Well that really was the Budget that wasn’t. In all honesty, the anticipation for the last ever Spring Budget was hardly at fever pitch and the usual pre-Budget leaks in the Sunday papers were pretty much bang on the money.
It is fair to say that the Chancellor has kept his powder dry in advance of the long-awaited trigger of Article 50. As we head towards more uncertain post-Brexit times, the Government has taken a prudent, long-term view instead of looking for short-term quick wins. So how did it play out?
Well, Theresa May was in fine fettle during her weekly PMQs, safe in the knowledge that ‘spreadsheet Phil’ was about to deliver strong news on the state of the economy. Indeed, the Chancellor himself was in a jovial mood, drawing laughs from his own benches and scowls from the opposition.
The ebullient mood was primarily due to revised forecasts made by the Office of Budget Responsibility (OBR) for the economy. Real GDP grew by 0.7% in Q4 and by 1.8% throughout 2016, making the UK the second-fastest growing economy in the G7. With employment reported at record highs and expected to increase by a further 650,000 by 2021, the OBR have forecast that while the level of GDP will be broadly the same in 2021 as outlined in the Autumn Statement, GDP will grow by 2.0% in 2017. Great news for the economy, but also for a Chancellor hard put upon by previous austerity measures and increasing pressure from the civil service.
So what for employee benefits?
There was a certain air of inevitability before the Budget that this would be played with a straight bat. How many times have we tried to second guess what might happen in forthcoming Budgets? What might happen to pension tax relief? Is this the time that the Tapered Annual Allowance will finally be disposed of, or will IPT change yet again? Well, the usual anticipation was severely dampened beforehand.
Unless you are in the market of overseas pensions transfers, who will see the introduction of a 25% charge on QROPS as a way of deterring tax avoidance, the Budget was slightly underwhelming for us passionate benefits people. However, this period of relative stability provides us with time to reflect and plan for those changes introduced in 2016 and due to come in from April this year. Including the Lifetime ISA, the sizeable increase to £20,000 of the main ISA allowance and the promised increase to the personal income tax allowance.
This Budget was a bit empty even on a wider scale. Some key issues were addressed, namely business rates for small businesses, £2 billion for an over-stretched social care system, and an increase in NICs for the self-employed. By and large this felt more like an interim statement than a full Budget. I suppose this is indicative of the announcement made last autumn that the full Budget will be moving to November this year and should be viewed as a Budget process in transition.
So what do you really need to know?
Corporation Tax and business rates
2016’s Autumn Statement saw the announcement of a reduction in Corporation Tax to 19%, which will press forward unabated with the customary tagline “the UK is open for business”. This is expected to fall to 17% by 2020, but as with the previous Chancellor’s promise to clear the deficit by then, this is liable to change.
Alongside this, and possibly due to the public outcry that followed it, the increase in business rates has been tweaked to try and help those businesses that are moving out of the small business bracket and will lose their small business rate relief. It was announced that any businesses losing this relief will only be liable to an increase in their rates of £600, or the real-term transitional relief cap for small businesses each year. On top of this, local councils will have access to a £300m strong discretionary relief fund, allowing them to help the most hard-up cases.
Investment in infrastructure
Again, following on from the Autumn Statement, the National Productivity Investment Fund (NPIF) is set to provide some £23bn of investment across all aspects of the economy, including:
- £740m to improve the ‘digital infrastructure’ of the UK, to support the next generation of fast and reliable mobile and broadband connections for both businesses and consumers
- The UK becoming the world leader in 5G technology
- £1.1bn to support local transport projects and address pinch points in the road network
- £4.7bn for R&D, to support the UK’s leading research companies
One of the key proposals to come out of the Budget was the realignment of National Insurance Contributions for the self-employed. As was announced last year, the flat rate Class 2 NIC structure is to be abolished from April 2018, but with the introduction of the single-tier State Pension last April and now with no real differentiation in its eligibility between employed and self-employed workers, the Chancellor feels the time is right to raise Class 4 NIC’s for the self-employed to 10% in 2018 and again to 11% in 2019 bringing it in line with Class 1 NICs.
Further to this, the Chancellor has also reduced the tax-free dividend allowances for shareholders and directors alike (from £5,000 to £2,000) from April 2018, to reduce the tax differential between the self-employed and the 85% of the UK workforce who are employed.
There are also plans to review the whole tax system, specifically the way alternative forms of remuneration are taxed. The government will open a consultation or ‘call for evidence’ looking at the way benefits-in-kind, accommodation and employee expenses are taxed, to ensure that these continue to be fair and coherent.
Finally, the rise in personal allowance to £11,500 will continue in April 2017, rising to £12,500 by 2020.
Jeremy Corbyn called this a Budget of “utter complacency” and whilst it hardly got you on the edge of your seat you can see the method behind Mr Hammond’s approach this time around. The UK economy is in great shape at the moment. We are open for business, evidenced with record numbers of tourists flocking into the UK to take advantage of the weakened pound, and with an export market growing at a quicker rate than in recent memory.
The main course has yet to be served. After Article 50 is triggered and as we put in place a plan to wave goodbye to the EU, we need to reserve caution and today’s Budget is evidence that we are following a carefully executed plan. Yes it didn’t unearth any hidden gems or shake the benefits world but what it does give us is time to reflect and take stock before we head into uncharted waters. Safety first Phil. Safety first.