Fiscal Phil and his Brexit and election beating budget
The chancellor, Philip Hammond, surprised everyone with an optimistic budget that increased spending across the board, ringing alarm bells for economists near and far. But it was clearly designed to allay Brexit fears and potentially lay the groundwork for an early election.
As well as calling it a budget for Britain’s future and declaring the austerity era finally over, Hammond hoped to appeasing disgruntled voters with increased spending in areas such as defence, the NHS, schools, new homes and our high streets.
It had long been rumoured that the Chancellor would reduce the fiscal benefits of pension saving, but that didn’t materialise and there were no other surprises elsewhere either. Public finances are in better shape than expected and that’s probably why the Chancellor held off on pension changes.
The surprise, though, is the jump in spending. That might be good for the economy and should put some wind in its sails, but given the prognosis of weak growth from the Office of Budget Responsibility (OBR) there was no evidence of robust growth to justify increased spending – unless of course the government is already electioneering… Here’s a round up of the key budget announcements:
Cold calling banned
The rate of people losing their pensions to fraudsters and scammers continues to rise relentlessly so it was welcome news that the government is bringing forward regulations to ban cold calling about pensions. It won’t stop scammers altogether, but it’s a step in the right direction.
There was a sigh of relief when the Treasury confirmed that the pensions Lifetime Allowance (LTA) will rise to £1,055,000 from April next year. There had been some concerns that the LTA would be progressively reduced, but obviously the government has seen sense.
Pensions for self-employed
The Department for Work and Pensions (DWP) has been studying how to ensure the self-employed are adequately covered for retirement. It had previously looked at doing so through auto enrolment, but this was abandoned for being too complicated. But winter, the DWP will publish a paper setting out the Government’s approach to increasing pension participation and more frequent saving among the self-employed.
Personal tax boost comes early
Christmas is coming early or at least the increase in the personal allowance is coming early. The chancellor resisted calls to freeze the personal allowance and decided to raise it a year earlier than planned to £12,500 from April 2019.
What’s more, he’s also rewarding higher-income earners by increasing the Higher Rate Threshold (the amount of income you earn before you pay the higher rate of tax at 40%) to £50,000, which will benefit them higher-income earners by as much as £730 a year.
More money for social care
Fiscal Phil also announced a an additional £650m in 2019/20 to help English councils meet spiralling social care costs. Although this investment is welcome, the government has yet to announce details of its long-term reform of social care and help people plan their finances for the future.
Increase in Junior ISA allowance
There were no new ISA announcements and no increases in the current allowance. However, kids got a boost with the annual allowance for Junior ISAs and Child Trust Funds rising in 2019 to £4,368 in line with inflation.
Fangs very much
There has been much debate and discussion globally about how to make global tech giants pay their fair share of tax, especially as traditional bricks and mortar businesses are unable to compete on the same terms. Fiscal Phil has decided to act and will be charging digital businesses a new 2% tax on revenues derived from UK users (let’s call it an additional VAT).
The tax will only target the largest businesses – those with global revenues of over £500m, and £25m or more linked to users in the UK, but could generate tax revenue of more than £400m a year by 2022/23. That might seem like small change for the likes of Amazon, Facebook etc, but it’s a sign that things are finally starting to change.
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