Budget 2017 – What You Really Need to Know
We take a look at the key themes from the budget last week and assess how they may impact you. Who were the winners and who were the losers and what does it all mean for your finances?
The economy – plenty more pain on the way
From a forecast point of view, this was one of the gloomiest budgets for many a year. Economic growth has been revised down sharply and the economy is now expected to grow by just 1.5% this year, 1.4% in 2018 and 1.3% in 2019. On a per-capita basis, the figures are just 0.9%, 0.8% and 0.7% respectively.
Gone are the days of 2-2.5% growth each year and this could have a big impact on the nation’s finances and cause reduced public spending, increased borrowing or even higher taxes.
The forecasts for the deficit reduction have also been pushed back several years based on these lower growth forecasts.
Our view: The forecasts are hugely disappointing for the Treasury and country as a whole. Expect further public sector squeezes in the coming years and possibly some additional tax-raising measures. That said, these are only forecasts (which tend to be wrong most of the time) and they still show positive growth, so it’s not all doom and gloom.
Brexit – more cash required and more uncertainty guaranteed
The gloomy economic forecasts are not down to Brexit – it’s simply too tricky to forecast what may happen as the direction of travel and final deal (if any) are still unclear. What we do know is that the Treasury has allocated an additional £3bn for Brexit preparations over the next two years.
Our view: The initial costs of Brexit are starting to become clear. If we leave the EU with ‘no deal’ there are likely to be additional costs to the transition. This could push the already under-pressure public finances further into difficult territory.
Productivity – the continuing conundrum
We’re just not as productive as we should be, or as productive as other comparable countries. That’s the view of the economic and business experts and the calculations bear this out. All of the forecasts showed our productivity improving over the years but this just never materialised.
How to fix the productivity conundrum is much harder and there appears to be no silver bullet. Infrastructure, education and skills training may all play a part but none of these could deliver short-term wins.
The Government unveiled an upgrade to the ‘National Productivity Investment Fund’ with more money allocated as well as some additional spending on national infrastructure, training and R&D to try to boost productivity.
Our view: It’s going to be hard to get productivity up in the short-term, but steps can be put in place now to improve the longer-term outlook.
Housing – let’s get building and save some Stamp Duty
The headline grabber was supposed to be the new policy on Stamp Duty for first-time buyers. Whether this did the job of turning attention away from the gloomy economic forecasts is debatable but it is certainly welcome news for those looking to get onto the housing ladder.
The first £300,000 on any property up to £500,000 in value will now be free of Stamp Duty for first-time buyers. Some economists warn this may simply push up house prices at the lower end of the market and offset much of the benefit. We wait and see the outcome.
There were also announcements for a further £10bn for the ‘Help to Buy’ scheme and new measures and consultations to try to boost the supply of homes across the country.
The bigger picture is a long-term trend of undersupply, making house price rises massively outstrip wages and become increasingly unaffordable for many.
Our view: It remains to be seen whether the Stamp Duty announcement or measures to attempt to boost house building deliver the required results.
Spending – addressing the key priorities
There wasn’t a huge amount of ‘headroom’ for the chancellor but there were a few other areas that received some extra funding.
New initiatives included £500m to support new technologies such as 5G, driverless cars and AI, £540m to support the growth in electric car sales, £2.3bn for additional R&D, new money for schools focussing on maths and ICT, an extra £2.8bn for the NHS and £10bn in NHS capital spending. There was also a new railcard for 26-30 year olds announced.
Additional spending on infrastructure was also announced and regional devolved areas received more funding.
Our view: There was little chance of a ‘giveaway budget’ but the Chancellor focussed his spending on his key priorities (and the priorities of many voters at the recent general election) – housing, new technology, education and skills and the NHS.
Welfare & wages – universal problems addressed
As expected, changes were made to the new Universal Credit system to speed up payments and provide for emergency short-term loans. Whether these measures go far enough and are fast enough to tackle the problem is yet to be seen.
The National Living Wage is set to rise above the rate of inflation to £7.83 per hour from April.
Our view: Whilst these two measures are welcomed by most, many argue they don’t go far enough. It is likely that problems will persist with the roll-out of Universal Credit and many argue that the National Living Wage needs to be nearer £10 per hour to really deliver what it says on the tin.
Personal taxation – no news is good news
As expected, there was little tinkering with personal taxation. The Personal Allowance ticks up to £11,850 in April and the other Income Tax thresholds also move up, broadly with inflation.
The pension ‘Annual Allowance’ remains unchanged while the ‘lifetime allowance’ goes up to £1.03m. For once, pensions were pretty well left alone with mooted changes to tax-relief not materialising.
ISA saving allowance remains at £20,000 but Junior ISA limits increase to £4,260. Enterprise Investment Schemes (EIS) limits will double to £2 million, provided these are ‘knowledge intensive’ businesses.
There will be no rise on alcohol duty (bar super-strength cider), an increase in tobacco duty and an increase in VED for polluting older diesel vehicles.
Our view: No news is generally good news. Little tinkering with personal tax, pensions and investments is broadly welcomed. We would have liked to have seen some more positive measures, but overall, there’s not too much to complain about.
There was some talk of lowering the VAT threshold for small businesses but this was left unchanged for the next two years at £85,000.
The Business Rates change from RPI to CPI was brought forward by two years, to April 2018. This measure is expected to reduce the burden of business rates by an extra £2.3 billion.
Our view: These two measures should go down well with the business community. More could have been done to support those industries and sectors struggling but with little money to play with, the measures announced were probably the best that could have been done.
So that’s the budget done and dusted for another year (well, until the Spring Statement at any rate). There were one or two surprises, but with little room for manoeuvre, the Chancellor couldn’t do much to address the biggest issues we face.
As we move into an uncertain period, it is likely that future budgets may be a little more dramatic, but for now, it’s broadly steady as she goes.
If you would like to talk about any of the issues related to the budget or need more general help with your finances, please get in touch with us.