Budget 2018: summary
The sun was already edging behind the London skyline by the time Chancellor Philip Hammond rose to the despatch box to deliver the first Monday Budget since 1962 – pushed back to 3.30pm because of later Parliamentary sitting times on Mondays.
Officially, the traditional Wednesday slot was dispensed with this year to allow as much time as possible for debate in Parliament. The more cynical might have suspected it was actually to avert a Hallowe’en nightmare.
Either way, Mr Hammond could be forgiven if he was feeling cautious. This should be the last Budget before Brexit, taking place a few weeks earlier than usual to allow for crucial negotiations in November. It was, therefore, his best opportunity to influence the terms of the Brexit debate before the UK’s withdrawal from the EU next March.
Mr Hammond had admitted in interviews over the weekend that some measures would be contingent on the outcome of the Brexit negotiations and a further Budget could be needed in the event of a no-deal outcome – a claim subsequently played down by Number 10.
Mr Hammond has bitter experience of having to backtrack on a measure announced in a Budget and will have been determined to avoid a repeat of his first Budget in Spring 2017, following which he was quickly forced to cancel tax rises for the self-employed.
Adding to the pressure, the government lost its majority in the Commons at last year’s snap General Election, emboldening opposition parties to float the idea of voting down the Finance Bill.
- Economic overview
- Business and enterprise
- Public spending
- Personal tax, housing and welfare
Mr Hammond began his speech on a noticeably bold note, declaring that the “age of austerity is finally coming to end”, as he set out the fiscal and economic assessments from the Office for Budget Responsibility (OBR).
The OBR now forecasts growth next year of 1.6%, 1.4% in 2020, 1.4% in 2021, 1.5% in 2022 and 1.6% in 2023. Mr Hammond added that the OBR expects real wages to grow in each of the next five years.
He went on to report that the deficit is falling to 1.5% this year and next year, before dropping to 0.8% by 2023-24.
He said that these represent a “significant improvement” in the public finances, enabling him to set out a new path for public spending. He added that there will be a full Spending Review next year.
To cheers from his MPs, the Chancellor said business rates will be cut by one third for those with rateable values of £50,000 or less following the next revaluation exercise. This is expected to benefit 90% of independent firms.
He also announced a significant increase in Annual Investment Allowance from £200,000 to £1 million for the next two years.
He went on to say that the qualifying period for Entrepreneurs’ Relief will increase from 12 months to two years.
Meanwhile, in the only announcement relating to Making Tax Digital (MTD), Mr Hammond said that the VAT threshold will remain at £85,000 for the next two years, meaning additional businesses will only be subject to MTD for VAT if their turnover rises above this level.
Moving to direct support for businesses, he said that a modern industrial strategy, supporting nuclear fusion, quantum computing, artificial intelligence and more will receive £1.6bn in new investment. He also announced a £695m initiative to help small businesses hire apprentices.
Small businesses will see their contributions to the apprenticeship levy reduced from 10%to five%.
Less welcome for large online firms was the announcement of a UK Digital Services tax of 2% on money made from users in the UK from April 2020. However, this will only apply to firms with revenues of £500m or more and only if a good global alternative is not approved. Startups and SMEs in the sector will be unaffected.
Mr Hammond also announced that the National Living Wage is to rise by 4.9% from £7.83 to £8.21 in April 2019.
Contractors working through personal service companies for medium-sized and large businesses will be subject to the IR35 rules, but not until April 2020, instead of April 2019 as planned. This means that these businesses will need to determine whether any contractors should be treated as employees for tax purposes.
Mr Hammond also announced a consultation on a plastic tax where packaging contains less than 30 per cent recycled plastic, but ruled out a tax on cups, unless the industry fails to make sufficient progress.
Meanwhile, the Chancellor confirmed that HM Revenue & Customs (HMRC) will become a preferred creditor following insolvency.
Saying that some “bunnies” have already escaped the hat, Mr Hammond said that there will be £20bn for the NHS in England, £240m to assist with winter pressures on Social Care and £2 billion more each year for mental health by 2023-24.
As part of this, there will be mental health crisis centres providing support in every accident and emergency unit in the country. As supporters of Mind, our chosen charity for 2018/19, we value the Chancellor’s action on this.
For education, he announced what he described as a £400m “bonus” to spend on what he described as the little extra.
Turning to transport, Mr Hammond said that there will be a £30bn package for roads in England, including for motorways and pothole repairs.
Turning to defence, he announced £1bn additional funding for the Ministry of Defence this year and next year. This was followed by the announcement that an additional £160m will be provided for counter-terrorism policing.
Meanwhile, £10m will be provided to support mental health care for military veterans, marking the centenary of the end of World War One.
There will also be £1.7 million for education programmes to mark the liberation of the Bergen-Belsen concentration camp 75 years ago.
Mr Hammond said that an additional £500m will be provided to government departments to fund Brexit preparations. This follows £2.2bn that was announced previously and £1.5bn that he announced at the Spring Statement.
Meanwhile, one of his more eye-catching announcements was the minting of a commemorative 50 pence piece to mark the UK’s withdrawal from the EU next year.
Mr Hammond provided welcome news for individuals by bringing forward the increase in the Personal Allowance for Income Tax to £12,500 by a year to April 2019, increasing the Higher Rate threshold to £50,000 at the same time.
Motorists will benefit from fuel duty being frozen for the ninth consecutive year. Duties on beers and spirits will also be frozen for a year, but duty on wine rises.
First-time buyers purchasing shared ownership homes will no longer have to pay Stamp Duty Land Tax (SDLT) on properties valued at up to £500,000. £5.5bn will also be provided for a Housing Infrastructure Fund.
Turning to Universal Credit, which has provoked significant political controversy in recent years, he committed to spending an additional £1.7bn over the next five years.
Mr Hammond’s speech will inevitably be viewed through the ever-present prism of Brexit and dissected for any indication of the government’s intended direction of travel.
Yet, while pundits will spend the coming days interpreting the political detail of the speech and untangling its implications for various rivalries, it is the specifics of what the Chancellor announced that will have an immediate effect on businesses and individuals across the UK.
Notably, this includes important measures for small businesses such as a cut to business rates and a two-year increase in the Annual Investment Allowance from £200,000 to £1m.
However, how many of these measures actually come to pass will only become clear once the outcome of the Brexit negotiations is known. This may have been a Budget of some significance, or it may have been of little consequence at all.