From the top Fred Heritage · 10 March 2017
Five things in the Spring Budget you may have missed
At just 64 pages long, Philip Hammond’s first Spring Budget announcement, delivered on 8 March, was one of the shortest given by any chancellor in recent decades. As was expected this time around, there were few major upsets or obvious surprises in his speech, as Hammond took the opportunity to reassure us all the economy was being steered in the right direction by a government that was taking the next steps to prepare Britain for a global future. Whether you believe that or not is a debate for a different article. In most Budget announcements, however, the devil is often in the detail, and despite Hammond’s “keep calm and carry on” rhetoric, there are a few things, hidden in the small print of the chancellor’s Red Book and the Office of Budget Responsibility’s (OBR) impact assessment, the government may have tried to brush under the carpet. Business Advice has identified a few aspects of this year’s Spring Budget you may have missed, but that ultimately may end up having an impact on small business owners. (1) Changes to NICs could cost the self-employed big in years to come As a standout announcement in this Spring Budget, Hammond has had to defend his decision to increase Class 4 national insurance contributions (NICs) for self-employed people tirelessly since revealing the plan on 8 March. The chancellor has been accused of breaking a Tory manifesto pledge from 2015, in which David Cameron promised tax and NIC hikes would not be introduced until at least 2020. By breaking that promise, Hammond has faced criticism from ministers and commentators on all sides of the political spectrum for his plan to increase Class 4 NICs, which he said will raise 145m a year for public services when combined with the intended abolition of Class 2 NICs. The chancellor, on top of the initial political scorning he’s received for the new measures, may also come under fire from the UK’s self-employed population in years to come, as it seems he also failed to mention the scarily high standalone costs raising Class 4 NIC is likely to bring. Table 2.1 on page 26 of the Budget report outlines that raising Class 4 NICs incrementally from 9 per cent to 11 per cent by 2020 will cost self-employed people around 325m in 2018/19, 645m in 2019/20, 595m in 2020/21 and 495m in 2021/22. In total, the hikes will cost self-employed roughly 2bn a significantly higher figure than the 145m a year Hammond outlined in his speech. (2) The National Living Wage will not hit its 2020 target Further small print, on page 58 of the OBR’s impact assessment, suggests the government’s pledge to increase the National Living Wage (NLW) to 9 an hour by 2020 is overly ambitious, and that the amount NLW will increase by will be lower. Due to lower UK earnings forecasts since George Osborne made his final Budget announcement last year, the OBR predicted NLW will be 8.75 an hour by 2020. The OBR doesnt have powers to set the NLW rate, but it’s predictions are based on labour market growth forecasts that the government follow closely. (3) Van drivers could be in line for a diesel tax this Autumn The chancellor angered some green campaigners on 8 March by failing to address air pollution a problem which has been blamed for the deaths of up to 9, 400 people a year in London in his speech to the House of Commons. But, according to a Budget report footnote, the government will continue to explore appropriate tax treatment for diesel vehicles, and will engage with stakeholders ahead of making any tax changes at Autumn Budget 2017. (4) The fiscal outlook may not be so great after all At the start of his speech, the chancellor made a big deal of the level of public borrowing in the UK this year, citing that total borrowing had been revised down from 68.2bn to 51.7bn in 2016/17.
ABOUT THE EXPERTFred Heritage
Fred Heritage was previously deputy editor at Business Advice. He has a BA in politics and international relations from the University of Kent and an MA in international conflict from Kings College London.