Posted by AndrewEarles on Wednesday 17th of May 2017.
The backdrop to Philip Hammond’s Spring Budget was very much dictated by the events between March and November 2016. In what proved to be his last Spring Budget, George Osborne performed a range of financial gymnastics to hang onto his one remaining borrowing target, the elimination of the budget deficit by 2019/20.
Even before the Brexit vote, that goal was looking unlikely to be reached. By July it – and Mr Osborne – had been abandoned. Although Mr Hammond talked early on about a “fiscal reset”, he wisely waited until the Autumn Statement to reveal new numbers. These markedly increased government borrowing over the comingyears and replaced Osborne’s projected £10.4bn surplus in 2019/20 with a £21.9bn deficit.
That projected increase in borrowing was more a recognition of post-referendum reality than any new policy initiative. Helpfully, it did give the new Chancellor some wriggle room: £12.2bn was added to the 2016/17 borrowing target, making it that much easier to hit and setting a higher baseline for 2017/18 onwards. However, the latest calculations from the Office for Budget Responsibility (OBR) suggest that not only will the Chancellor undershoot the revised 2016/17 target by £13.4bn – more than the November increase – he will also see marginally lower borrowing in the next three years than previously forecast.
One reason for the improved outlook is that the OBR has increased its growth forecast for 2017 from the 1.4% it saw in November to 2.0%, the same adjustment as the Bank of England made in its Quarterly Inflation Report. Economic growth further out is modestly reduced in the OBR’s latest projections. 2016 produced economic growth of 1.8%, marginally lower than the Autumn Statement estimate of 2.0%.
Inflation, running at 1.8% on the CPI measure (and 2.6% on the old RPI yardstick), is expected to reach 2.4% this year and 2.3% in 2018. While working-age benefits generally remain frozen, the government finances still suffer because of increased borrowing
costs on index-linked gilts. However, the government remains able to borrow 10-year money via the conventional gilts market at a rate of about 1.25% – just as well with over £55bn needing to be borrowed in 2017/18.
So what did emerge from the Spring Budget?
Much of the answer is to be found in the previous year’s Autumn Statement but, as ever, there were a few surprises, both
good and bad:
- A rise of £500 in the personal allowance to £11,500 for 2017/18.
- A £2,000 rise in the higher rate threshold for 2017/18, to £45,000, clawing back a small part of the under-indexation of earlier years. However, this will not apply fully to Scotland, where the higher rate threshold for non-savings, non-dividend income has been frozen.
- A reduction in the tax-free dividend allowance o £2,000 from 2018/19, just two years after its introduction at a level of £5,000.
- A £200 increase in the capital gains tax annual exemption to £11,300.
If you need further information on how you will be affected personally, please get in touch.