 2018 and 11% in April 2019. This is still less than the employed rate of 12% (plus an additional 2% on higher salaries and 13.8% paid by employers – perhaps partly explaining the large increase in self-employment), but of course the self-employed are still unable to claim sick pay or unemployment benefits.
The tax free dividend allowance (now there’s a short-lived measure!) was introduced by George Osborne and took effect on 6th April 2016. It means that the first £5,000 of dividend income is tax free. Philip Hammond has announced it will be reduced to £2,000 from April 2018. I thought at the time of its introduction that moving from the tax credit to a monetary allowance would give a future Chancellor opportunities to move the goalposts. I hadn’t expected them to be shifting less than 12 months later! The cynic in me predicts that it will be gone altogether in a few years. The argument will be that tax rates on dividends (7.5%, 32.5% and 38.1%) are lower than on income (20%, 40% and 45%), so why should there by an additional tax free allowance? And while we’re at it why not just bring them all into line, after all, isn’t the UK tax code ‘far too complicated’ and ‘in need of simplification’?
When I wrote about the Autumn Statement last year I commented on the number of building and general infrastructure measures. It continues: new infrastructure spending will include £90m in the north of England and £23m in the Midlands to address pinch points on roads*; a £690m competition fund for English councils to tackle urban congestion; £270m for new technologies such as robots and driverless vehicles; £165m for 5G mobile technology; £200m for local broadband networks; and a further £570m to the devolved administrations.
I read the other day that there are two sides to Philip Hammond: there’s the now famous ‘Spreadsheet Phil’ (which was my soubriquet long ago); and there’s ‘Hammond the Hammer’, which is his Cabinet Office persona – apparently he has a tendency to come down hard on his cabinet colleagues’ dafter ideas. The self-employed and the dividend-earners may now feel the hammer is being used to carry out the spreadsheet’s demands.
Philip Chandler APFS, CFPTM, Chartered MCSI
Chair of Aspinalls Technical and Investment Committee
*A piece of trivia. A famous pinch point in the Midlands is Watford Gap, so-called as it is close to the village of Watford in Northamptonshire, not to be confused with the Hertfordshire town of the same name. It is a 400m gap between the hills through which are pinched the M1, the A5, the West Coast Mainline and a branch of the Grand Union Canal. Not to mention the motorway services, a few minor roads, a footpath or two, some snail trails… It serves as the ostensible delineator between the North and the South. Supposedly you cannot be called a true Southerner if you’re from north of Watford Gap. (My colleague notes that I have given away which half of the country I’m from, and indeed much of my upbringing was in rural Northamptonshire only a few miles from this eponymous village).