Budget 2017: Business as Usual for UK Plc

Philip Hammond’s first Budget as Chancellor and last Spring Budget had few surprises in it, besides a joke about Norman Lamont’s time in the job. Hammond introduced his speech by remarking that Treasury mandarins had reminded him that he was not the only Chancellor in recent years to move the Spring Budget to the autumn.

The previous Chancellor to do this was Lamont 24 years ago, whose Budget speech was commended by Prime Minister at the time, John Major, as the “right budget, at the right time, from the right Chancellor”. However, Hammond joked that “what they failed to remind me was…ten weeks later, he was sacked! So wish me luck!”

Besides this and the occasional barbed comment aimed at the beleaguered Labour front benches, it was very much a business-as-usual Budget, with little in it to alarm investors besides small changes to the dividend allowance, which we have detailed below.

Norman Lamont, Chancellor of the Exchequer in 1993

The economy

Beyond the new education reforms, such as the introduction of the T-Level for technical education, much of the Chancellor’s focus was on the strong economic performance post the Brexit referendum last year and how, according to Mr Hammond, it “continues to confound” those who claimed it would flounder if the UK voted to leave the EU.

According to the Chancellor, last year the UK economy performed stronger than that of the US, Japan and France, among the major advanced economies beaten only by Germany’s growth. Employment figures are at a record high, while unemployment is at an 11-year low.

The Office for Budget Responsibility (OBR) has upgraded growth forecasts for 2017 from 1.4% to 2%, with growth expected to slow to 1.6% in 2018, rise to 1.7% in 2019, 1.9% in 2020 and hit 2% again in 2021. The OBR has also forecast inflation to be 2.4% this year, 2.3% in 2018 and 2% in 2019.

Meanwhile, net borrowing is predicted to be £16.4bn lower than forecast in the autumn, at £51.7bn, with public sector net borrowing as a percentage of GDP expected to fall from 3.8% last year to 2.6% this year.

What does the Budget mean for investors?

On the personal finance front, the main measures included:

• Tax-free personal allowance to rise to £11,500 from April

• Higher rate allowance to increase to £45,000 from April

• Thresholds to be increased to £12,500 and £50,000 by end of this parliament

• ISA allowance to rise to £20,000 from April

• Dividend allowance to be cut from £5,000 to £2,000 from April 2018

Further measures were also introduced to clamp down on tax avoidance, including penalties for advisors recommending tax avoidance schemes which are later defeated by HMRC.

In terms of the changes to the dividend allowance, the Chancellor is looking to target the discrepancies in the National Insurance system that allow self-employed workers who operate through companies to pay less tax and National Insurance, as well as individuals with substantial share portfolios.

Currently each director or shareholder can take £5,000 of dividends tax-free from their company in addition to the personal allowance. Hammond estimates that around half of individuals affected by the changes are directors and shareholders of private companies, while the rest will be investors with share portfolios worth over £50,000 that are not held in ISAs.

While disappointing that entrepreneurs and investors are being singled out by a Chancellor who was himself once self-employed, these changes are unlikely to make much of a difference, besides raising £930m of extra revenue for the government. It simply makes it all the more important for investors to make use of the new ISA allowance, which is set to rise by £4,760 this year, as well as the increased personal allowance.

All-in-all, this was a steady-as-she-goes Budget, with little to concern investors and with encouraging news about the state of the UK economy post the Brexit vote.

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