As the Chancellor promised back in his Autumn Statement, 2017 will have two Budgets. This first one was supposed to be low-key – something of a departure given his predecessor’s predilection for pulling rabbits from hats. The economy is performing slightly better than anticipated; government borrowing is slightly lower. However, the spectre at the feast is Brexit and the Chancellor does not intend to tie himself to a specific course of action before the economic effects of article 50 become clearer.
So with no major economic or political pressure to do much of anything, the Chancellor aimed for what he described as a “boring” Budget. He announced some tweaks, partly targeted at the government’s perennial theme ‘fairness in the tax code’. But mostly he opted to maintain course, with previously announced policies coming to fruition or going for consultation. No rabbits on the menu, in other words.
To this end, the Apprenticeship levy commences in April (2017) alongside the new 16.5% rate for those registered for flat rate VAT, and the revamped IR35. Insurance premium tax is due to rise in July. A new financial penalty for professionals who create tax avoidance schemes will kick in over the summer. A number of calls for evidence & consultations will be published on the tax treatment of different forms of remuneration for employees.
There was little in the Budget to add to previously announced infrastructure investment, although there will be a further £220m for transport infrastructure and £690m for local authorities to spend on local transport to ease congestion. These should help move infrastructure spending towards the government’s target of 1% of GDP. Good news for the construction industry.
The Chancellor has identified low productivity in the UK as a major brake on economic growth. Consequently, the government will focus on technical skills STEM subjecands (science, technology, engineering and maths). The current paths to technical skills education are unclear and accordingly the Chancellor announced a white paper on technical skills and education investment. Details are light, beyond the mooted T-level qualification and a desire for high quality work placements. Nevertheless, this marks another effort to combat the near-constant skills shortages suffered by the construction industry, among others.
Almost a boring Budget, then, but not quite. Firstly, the tax-free dividend allowance will be reduced from £5,000 to £2,000 in April 2018. Given that the allowance was introduced in 2015 to cushion the blow after the previous tax credit regime was scrapped, this might prove to be a controversial move. Incidentally, this is predicted to raise more revenue than the national insurance (NICs) changes that have dominated the headlines since the Budget.
On which note, the main rate of class 4 NICs was due to increase to 10% from April 2018, and to 11% the following year. The measure attracted a great deal of negative attention both for being unduly harsh on the self-employed & because it appeared to break a Conservative manifesto pledge not to increase income tax, VAT or NICs. It’s worth noting the government denies this on the basis that the so-called ‘triple lock’ tax pledge applied to class 1 NICs only.
The Chancellor has now announced, in a letter dated 15 March 2017, that the government will not proceed with the class 4 NICs increase, although the abolition of class 2 NICs will go ahead in April 2018, as planned. At the time of writing, then, this unpopular policy appears to be toast.
Nevertheless, even accounting for such controversy, the Budget billed as something of an appetizer before the main course was in truth more of a light snack – the next Budget will surely be more consequential.