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In his first, and last, Spring Budget Philip Hammond set out an economic picture which has surprised many of the economists who had speculated on how the British economy would react to leaving the EU. He was able to confirm that GDP grew by 1.8% over the whole of the year and also that employment had reached a record high. Furthermore, the OBR had changed the profile of growth over the next five years, ending in 2021, with the 2% they originally suggested but with growth ranging from 2% in 2017, dropping to 1.6% in 2018, before increasing steadily.
On borrowing there were a number of one-off factors that reduced this in 2016-17 although the medium term forecast remained as it did four and half months ago, in the Autumn Statement. No doubt this has created the ‘war chest’ we have been hearing a lot about to provide a buffer in what remain unpredictable waters, as the Prime Minister looks to trigger article 50.
On the tax system there was much comment about making the system fairer, especially when comparing employees and those who are either self-employed or operate through their own companies. The Chancellor highlighted the tax differences that exist between them and the Government has set up a consultation to look at how they can create a level playing field. There is no doubt that this will be a difficult ask especially as entrepreneurs will undoubtedly argue that they take a greater risk, than someone who is employed, to create the same income and that they will generally reinvest any tax benefit back into their own business.
As part of creating this level playing field there was a recognition that Class 4 National Insurance at 9% is significantly lower than Class 1 which costs an employee 12% and he had set out plans to align the two, however, these plans have since been dropped. The Chancellor also sees the Dividend Allowance, introduced by his own Government, as adding to that disparity between employees and those acting through their own company so he has addressed this by reducing this allowance. He also confirmed his commitment to increasing the personal allowance and higher rate threshold to the manifesto pledge of £12,500 and £50,000.
As well as the tax changes mentioned in our budget pages there were also the extensively publicised funds for education, including, for 110 new schools and £216 million for school maintenance. There are also extra funds for Social Care that, again, had been widely expected together with further monies for technology.
This was a cautious budget with very few changes, although the consultation on the differences between employment and self-employment will bring further complexities for businesses that will have to grapple with the ‘making tax digital’ changes which will start to affect some businesses from Summer 2018. There is no doubt that there will be further changes in the Autumn Budget, later this year, and so it was always likely that this would be a Budget Lite but with Brexit looming Mr Hammond will feel he has steered us into a safe port, for now.
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