10 Key Takeaways from the Budget 2018
Yesterday saw the Chancellor, Philip Hammond deliver the Budget for 2018. This was the first time since 1962 that the Budget had taken place on a Monday and also the last before we expect to leave the EU in March next year. In this article, we cut through the noise and focus on the 10 key things you need to know about this Budget and how it may impact your own finances.
1. The economy isn’t in the best shape – but things aren’t as bad as we thought
The Office for Budget Responsibility (OBR) raised the forecast for economic growth this year from 1.3% to 1.6%. This is to be welcomed but hardly stellar performance. The forecast for the following years are all around 1.5%, held back by poor productivity growth and uncertainties around Brexit in the projection models. It’s worth remembering that a messy exit from the EU may throw these forecasts out of the window and possibly lead to a recession. This could have a major impact on government expenditure and the wealth of the nation.
2. It isn’t really the end of austerity – apart from the NHS
This was seen as a ‘giveaway’ Budget, meaning there was more in tax cuts and new spending than is likely to be raised. Despite this, almost all Government departments will continue to see spending restraint, other than the NHS. There were a few small spending initiatives announced such as on potholes and some small new amounts for schools, but the overall picture is still one of spending controls when considered in real terms. The health service continues to be the big winner, with an addition £20.5bn pledged over the next five years, which will see the launch of a new mental health service.
3. Planning for Brexit continues to be expensive
The Chancellor called this a “pivotal moment” in the Brexit negotiations and teased a ‘Brexit dividend’ if we secure a ‘good deal’. He confirmed that funding for ‘no deal’ planning is to be increased to £2bn, an increase of £500m. If we exit without a deal, the budget required to set up the required infrastructure, systems and departments required is likely to be considerably higher in the coming years.
4. A slight recalibration of business taxes to help the little guys
The issue of how to effectively tax multi-national ‘digital platforms’ has long been an issue for HMRC and the Treasury. The announcement yesterday to implement a new ‘Digital Services Tax’ only aims to raise around £400m a year but it could herald the start of a new business tax regime. This could impact the major players in this field such as Facebook, Google and Amazon. At the other end of the spectrum, it is clear that many smaller town centre businesses are struggling so the Chancellor announced several new measures. Many small businesses occupying commercial properties will see their business rates be cut by a third over two years. There will be a new £695 million initiative to help small firms hire apprentices as well as a new £650 million package to help ailing high streets. Whether these measure can slow the decline of the high street and provide material help to small firms remains to be seen.
5. The Universal Credit roll-out will continue – but with a little more funding
The controversial overhaul to the benefit system, known as Universal Credit will continue to be rolled out. The Chancellor has pledged a further £1bn to this project in an attempt to allay some of the problems encountered.
6. We’ll all have a little more money in our pockets
The Budget bought forward an increase an in the Personal Allowance (the amount you can earn before you start to pay tax) to April next year. The new allowance will be £12,500 with the higher tax rate kicking in at £50,000. It was stated that this equates to around £130 “in the pocket of a basic rate taxpayer”. Higher rate taxpayers stand to benefit even more. The Chancellor also announced that the National Living Wage will be increased by 4.9% (well above the rate of inflation and average wage growth) from April 2019. He said this should benefit around 2.4 million workers.
7. Very little said about housing
Given that it is widely perceived that we are in somewhat of a ‘housing crisis’, there was very little mention of the housing market or new initiatives. The Chancellor extended Stamp Duty relief for the second year running, now including first-time buyers of shared ownership properties valued up to £500,000. He also announced a further £500 million for the Housing Infrastructure Fund to support the building of 650,000 new homes.
8. A quiet Budget for pensions and investments
After many years of changes and tweaks to the pension regime, it comes as a relief that there was little change to pensions and investments in this Budget. Talk of a change in pension tax-relief, tax-free cash or imposing more pension limits were unfounded. There was mention of a study into allowing so-called ‘patient capital’ assets into pensions. These are investments into start-ups and new ventures designed to boost new early-stage UK businesses. There were no changes to Lifetime ISAs, ISA limits (bar Junior ISA limits increasing in line with inflation) or other notable investment tweaks. There was also confirmation that the long-awaited ban on pension cold-calling will come into force soon to help reduce the number of people falling victim to scams.
9. Not a Budget for the environment
Green campaigners have been highly critical of the Budget and many see it as a missed opportunity. After the recent IPCC paper on global warming and a high profile ocean plastics campaign by Sky, public mood appears to be shifting further in favour of legislation to help improve the environment. There was surprisingly little in the Budget in this regard. The fuel duty escalator remained on hold, there was no new money for major green initiatives such as electric car charge point roll-out and a new tax on disposable coffee cups was rejected. The only new initiative was a new tax on plastic packaging which doesn’t contain at least 30% recyclable material.
10. It may all depend on Brexit
Overshadowing the whole budget was Brexit. As we move into the final few months before we are scheduled to leave the EU, there was much talk of a possible additional ‘emergency’ Budget in the spring should we not be able to secure a ‘deal’. The Chancellor has confirmed today that yesterday’s Budget will still stand in this event but expect major changes to taxes and spending as well as some short-term emergency measures should this scenario come about.
If you would like to talk about any of the issues raised by the Budget or need more general help with your finances, please get in touch with us.