“Austerity is coming to an end – but discipline will remain” were the words the Chancellor, Philip Hammond, used to summarise his October Budget speech. That balance between continued cuts and excessive borrowing was evident in the measures announced today. The Office for Budget Responsibility (OBR) forecast that borrowing in 2018/19 will be £11.6 billion less than it forecast in March. But the Chancellor’s net tax giveaway for 2019/20 was only marginally higher at £15.1 billion, rising to over £30.5 billion by 2023/24. A large slice of that apparent generosity is down to increased NHS expenditure, which starts at £7.35 billion in 2019/20, rising to £27.6 billion by 2023/24.
Mr Hammond was helped by the OBR increasing growth forecasts for the next two years, although it left the 2018 figure unchanged at 1.3%. A good example of Mr Hammond’s balanced approach was bringing forward the £50,000 higher rate threshold and £12,500 personal allowance to 2019/20 rather than 2020/21, as originally promised in the 2017 Conservative manifesto. Accelerating these changes only gives rise to a one-year cost because the personal allowance and higher rate threshold will be frozen in 2020/21.
Several other headline-grabbing measures also have a temporary effect on closer examination. The one-third cut to business rates for some retail properties will last for just two years, as will the increase in the annual investment allowance (AIA) to £1 million.
The rosier outlook from the OBR might change by the time the Chancellor is next due to present a fiscal set piece – his Spring Statement. As he said in his speech, he was “reserving the right to upgrade the Spring Statement to a full fiscal event” if “the economic or fiscal outlook changes materially in-year”.
The personal allowance will be raised to £12,500 from April 2019, one year earlier than previously planned. At the same time, the higher rate threshold will rise to £50,000, also a year ahead of schedule. Both the personal allowance and higher rate threshold will then remain unchanged in 2020/21 before being increased in line with the consumer price index (CPI) thereafter.
The pension lifetime allowance will increase to £1.055 million for 2019/20, with no change to the annual allowances.
The annual investment allowance will increase to £1 million for all qualifying expenditure on plant and machinery made between 1 January 2019 and 31 December 2020.
For two years from April 2019, business rates for retail properties with a rateable value below £51,000 will be cut by a third.
The minimum period throughout which the qualifying conditions for entrepreneurs’ relief must be met will be extended from 12 months to 24 months from 6 April 2019.
The proposed shared occupancy test for rent-a-room relief has been abandoned and the existing tests will continue to apply.
From April 2020, the final period capital gains tax (CGT) exemption for owner-occupied residential property will be reduced from 18 months to 9 months.
Copyright ©Harpsden 2018 (unless otherwise indicated). All rights reserved.