The 2017 Budget, delivered by the Chancellor Philip Hammond on the 22nd November, was dominated by deteriorating economic forecasts. The independent Office for Budget Responsibility (OBR) has reduced its estimate of UK growth for 2017 to 1.5%. In March the OBR believed growth this year would be 2%. Forecasts for the coming years have also been downgraded; to 1.4% for 2018, 1.3% for 2019, and 1.5% and 1.6% for 2020 and 2021 respectively. Worryingly for the long-term health of the economy, a large part of the reduction is due to lower productivity growth – a chronic problem for the UK economy. Another factor weighing on the economy is uncertainty over Brexit – which is reducing business investment.
With the economic outlook gloomy, and a continued desire to reduce the budget deficit, Mr Hammond’s room for manoeuvre was limited. He did, however, make a number of specific policy announcements;
- Stamp Duty Land Tax (SDLT) will be abolished for first-time buyers on the first £300,000 for properties worth up to £500,000. This change does not apply to Scotland which has a separate land tax.
- On house building, the Government will make an extra £15.3 billion of new financial support available over the next five years, bringing total support for housing to at least £44 billion over this period to meet a target of 300,000 new homes per year. Note that much of this is in the form of loans and guarantees rather than straight Government spending. There will also be measures to prevent ‘land banking’ by developers and possible changes to the planning laws to promote development.
- Under Income Tax, the Personal Allowance will increase to £11,850 and the Higher Rate Threshold to £46,350, in line with inflation. The Government has reaffirmed its commitment to raising the PA to £12,500 and the HRT to £50,000 by 2020. The lifetime allowance for pensions will rise to £1,030,000 for 2018-19.
- The National Living Wage, for those over 25, will rise to £7.83 per hour (currently £7.50) from April 2018 – an increase of 4.4%
- National Minimum Wage rates will also increase from April 2018; from £7.05 to £7.38 for 21 to 24 year olds, £5.60 to £5.90 for 18 to 20 year olds, £4.05 to £4.20 for 16 and 17 year olds and the apprentice rate rises from £3.50 to £3.70.
- Despite much pre-Budget speculation, the threshold for VAT will remain at £85,000.
- Duties on alcohol (except high-strength ciders) and fuel are frozen.
- Business Rate rises will now be calculated using the CPI inflation measure rather than RPI – likely to make increases around 1% lower on average
- A report on the use of Inheritance Tax Reliefs has been published. This can be found at – https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/660027/Behavioural_evidence_around_Inheritance_Tax_and_reliefs.pdf. It makes no policy recommendations, but simply highlights how existing reliefs such as APR influence behaviour.
- The Government has set aside an additional £3bn of funding for Brexit preparation including the possibility of a ‘no deal’ Brexit. This is to cover the cost of setting up new systems for immigration, customs etc.