Posted: March 8, 2017
Last updated on December 1st, 2020 at 09:13 am
Chancellor Philip Hammond delivered his bullish first – and last – spring Budget against the backdrop of Brexit and an economy that continues to confound the commentators with robust growth.
“We are building the foundations of a stronger, fairer, more global Britain,” he told a noisy House of Commons on International Women’s Day – a fact that Mr Hammond alluded to with news that a higher proportion of women are in employment than ever before.
“Our task today is to equip Britain for a global future,” he said. “But there is no room for complacency and you will not find any on these benches. The deficit is down but the debt is still too high.”
The independent Office for Budget Responsibility – as expected – raised its economic growth forecasts for this year. It now expects the UK economy to grow 2% rather than 1.4%, the Chancellor said. In 2018 growth is forecast to slow to 1.6%, before picking up to 1.7%, then 1.9%, and back to 2% in 2021.
Meanwhile, inflation is forecast to hit 2.4% this year, according to the OBR. It will then fall to 2.3% in 2018 and 2% in 2019, the Chancellor said. That will keep it at or above the Bank of England’s 2% inflation target for three years.
Mr Hammond dismissed arguments that the lower borrowing forecasts should mean “more unfunded spending”. He said that Britain has a debt of nearly £1.7 trillion and that “each year, we are spending £50 billion on debt interest”.
The only responsible course of action, he argued, was to continue with “our plan. We will not saddle our children with ever-increasing debts”.
The Chancellor said UK debt is expected to peak at 88.8% of economic output next year – although that will be 1.4 percentage points lower than the OBR had forecast in the Autumn.
It will then start falling in 2018-19, for the first time in almost 20 years, and will continue to drop, reaching 79.8% in 2021-22.
Ahead of the Budget, there was strong lobbying from businesses and backbench MPs for the Chancellor to ease the burden from higher business rates.
The Chancellor said the tax brings in £25bn a year, so he can’t abolish the rates. But he unveiled three measures to help those affected. Firstly, no business losing small business rate relief will see their bill increase next year by more than £50 a month.
Secondly, 90% of local pubs will have a £1,000 discount on their business rates bill, while finally there will be a £300m fund for local councils to offer discretionary relief for hard-hit cases.
There was also – again as expected – an announcement from the Chancellor on higher taxes for self-employed workers.
Mr Hammond said that lower National Insurance contributions from self-employed workers are forecast to cost public finances £5bn this year alone.
To make the system “fairer”, he said that NI contributions will rise for the self-employed by 1% to 10% from April next year. That will then rise again to 11% in 2019. Together with other changes, this will raise a net £145m a year – around 60p a week per self-employed person.
He also addressed what he said was the “unfair discrepancy” between the total tax paid by an employed worker and one who has set up his own company. Mr Hammond said that he would reduce the tax-free dividend allowance for directors/shareholders from £5,000 to £2,000 with effect from April 2018.
The Chancellor also turned his attention to the question of skills. “Will our children enjoy the same opportunities we did?” he asked a rowdy House. He said that universities will be asked to sponsor free schools and barriers to setting up faith schools will be removed. The government will also enable the creation of new selective schools and 110 new free schools.
Mr Hammond also announced the introduction of ‘T-Levels’ that will replace 13,000 qualifications with just 15. He said the number of hours training for 16-19 year old technical students will increase by over 50%. The new qualifications will include including a high-quality three-month work placement for every student.
Concluding his speech the Chancellor praised his budget: “Today, we reaffirm our commitment to invest in Britain’s future. And we embark on this next chapter of our history, confident in our strengths, and clear in our determination, to build a stronger, fairer, better Britain.”
BUDGET: KEY POINTS
The state of the economy
• UK second-fastest growing economy in the G7 in 2016
• Growth forecast for 2017 upgraded from 1.4% to 2%
• But GDP downgraded to 1.6%, 1.7%, 1.9% in subsequent years, then 2% in 2021-22
• Inflation forecast to rise to 2.4% in 2017-18 before falling to 2.3% and 2.0% in subsequent years
• A further 650,000 people expected to be in employment by 2021
• Annual borrowing £51.7bn in 2016-17, £16.4bn lower than forecast.
• Borrowing forecast to total £58.3bn in 2017-18, £40.6bn in 2018-19, £21.4bn in 2019-20 and £20.6bn in 2020-21.
• Public sector net borrowing forecast to fall from 3.8% of GDP last year to 2.6% this year, then 2.9%, 1.9%, 1% and 0.9% in subsequent years, reaching 0.7% in 2021-22.
• Debt rose to 86.6% this year, but will fall to 79.8% in 2021-22.
The main rate of Class 4 National Insurance contributions to increase from current rate of 9% to 10% in April 2018 and 11% in April 2019, raising £145m a year by 2021-22 at an average cost of 60p a week to those affected.
Alcohol, tobacco, gambling and fuel
• A new minimum excise duty on cigarettes based on a packed price of £7.35
• No increases in alcohol or tobacco duties on top of those previously announced
• Vehicle excise duty rates for hauliers and the HGV Road User Levy frozen for another year
Pensions and savings
Reduction in tax-free dividend allowance for shareholders from £5,000 to £2,000 from April 2018
• £435m for firms affected by increases in business rates
• £300m hardship fund for small businesses worst affected
• Pubs with rateable value of less than £100,000 to get a £1,000 discount on rates they pay
• Any business losing existing relief will not pay more than £50 a month
• A tax avoidance clampdown totalling £820m to include action to stop businesses converting capital losses into trading losses, tackle abuse of foreign pension schemes and introduce UK
• VAT on roaming telecoms services outside the EU
• New funding totalling £20m to support the campaign against violence against women and girls
• A further £5m committed to project to celebrate the centenary of women having the vote, and to educate young people about its significance
• Funding of £5m to support people returning to work after a career break