The Spring Budget – the key announcements
With Budget Day set to shift to the autumn as of later this year, the Chancellor, Philip Hammond, has now delivered what is set for the foreseeable future to be the final Spring Budget. Plenty has happened in the political arena in the past twelve months – the EU referendum in June last year and the inauguration of President Trump in January to name just two events you might have heard a little about. But with a second Budget to be delivered later in 2017, there was a possibility that the Chancellor would delay any major changes until the autumn, once the realities of Trump’s policies have begun to materialise and a number of key elections throughout Europe have been held. Whilst this Budget was indeed in many ways somewhat low-key, there were also a number of important changes that are likely to have a significant impact on a great many people in the UK. The announcement that arguably made the most headlines was the proposed change to National Insurance contributions made by self-employed workers. For those who make an annual profit over £8,060, the current level of 9% was set to rise to 10% from April 2018, and again to 11% twelve months later, resulting in an average increase of £240 per year.
The chancellor originally argued that this makes matters fairer between the self-employed and employees and the move was set to earn the government an additional £145 million annually by 2021/22. However, the move was criticised both for not taking into account benefits such as holiday pay and maternity leave which self-employed workers miss out on, and for potentially breaking an election pledge not to increase taxes. Eventually the Chancellor backed down, scrapping the rise just a few days after he had announced it.
Another key announcement that did survive unscathed after the Budget announcement itself was the reduction of tax breaks on dividends. The tax-free dividend allowance came into effect twelve months ago at £5,000, but is set to go down to just £2,000 from April next year. This will impact not only small business owners who partly pay themselves in dividends, but also those with large portfolios of shares. However, as the ISA allowance is set to increase to £20,000 this April, this should help to counterbalance any losses investors experience.
As well as the expected increases to alcohol and tobacco duty in line with inflation, a new minimum excise duty is set to target the cheapest tobacco, which will mean that the cost of a packet of 20 cigarettes will rise by 35p. The chancellor also followed up the announcement of a new savings product during last year’s Autumn Statement, confirming that the Investment Guaranteed Growth Bonds will become available through NS&I from April with an interest rate of 2.2%. The three-year bonds will be available to anyone aged 16 and over, with a £100 minimum and £3,000 maximum investment limit.