After this week, the centrepiece of the financial year is being shunted to the Autumn. Good news, no doubt, for the city bigwigs, fund managers, chief executives and financial hacks and flacks who’d rather be betting on which horse will romp home at Cheltenham than which tax relief, pension allowance or benefit will be axed this time.
But for those wanting to take a punt on what will be in Philip Hammond’s Budget Box tomorrow, here are some likely runners and riders.
Despite having an extra billion or two to play with thanks to higher than expected economic growth and bumper tax receipts, it seems a racing certainty that there won’t be any big money giveaways. In interviews this weekend, the Chancellor made it clear that the increase in tax receipts was ‘fuel for the tank’ — and he gave a timely reminder on the size of the UK deficit.
He may have ditched George Osborne’s commitment to move into surplus by the end of this Parliament, but this doesn’t mean he’s going on a spending spree, particularly while the uncertainty of Brexit remains. All rabbits will be austerity-skinned first.
But the challenges posed by Brexit will shape other aspects of the Budget. One dead cert is that Hammond will announce a big shake-up of technical training and education, with the introduction of new ‘T-levels’.
He is expected to stump up around £500 million for further education colleges to help support the ‘new pathways’ into a range of technical based careers —from construction to more design-based professions. This, it is hoped, will help plug gaps that may be left by more highly-skilled EU migrants.
Other bookies’ favourites include an increase to the personal allowance — the first slice of your earnings on which no tax is paid. This is already scheduled to rise from £11,000 to £11,500 from April 6 this year. Hammond will no doubt ‘reannounce’ this. It is the government’s stated aim to increase this to £12,000 by the end of this Parliament (2020), so we may hear about future increases too.
On a similar note, the rate at which people start paying higher-rate tax is also set to rise from April, to £45,000. Again there is an ‘objective’ to get this to £50,000 by the end of this Parliamentary term, so there may be further clarification of how near we are to this goal. Expect to hear — again — how many low and middle income earners stand to benefit from these changes.
Pubs and restaurants are also likely to be in line for some assistance after the furore that has exploded over the re-banding of business rates. In his last Autumn statement Hammond described changes to regional business rate reliefs as ‘complicated, but good news’. These rate rises look to be straightforward bad news with some small businesses facing potentially ruinous increases. Expect some emergency, if temporary, relief.
I’d say it’s an odds on favourite that we’ll also hear more about new infrastructure projects, particularly in the regions. Increased infrastructure spending has been one of the key themes of this government. Given the Copeland by-election success, I don’t think Hammond will be able to resist an opportunity to crow about the Conservatives spending money in areas that have traditionally been seen as Labour heartlands.
It may be small fry, but we may hear more details about the new savings bonds promised from NS&I. The Chancellor could confirm what this ‘market-beating’ rate will be (spoiler alert: it will be pretty paltry), and how much people can salt away into these accounts. Savers have been squeezed in recent years, so Hammond may be keen to make the most of these slim pickings of good news.
What lots of people would like to see is a bigger spending commitment on social care. There may be some extension to the current rules, allowing local authorities to bring forward council tax rises. But wholesale reform of social care funding is widely expected to fall at the first hurdle. The best we can hope for is yet more consultation on this issue, with perhaps (another) cross-bench commission, or (further) independent reviews — all of which will effectively kick these knotty issues further into the long-grass.
Of course, these all relate to the Chancellor’s spending plans. How does he plan to pay for them? As stated above, any significant increase in borrowing seems to be a non-runner. These, albeit modest giveaways, will be funded through tax rises, or spending cuts.
The most fancied is an increase is National Insurance payments by the self-employed (who currently pay slightly lower rates than the employed). This could see Class 4 NI payments rise from 9 per cent to 12 per cent.
One unforeseen consequence of this may be that more self-employed people opt to set up their own businesses: remunerating themselves with dividends and paying corporate tax rates instead. This may look increasingly attractive if business taxes are cut further, to make the country more competitive, post Brexit.
To try to inhibit this the Chancellor may announce further changes to the way dividends are taxed, to harmonise the total tax paid between the self-employed and small one-man-band businesses. There have already been changes to the way dividends are tax. This could go further.
There will be, as there always is, pledges to find savings within government departments, cut our bureaucratic waste and clamp down on tax avoidance and evasion. Few would argue against this — although I’m left wondering how this will raise significantly more than previous ‘crackdowns’. Governments always seem far keener on announcing such initiatives than revealing how successful they were.
Most years there are vague rumours that the Chancellor could reduce higher-rate tax relief on pension contributions. This would potentially net him significant sums, but be hugely unpopular, particularly with traditional Conservative voters. Given the introduction of the Lifetime ISA this year, this seems highly unlikely to get out of the starting blocks at present. It makes more sense to wait and see whether these new ISAs can supersede pensions.
Finally, there may be some changes to inheritance tax. This is more of a long-shot, but it could go some way to alleviating social care costs by effectively implementing an additional one-off charge on estates over a certain limit to help fund care for the elderly.
This is hardly likely to be popular though, so it may be implemented along with other IHT charges, perhaps giving people during their lifetime more scope to gift money or assets to children or grandchildren struggling to get on the housing ladder or pay off university debts.
This of course will benefit traditional Tory voters, with houses, investments and savings — but do little for those who are struggling to fund their own retirements, let alone provide a helping hand to those a generation or two behind.
Emma Simon is a freelance consumer journalist and former Personal Finance Editor at The Sunday Telegraph