Chancellor Philip Hammond delivered his pre-Brexit Budget this afternoon, promising policies for “strivers, grafters and carers”. Welcome support was announced for the NHS and Armed Forces, in particular for mental health and children’s services.
But the measure that will impact the largest number of Brits is the rise in the Personal Allowance to £12,500 and the higher rate tax threshold rising to £50,000 in April 2019 – one year earlier than planned.
"I didn't come into politics to put people's taxes up" said Hammond.
The opening minutes had some bold statements, with Hammond saying: “The era of austerity is finally coming to an end. Three point three million more people in employment, there have been eight straight years of growth, income inequality is lower now than in any time in the Labour government. An economy working for everyone.”
The OBR today announced it expects this economic growth to continue, with GDP forecasts of 1.6% in 2019 and 1.4% for the following two years and predicts real wage growth every year for the next five years.
End of Austerity
The Chancellor had faced pressure to end eight years of austerity and up spending to local councils, infrastructure and, arguably most important of all, the NHS. There were calls to support small businesses, build more local authority housing and improve children’s services.
There were rumours that in order to pay for these policies there would be a rise in income tax and a reduction in pensions relief. There were also predictions that the personal allowance and the higher tax rate threshold would be frozen – despite earlier promises from the Conservative Party to raise both throughout their term in Government.
The reality was an extra £20.5 billion a year for the NHS, confirming Prime Minister Theresa May’s pledge over the summer. Hammond today called the NHS extra spending a “star bunny” that had escaped the proverbial magician’s hat early. But the details were new – and welcome.
Hammond revealed an NHS 10-year plan which will focus on mental health and children, including a new 24-hour mental health crisis hotline and dedicated resources in A&E and ambulances. Hammond also committed to pledge £10 million to veterans with mental health needs.
There was an extra £1 billion for the Armed Forces and £160 million for counter-terrorism capabilities, saying the Government was committed to those who kept “us safe”.
Fuel, Fags and Booze
May also let slip in the Conservative conference last month that fuel duty would be frozen again for the ninth year in a row, so that was no surprise today. Hammond confirmed this would be a saving of £1,000 for the average car, and £2,500 for the average van. He confirmed tobacco duty would rise by inflation plus 2%. But beer and cider duty will be frozen – and so will duty on spirits. A saving of 2p for a pint beer, 30p on a bottle of scotch compared to forecasts. Wine duties will be raised.
Tax and Housing
The business headlines will be on the digital services tax – a way to tax UK generated revenues of the tech giants, not small UK start-ups. Hammond said this would not be a tax on consumers online purchases, but specifically targeting likes of Amazon (AMZN) introduced from April 2020.
For individuals there were changes to capital gains tax – the £40,000 lettings relief on buy to let houses will be scrapped in 2020 unless there is shared occupancy. There will also be a reduction of the 18 months final qualifying period for Principal Private Residence relief in respect of capital gains tax on residential property sales to be reduced to the final nine months of ownership. Both measures target buy-to-let landlords.
There was support for commercial properties being turned into homes, and first-time buyers purchasing shared ownership homes to be exempt from stamp duty on properties up to £500,000 - backdated to the last Budget.
But the measure that will impact the largest number of Brits is the rise in the Personal Allowance to £12,500 and the higher rate tax threshold rising to £50,000 in April 2019 – one year earlier than planned.
Tinkering and Potholes
One of the biggest cheers was the announcement of £420 million immediately available for potholes and bridge repairs to local councils. There was an extra £400 million for capital spending in schools, equating to £10,000 per primary school and £50,000 per secondary school to "buy those little extras", according to Hammond.
There was a reminder of plans previously announced - £1.6 billion to support innovation, infrastructure and digital fellowships. Hammond also announced an end to PFI future projects, a controversial public-private infrastructure funding scheme.
There was support for benefit claimant budding business owners and new business loans in a bid to encourage entrepreneurs. Small firms taking on apprentices will only have to pay 5% of wages, down from 10%.
Help for bricks and mortar retailers came in the form of a one-third cut to business rates and funding for councils to rejuvenate high streets.
“Over the next five years, total public investment is growing 30% to its highest sustained level in 40 years and will, on average, be an astonishing £460m a week higher, in real terms, than under the last Labour Government,” boasted Hammond.
What About Brexit?
Critics will say this Budget was ultimately a marketing exercise – a tool to convince both parliament and the public that Brexit will be a success.
Hammond had earlier confirmed that this would not be the only Budget he would deliver in the 2018/19 tax year – warning the UK Government will have to adopt a new economic strategy if Britain leaves the EU without a deal with Brussels.
"If we were to leave the EU without any deal – and I think that's an extremely unlikely situation but of course we have to prepare and plan for all eventualities as any prudent government would – if we were to find ourselves in that situation then we would need to take a different approach to the future of Britain's economy," he revealed yesterday.
"We would need to look at a different strategy and frankly we'd need to have a new Budget that set out a different strategy for the future."
