A sharp downgrade in the public finances and a lack of giveaways were the hallmarks of Philip Hammond’s second Budget as Chancellor of the Exchequer.
A lack of productivity growth over the past decade was given as the main reason for the Office for Budget Responsibility (OBR) cutting its forecasts for economic growth over the rest of the current parliament.
The public finances
According to the OBR, GDP in Britain is due to increase by just 1.5% in the current financial year, as opposed to the 2% which was forecast as recently as March.
At the same time, growth has been downgraded to 1.4% in 2018 and to 1.3% in both 2019 and 2020. This means that the government will have to increase its borrowing levels above what was forecast in the March 2017 Budget.
As well as poor productivity, the OBR also said that ongoing business investment was likely to be lower than expected, while the fall in the value of sterling seen since summer 2016 had also had a negative impact on the economy.
The Chancellor announced he was putting aside a further £3bn to cover the cost of leaving the European Union.
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The housing market
Hammond was widely expected to announced reforms to the home-building sector in the Budget in order to address the difficulties faced by young people in getting on to the property ladder. As well as increases in funding for developers aimed at boosting the number of homes built to 300,000 a year, he also announced the abolition of stamp duty for first-time buyers in England, Wales and Northern Ireland on properties worth up to £300,000 – a potential saving of as much as £5,000.
First-time buyers of homes worth up to £500,000 will also be able to benefit from paying no duty on the first £300,000 of their purchase.
Owners of empty properties could also face significant higher council tax bills: local authorities will be allowed to double bills on vacant homes.
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Duty on petrol and diesel will be frozen next April, as it has been since the start of the coalition government in 2010. Hammond said the freeze had saved car drivers £850 and van drivers £2,100 over the past seven years at a total cost of £46bn to the Treasury.
Meanwhile, new diesels which do not meet the latest emissions standards will face higher first-year vehicle excise duty (road tax).
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Tax and earnings
The personal allowance – the amount individuals can earn before paying income tax – will rise from the current £11,500 to £11,850 from next April, while the higher-rate (40%) tax band will start at £46,300, up from £45,000.
The National Living Wage is being increased by 4.4% and will be £7.83 an hour from April.
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Despite speculation that the Chancellor might change the rules on VAT registration for small firms, Hammond said he had decided not to tinker with the current system. At present, only companies which turn over £85,000 a year or more are required to register for VAT – a much lower threshold than in many other developed economies.
Firms are also set to benefit from future increases in business rates being linked to CPI (Consumer Prices Index) inflation rather than RPI (Retail Prices Index) as at present – the latter is typically higher.
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Tax on the vast majority of alcoholic beverages is, as with fuel, to be frozen. However, rates on white cider – which is often consumed by vulnerable people, Hammond said – is to rise.
Savings and investments
Perhaps one of the most surprising aspects of this Budget was the fact that there was barely any mention of savings, investments, pensions or indeed the older generation who are more reliant on these forms of finance.
While speeches over the past few years have focused on reforming both the private and public pension systems as well as introducing numerous tax breaks and ISAs for savers, Hammond has left this area well alone.
There was no hint that the Conservatives were planning any changes to the state pension triple lock, which ensures payments increase by at least 2% a year.
Certainly, there was no hint that the Conservatives were planning any changes to the state pension triple lock, which ensures payments increase by at least 2% a year. This is a policy that was part of the Tory manifesto before June’s general election but it now appears to be on the back burner.
Prior to the Budget, there were also suggestions that the Chancellor could look at reforms of tax relief on personal pension contributions – perhaps by abolition higher-rate relief – but again, no announcements were made.
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Hammond said that £10bn of additional capital investment would be earmarked for front-line NHS services, and added that he would consider lifting the public-sector pay cap for some health professionals.
However, there were no announcements relating to the social care budget.
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