The final spring Budget contained few surprises and even fewer giveaways than usual, as Chancellor of the Exchequer Philip Hammond unveiled increases in tax for self-employed workers as well as a widely predicted rise in funding for care for older people.
But with the main Budget now moving to autumn, it appears that Hammond made a deliberate attempt to limit the number of new policies to be announced today.
The state of the economy
The Chancellor said that official estimates showed the UK economy was expected to grow faster than previously predicted in 2017, with an increase in GDP of 2% rather than 1.4% now forecast. However, growth rates for the rest of the decade were revised downwards, in part to account for the uncertainty surrounding the Brexit negotiation process.
Hammond also said that public borrowing levels were expected to be lower this year: but he made little to no mention of how Brexit might affect the UK economy over the coming years.
Investing in the wake of Brexit
Details of new saving account
In his Autumn Statement last November, Hammond said the government planned to introduce a new, more generous savings bond through the state-run National Savings & Investments. The details of the Investment Bond, which will be available from April 2017, have now been revealed.
It will pay annual interest of 2.2% – a market-leading rate – on deposits of up to £3,000 per person, with a minimum of £100. The bond will run over a term of three years, which means it will only be suitable for people who are happy to tie their money up for that period.
For more information on ISAs as an alternative saving option, please click here.
National Insurance increases for the self-employed
Hammond announced a rise in National Insurance (NI) for self-employed workers on the basis that they currently paid significantly less of the tax than employees.
From April 2018, the rate for Class 4 NI contributions will increase from today’s 9% to 10%, and then to 11% the following year – however, this appeared to contradict a Conservative manifesto commitment made ahead of the 2015 general election not to raise income tax or NI.
People who run their own businesses will also be given an extra year to prepare for the new digital tax system, which will require them to file quarterly rather than annual returns online. This postponement will apply to companies and self-employed workers whose annual turnover is less than the current VAT-registration threshold (£83,000 at present and £85,000 from April 6 2017).
There was also a cut in the amount of income that can be taken tax-free from a company in the form of dividends: currently, directors can take £5,000 in dividends a year without paying tax but from April 2018 this will fall to just £2,000.
As with the NI increases outlined above, Hammond said this measure was designed to stop people setting themselves up as self-employed or as companies solely in order to reduce their tax bills.
What exactly is National Insurance?
New funding for social care
The government will spend an extra £2 billion on social care for older people over the next three years. MPs and campaigners have put considerable pressure on ministers to increase funding, in particular given the impact that a lack of social care is having on the NHS – with hospitals forced to use beds for older patients who are unable to move on.
The Chancellor ruled out the introduction of a “death tax” on the estates of the deceased, designed to raise money to fund care.
Hammond confirmed that the personal allowance – the amount individuals can earn before paying income tax – will rise to £11,500 from April 6, 2017. He added that the government planned to raise this to £12,000 by 2020, with the starting point for higher-rate tax rising to £50,000 by the end of the decade.
Also from April, the upper limit on ISA contributions will go up by almost a third to £20,000 a year.
And, as previously stated, the state pension will rise by 2.5% at the same time: people on the basic-state pension, who reached pension age before April 2016, will see weekly payments increase from £119.30 to £122.30, while those on the new flat-rate scheme will get £159.55 a week as opposed to £155.65 at present.
Dispelling pension myths
The government will spend more on education, with extra funding in particular for new free schools. As announced in the autumn, more money is to be spent on reducing road congestion on the busiest routes while councils will be encouraged to compete for investment in tackling congestion by developing innovative approaches.
While there was no mention of fuel duty in the Budget, the rate for 2017-18 has already been frozen.
A word from Saga
Saga director, Paul Green, commented "The Chancellor has pulled off a Band Aid Budget for Britain. It kicks the can down the road with several welcome but short-term fixes. But there are no long-term solutions to some of the biggest issues facing today's over 50s - such as care funding, an housing and saving for retirement."
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