Budget 2018: Summary

2 November 2018

Walker Crips Wealth Management’s Tim Clasper reviews the winners and losers of the 2018 budget.

The Holding Budget

As Chancellor Phillip Hammond prepared to deliver what was the UK’s final Budget before leaving the European Union, 10 Downing Street claimed that contrary to Mr. Hammond’s own comments on the BBC’s Marr Show the night prior, the Budget would stand “irrespective of a deal” with the EU in March next year. While there are still many issues to resolve in trade talks with the EU, a no-deal type exit remains a possibility; and with growing calls for a second referendum amongst the public and some high-profile MP’s, the future is all but certain.  

The exchequer began proceedings by giving himself room to manoeuvre, telling the house the ‘spring statement’ could well be a full fiscal event if necessary.

An End to Austerity?

Theresa May boldly stated that Monday would signify the end of austerity. With borrowing lower than expected and upwardly revised economic forecasts from the OBR, self-proclaimed ‘Fiscal Phil’ had approximately £74bn at his disposal. The key areas of expenditure are outlined below:

- £30bn package for repairs and improvements to the road network

- £20.5bn extra funding for the NHS over 5 years

- £2bn per annum for mental health services

- £1.7bn increase to work allowances within the Universal Credit system

- £1bn increase to support the rollout of Universal Credit

- £1bn to MOD to increase cyber capabilities

- £700m for councils towards social care

- £675m of high-street funding

- £400m one-off capital payment to schools

- £160m increase in counter-terrorist police funding

In addition to a spending spree in excess of what was anticipated by many, credited to the “hard work of the British people” for enduring years of cuts, an increase of 4.9% in the National Living Wage to £8.21 was also confirmed.

Tax Changes and the Status Quo

It was announced Tory manifesto commitments to raise the personal allowance and higher rate tax threshold will be met one year early - £12,500 and £50,000 from April 2019 respectively, providing a welcome boost to taxpayers.

On the other hand, Treasury receipts from inheritance climbed above £5bn in the last tax year, highlighting the need for sound financial advice for those with larger estates being caught in this trap.

With the Office for Tax Simplification having commissioned a report into simplifying the perceived over-complicated IHT rules, there was no mention of the ‘death tax’ in this year’s budget. Watch this space.

For the last decade, the prelude to every Budget has been rife with speculation over pension legislation and this year has been no different. Despite the current tax breaks being described as “eye-wateringly expensive” by Hammond himself, with an estimated annual cost to the Treasury of £25bn, the Annual Allowance has remained unchanged at £40,000 and the Lifetime Allowance is due to increase in line with inflation as planned in 2019/20.

Making hay whilst the sun shines, particularly whilst savers are able to claim higher-rate tax relief continues to be prudent for the majority of the working-age population.

A headline-grabbing new 2% ‘tech-tax’ targeting internet giants with global revenues of over £500m has been introduced, which is estimated to boost Treasury coffers by £400m. Described as ‘gesture politics’ by members of the opposition, we would expect to see significant progress on a global consensus on taxation of the FAANG (Facebook, Apple, Amazon, Netflix, Google) type companies in the next 18 months. This legislative risk continues to weigh on fund managers minds, as despite rapid growth in Silicon Valley over recent years, tech giants remain exposed to the potential for stricter taxation and regulation in future.

Perhaps the biggest losers of the day were the self-employed with an extension of IR35 rules to the private sector as the Government continues its aim to even the playing field between employees and contractors from a tax and NI perspective.

Other highlights

- Allowances for ISA and JISA subscriptions remain

- The minimum qualifying period for entrepreneurs’ relief has been extended from 12 months to 2 years in a bid to crack down on abuse of the rules

- £900m in business rates relief for small businesses

- Plastic tax on less than 30% recyclable plastic imports

- Fuel duty frozen for another year

- Beer and spirit drinkers will rejoice at a further freeze in duty but increases to the tune of RPI on wine duty will penalise those whose tipple of preference is derived from grapes

Summary

Whether this Budget truly represents an end to austerity will largely come down to political persuasion, but what cannot be denied is that this marks a significant change in this Government’s spending policy, with a majority of the funds available to the Chancellor being directed towards public services. With a Brexit backdrop as we have, this is all but conclusive and global markets will be far more concerned with what happens in March and the mid-term elections across the pond next month.