Amidst a backdrop of Conservative party division over Brexit, Chancellor Philip Hammond delivered his first Autumn Budget on Wednesday. Hammond’s new schedule sees the Budget swap places with the Autumn Statement, which itself becomes a low-key Spring Statement in March.
The Chancellor’s final Spring Budget earlier this year attracted criticism from within his own party over the controversial plans to raise National Insurance contributions for the self-employed, a stance he was forced to perform a U-turn on mere days after the announcement. With the ongoing debate over Brexit dividing the Tory ranks, he was unlikely to want to risk upsetting backbenchers in the same way this time around, aiming instead to steer a path clear of controversy.
There was much made about this being a Budget to appeal to younger voters, after analysis of the last election showed that this is where the Tories lost support, and there was certainly plenty in there to appeal to the under-40s.
The Chancellor announced a commitment to getting 300,000 new homes built per year as, he says, “it is not acceptable to us that so many fewer young Britons are able to own a home”. This was also evident as the driver behind changes to the stamp duty for first-time buyers which he abolished for all first-time property purchases up to £300k, and on the first £300k of properties which exceed this figure, up to a limit of £500k.
Although he was no doubt keen to avoid further debate on the issue, the Chancellor had to acknowledge Brexit from at least a financial and economic perspective. He has already directed £700m to preparation for Brexit and on Wednesday committed a further £3bn over the next two years.
As part of a commitment to embrace the opportunities of tech and innovation, Hammond announced handouts to support development of artificial intelligence, next-generation 5G mobile networks across the UK, more electric car charge points, and promotion of clean car purchases as well as regulation changes to allow driverless cars to take to the roads by 2021.
What’s in it for investors?
Former chief of staff to George Osborne, Rupert Harrison – now a senior figure at BlackRock, one of the largest investment firms in the world – said in advance of the set-piece that Hammond should aim to deliver a cautious Budget to avoid alienating investors: “I think in a moment when the world has got some question marks about the UK anyway, it’s time for a bit of consistency and a bit of patience.” With uncertainty about the direction the UK economy is heading, he added that the markets would more readily welcome a “steady as she goes” approach.
Hammond’s Budget was in keeping with this view, with little of notable inclusion for investors, however a number of points of interest can be picked out…
Enterprise Investment Schemes
In the run-up to the Budget, changes to the EIS had been mooted by commentators. The EIS provides tax relief worth 30% for investments in high-risk companies plus Capital Gains Tax exemption on disposal of the shares after a set period.
In response to a Government review this year, the Chancellor announced the doubling of EIS investment limits for ‘knowledge intensive companies’ as part of an ‘Action Plan’ to unlock over £20 billion of new investment in UK scale-up businesses. However, he also emphasised that there would be plans to ensure that the EIS system is not used as a shelter for low-risk capital preservation schemes.
Ahead of the Budget, Philip Hammond came under pressure from UK businesses to drop a planned 4% rise in business rates next year. The fear is that such a rise would damage investment and result in more firms relocating abroad ahead of Brexit.
The 2018 rise in business rates is currently linked to the retail price index (RPI), which will mean a total £1.1bn rise in property taxes. Business groups have been lobbying the government for a rise tied to the consumer prices index (CPI). Hammond acknowledged this lobbing from the British Chambers of Commerce, CBI and other business organisations and committed to bring forward the planned switch from RPI to CPI by two years, to April 2018, “a move worth £2.3bn to businesses over the next five years.”
Pensions and savings
There were very few mentions of pensions and savings in the Budget. In contrast with previous years, when a number of significant and complex changes have been announced, there was barely any mention of either. Commentators have welcomed this and the chance it offers people to get to grips with the new rules.
The annual ISA limit for 2018-19 will remain unchanged at £20,000. However, the annual limit for Junior ISAs and child trust funds for 2018-19 will increase in line with CPI inflation to £4,260. The lifetime allowance for pension savings will increase in line with CPI inflation from £1m to £1.03m for 2018-19.
The following points have already been announced but not implemented yet and are scheduled for April 2018 and beyond:
- Tax: A manifesto pledge to increase the personal allowance to £12,500 by 2020-21. This currently stands at £11,500. The threshold for higher rate of tax is set to also increase to £50,000 by 2020-21, from its current level of £45,000. Hammond announced that, from April 2018, the personal allowance will rise to £11,850, while the higher rate threshold will rise to £46,350.
- Inheritance Tax: The Transferable Main Residence Allowance will come into effect, set at £100,000 for 2017/18, giving a total IHT allowance per person of £425,000. This will rise gradually to a total allowance per person of £500,000 by 2021.
- Reduction of tax-free dividend allowance: Director-shareholders of private companies (who hold shares outside of a tax-efficient ISA) will see a tax break reduced on the dividends they receive. The tax-free dividend allowance – which came into force in 2016 – will be reduced from £5,000 to £2,000 from April 2018.
Much as expected, the first Autumn Budget turned out to be a fairly cautious affair. On the whole, it was a Budget to allay concerns and win back voters. The main economic concern was clearly the slashing of the UK growth forecasts for the next five years. From a financial markets point of view, the FTSE 100 closed up slightly on the day, reflecting the careful tone.
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