Chancellor Phillip Hammond's unsavoury Spring Budget promises to hit the middle class below the belt, also spelling utter misery for all those who have put their money on stock market, property and other assets. The "interim statement in disguise of a full Budget" while, fairly addressed several key issues including business rates for small businesses, increase in the NICs for the self-employed, and a gracious £2 billion for what is an over-stretched social care system, remains a combination of the good, the bad, and the ugly.
His first-ever budget as the Chancellor, Hammond gave a lukewarm speech as he mixed tax grabs on the self-employed and dividends with new spending on social care and financial help for small businesses. He also effectively managed to cook up a storm with his National Insurance for self-employed workers- one of the driving forces of the economy, claiming it to be upto 2 per cent. Tory MPs were quick to point out that it broke the party's 2015 manifesto pledge not to put up National Insurance, Income Tax, or VAT. It will only come to effect in April 2018, when real trouble will begin to brew.
A direct attack on common households, Budget documents reveal that the amount families pay in capital gains tax and inheritance tax is most likely to rise, as the government further pushes the middle class over the brink. Wealth taxes are set to cost families over £ 80 billion in the span of the next five years. Critics were quick to point out that taxes on wealth were "wrong".
National Insurance Contributions (NICs)
As per current rules, employees pay Class 1 NICs at 12 per cent on earnings between 827 and 3583 per month, and 2 per cent on earnings above that level. After this, employers pay an additional 13.8 per cent on salaries and the majority of benefits. In contrast, self-employed individuals pay Class 4 NICs at 9 per cent on profits between 8060 and 43,000 with 2 per cent being paid on profits above that level.
Considering the 3 per cent differential in Class 1 and Class 4 rates, and the abolition of Class 2 NICs, the government consider that the differential between NICs paid by employees and those paid by the self-employeed is massive. Which is why, Hammond announced an increase from 9 to 10 per cent in the main rate of Class 4 NICs in April 2019.
The ONE bonus everyone agrees with, is the raise on the basic state pension from £119.30 to £122.30, worth an extra £156 a year, to be put into effect from April 6. People on the new flat-rate pension can expect weekly payments advance from £155.65 to £159.55, worth £202.80 annually. The 2.5 per cent hike are a merely a few metres away from the forecast inflation rate of 2.4 per cent for 2017.
Good news for the young, the new Lifetime ISA set to launch next month, will give those aged between 18 and 39, a generous incentive to save for their first home or retirement. Under the scheme, one can save up to £4,000 a year and claim a 25 per cent bonus of up to £1,000 on top, which gives them a maximum contribution of £5,000. Those intending to benefit from it, must open a 'Lisa' before they turn 40, and then can save every year until 50.
Those contributing the maximum every year from 18 until 50, will be entitled to a total bonus of £32,000 under current rules. However, the money can only be used as a deposit on the person's first-ever home. Savers who draw money before the age of 60 for any other reason, will be entitled to pay a 25 per cent penalty. After 60, money can be taken penalty-free as retirement income.
Between everything's that been said, and done, one cannot help but notice a few key points that the Chancellor seems to have deliberately overseen. Someone who claimed Brexit to be priority, Hammond failed to talk about the size of the UK’s ‘exit bill’ from the EU. The UK is expected to pay the EU somewhere between €40 billion and €60 billion, before it can commence any trade talks. The weight of the sum will supposedly all on UK's liabilities such as unpaid budget commitments, pension liabilities, loan guarantees and spending on UK-based projects. The Office of Budget Responsibility has not made any explicit allowance for exit-related payments, instead stating that none can be made until "more information becomes available."
Immigrants. While they were entirely overlooked from the Budget speech, OBR forecasts assume net migration will fall to 185,000 a year from 2020-21 onwards, from 273,000 over the year to September 2016. While it remains important to cut down on the number of immigrants coming over each year, the UK government merely said it is "considering very carefully the options that are open to [it] to gain control of the numbers of people coming to the UK from the EU."
While Hammond declared that "real wages will continue to rise in every year," he failed to mention that wages will grow at a tortoise's speed as compared to prices this year, and that the earnings growth forecast for the next four years will be much lower.