Viewers of the purported last Spring Budget would be forgiven in thinking they had tuned into the latest iteration of Live from the Apollo.
Chancellor of the Exchequer Philip Hammond offered a generous serving of comedy to the formal proceedings – often at the expense of his Right Honourable gentle-people.
The uncertainty over Britain’s economic growth following the vote for Brexit is no laughing matter, and the Budget was billed to present a bullish outlook as the government finalises preparations before triggering the formal process of leaving the EU.
The Budget was touted to unveil plans to tackle the issue of adult social and long-term care – which has become more prevalent, with increasing pressure on existing provisions due to an ageing population.
It did not disappoint. Mr Hammond announced an additional £2bn of grant funding to local authorities in England over the next three years – half of which will be made available in the next tax year (2017/18).
However, arguably the more attention-grabbing announcement was on the launch of a green paper on social care funding. The move has been criticised by former pensions minister Sir Steve Webb who said it will prolong the “decade of dithering” on social care.
Plans to introduce a lifetime cap on care costs in England to £72,000 was scheduled to come into effect in April last year following the recommendations of the Dilnot commission in 2011, but has been deferred until 2020.
Sir Webb said: “We have had 20 years of reviews and commissions. What was needed was political courage to implement a system which protects all families from potentially huge care costs and stimulates a market in care insurance for those who want greater security. The government should commit now to implement the Dilnot proposals without further delay.”
Another listen-to-me moment centred on higher-paid self-employed workers who will pay, on average, 60p a week more in Nics by 2021/22.
He said class 4 Nics – applicable to self-employed individuals with profits of £8,060 or more a year – will go up from 9 per cent to 10 per cent in April 2018, then to 11 per cent in April 2019 on income up to the higher rate threshold of £45,000.
The rationale behind the move, according to the Chancellor, is to address a difference in Nics between those in employment and the self-employed.
He said an employee earning £32,000 will, between the individual and their employer, incur £6,170 of Nics, whereas a self-employed person earning the equivalent amount will pay just £2,300.
Keith Street, vice-chairman of group lending at The Northview Group, warned that the rise will have an impact on the ability of self-employed individuals to secure a mortgage.
However, Tom Costelloe, mortgage adviser at London-based Independent James, said this reaction is somewhat overblown. He said: “The increase in Nics is going to affect the income level of self-employed individuals and will in turn impact affordability, but not by very much.
“Lenders view self-employed people in a much more positive light than they have done in the past.”
The government has since back-pedalled on the controversial proposal following backlash from the public and Tory backbenchers. Prime Minister Theresa May announced vote on the measure has been postponed until the autumn less than two days after the Budget reveal.
The most significant news on the investment front was a cut in the tax-free dividend allowance from £5,000 to £2,000 – effective from April 2018.
The move will hit investors with dividends generating shares and funds held outside Isas and pensions tax wrappers.
Half of the people affected by the measure are directors and shareholders of private companies who remunerate themselves through dividends rather than salary according to the Chancellor.
The rest, he added, are investors in shares with holdings worth, typically, more than £50,000 outside Isas.
Jason Hollands, managing director of Tilney, said: "For those already maximising Isas and pensions, it may make sense to transfer directly held shares or funds to their spouse if they are non-taxpayer or basic rate taxpayer to reduce the tax liability. Such transfers between couples do not give rise to a tax charge, but do bear in mind full legal ownership and entitlement to the assets will take place.”
The document also revealed the government will introduced a 25 per cent charge on transfers of UK pensions to qualifying recognised overseas pension schemes from 9 March. It is aimed to deter individuals seeking to reduce their tax requirement by moving their nest egg to another country.
The levy will apply unless both the individual and the Qrop are in the same country from the point of transfer, or both are within the European Economic Area, or if the Qrop is provided by the individual’s employer.
Tom Selby, senior analyst at AJ Bell, said: “Qrops were originally designed to make it easier for people leaving the UK to retire to another country and take their pension with them. However, the structure has increasingly been manipulated by those looking to artificially cut their tax bills.
“The introduction of a 25 per cent levy for transfers to a country where the individual is not residing should act as a severe deterrent to abuse of the system.”
Other notable highlights of the Budget includes legislation that will introduced new penalties for people who facilitate tax avoidance as part of a wider government initiative to crack down on the issue.
The measure, which was originally flagged in the Autumn Statement, penalises promoters re-arranging their business by either sharing control of a promoting business or putting a person or people between themselves and the promoting business.
The government said the move will raise £820m for the Treasury by April 2022.
Overall, there was cause for optimism in the macro sense – particularly with bumper funding to education, according to Michael O’Brien, director of Essex-based Access Financial Services.
He said: “You can’t help but think of how these announcements will affect you personally. Many advisers are self-employed so the rise in Nics is a smack in the face to us. It is difficult enough to start a business as it is and now we have to pay more taxes even though we do not get the same benefits as employed people, like sick and holiday pay.”
Myron Jobson is a feature writer of Financial Adviser
Key points
Philip Hammond unveiled the Spring Budget last week.
He announced £32bn of grant funding to local authorities to pay for social care.
Also announced was a rise in Class 4 Nics for the self-employed.
