The Chancellor of the Exchequer presented his spring budget on 8 March 2017.
This was the last spring budget: in future, there will be an autumn budget, focusing on fiscal measures, and a spring statement, which will respond to the Office for Budget Responsibility’s forecast and launch consultations on future reforms.
The main themes of Mr Hammond’s budget were improving productivity by investing in skills, schools and technology; providing more funding for health and social care; and continuing to reduce the deficit.
The economy and public finances
UK economy – the economy grew by 1.8% in real terms in 2016, more than forecast, with GDP increasing by 1.1%. Growth in household consumption has remained strong, though without a sharp increase in household debt. Investment fell by 1.5% over the year. The deficit on trade in goods and services continues, at 1.9% of GDP. The current account deficit has widened to 4.9% of GDP in the first three quarters of 2016. Inflation has risen, with the consumer price index (CPI) rising to 1.8%. The employment rate has risen to 74.6%, and the unemployment rate has fallen to 4.8%. Productivity growth rose by only 0.4%. Pay rose by 2.6% in the three months to December 2016 compared with the same period in 2015. Real household disposable income has continued to rise.
Economic outlook – the forecast for GDP by 2021 is broadly unchanged since the autumn statement, though stronger growth is expected in 2017. Household debt as a proportion of income is predicted to increase. The current account deficit is expected to narrow to 2% of GDP in 2021. CPI inflation is forecast to be 2% by 2021. The unemployment rate is predicted to rise slightly, but lower than expected previously. Forecasts for productivity growth are unchanged; predictions for earnings growth have been revised down slightly. Real household disposable income is forecast to fall initially, but then return to growth, reaching a 1.2% annual increase in 2021. It is expected that the pace of consumer spending will slow and private investment will remain subdued.
Monetary policy – the symmetric inflation target of 2% for the twelve-month increase in the CPI is reaffirmed.
Fiscal outlook – total tax receipts in 2016–17 are expected to outperform predictions in the autumn statement, but the forecast for total revenues in 2021–22 is largely unchanged. Public spending is lower than predicted in 2016–17 but broadly unchanged by the end of the forecast period. Public sector net borrowing for 2016–17 is expected to be £51.7 billion – £16.4 billion lower than forecast in the autumn statement. By 2021–22, it is expected to be £16.8 billion – £0.4 billion lower than forecast, and the lowest deficit as a share of GDP in two decades. Public sector net debt is predicted to fall to 79.8% of GDP in 2021–22.
Fiscal mandate – the target of bringing cyclically adjusted public sector net borrowing below 2% of GDP by the end of the parliament is now expected to be met two years early, with borrowing forecast to be 0.9% of GDP in 2020–21.
Welfare cap – welfare spending is forecast to remain within the cap and margin set in the autumn statement. There are no plans to introduce further welfare savings.
Public spending – discipline on public spending is to be maintained. A review of the state pension age is being carried out. Total managed expenditure as a share of GDP is forecast to fall to 37.9% in 2021–22, roughly the same proportion as in 2004.
Efficiency review – £3.5 billion of resource savings will be delivered in 2019–20, of which £1 billion will be allocated for reinvestment in priority areas. Sir Michael Barber will lead a review on strengthening the culture of efficiency in government.
Asset sales – Lloyds Banking Group is expected to be fully returned to the private sector by the end of 2017–18, with all £20.3 billion injected in the bank to be recovered. The sale of Bradford & Bingley mortgage assets is forecast to be concluded by the same date. Options for the sale of wider corporate and financial assets will be explored, and the sale of the student loan book is continuing.
Longer-term outlook – in the long term, demographic and economic trends will require increased spending on health, social care and pensions. A long-term boost in productivity is considered essential to avoid an unsustainable upward trajectory in public sector debt.
National insurance contributions – class 4 NICs will increase from 9% to 10% in April 2018 and to 11% in April 2019, partially offsetting the abolition of class 2 NICs already in train and aligning NICs paid by self-employed people more closely with those paid by employees. The government will also consider whether there should be greater parity in parental benefits between employees and the self-employed.
Dividend allowance – the tax-free dividend allowance will be reduced from £5,000 to £2,000 from April 2018. This will reduce the tax differential between employees and self-employed people who operate through a company, though it will also affect others in receipt of dividend income. Further measures to align the tax treatment of employees and the self-employed are likely when the Taylor review is published later in the year.
Different forms of remuneration – the government will consult on the tax treatment of benefits in kind, accommodation benefits and employee expenses, with a view to making the tax system fairer.
NS&I investment bond – the interest rate for this new investment, available from next month up to a maximum investment limit of £3,000, is confirmed at 2.2% for three years.
Master trust tax registration – the tax registration process will be aligned with the pensions regulator’s new authorisation and supervision regime.
Research and development expenditure credits – there will be changes to simplify the procedure for making claims.
Patient capital – tax reliefs aimed at encouraging investment and entrepreneurship will be reviewed.
Withholding tax on interest – administrative simplifications of the double taxation treaty passport scheme will be renewed and extended. Interest on debt traded on a multilateral trading facility will be made exempt from withholding tax.
Business rates – in addition to reliefs announced previously, businesses losing small business rate relief will have increases in their bills limited to the greater of £600 or the transitional relief cap applicable; local authorities will have £300 million to provide discretionary relief to support individual hard cases; and for one year there will be a £1,000 business rate discount for public houses with a rateable value of up to £100,000 (subject to state aid limits for businesses with multiple properties). The aim to move towards more frequent revaluations will be progressed.
Stamp duty land tax – the reduction in the filing and payment window will be delayed until 2018–19.
Offshore property developers – all profits realised by offshore property developers on land in the UK will be subject to tax, with immediate effect.
Rent-a-room relief – there will be consultation on redesigning this relief so that it is better targeted towards longer-term lettings.
Energy and transport tax
Vehicle excise duty and the road user levy – VED rates for cars, vans and motorcycles will increase by the retail prices index (RPI). HGV VED and road user levy rates will be frozen, and there will be consultation on updating the road user levy to reward hauliers who plan their routes efficiently.
Red diesel – the government will call for evidence on the use of red diesel, especially in urban areas.
Air passenger duty – rates for 2018–19 will be uprated in line with RPI.
Carbon pricing – further details on carbon prices for the 2020s (currently set by the EU) will be provided in the autumn.
Levy control framework – this will be replaced by a new set of controls, to be announced later in the year.
Oil and gas – the government will publish a paper on allowing transfers of the tax history for late-life oil and gas assets between buyers and sellers, and establish a new advisory panel to examine the options.
Aggregates levy – the rate for 2017–18 will continue to be frozen at £2 per tonne.
Landfill tax – the value of the landfill communities fund will remain unchanged, with the cap on contributions by landfill operators increased to 5.3%. There will be consultation on extending the scope of landfill tax to illegal disposals of waste.
Packaging recycling targets – packaging recycling targets will be increased by 2020 to 75% (paper), 64% (aluminium), 85% (steel) and 48% (wood). Overall targets will be increased to 75.4% (recycling) and 82% (recovery).
Alcohol – rates on beer, cider, wines and spirits will increase by RPI. The government will consult on new duty bands for still cider just below 7.5% abv and for still wine and made-wine between 5.5% and 8.5% abv.
Tobacco – duty on tobacco will increase by 2% above RPI, and new a minimum excise tax, set at £268.63 per thousand cigarettes, will be introduced.
VAT – the registration threshold will increase to £85,000 and the deregistration threshold will decrease to £83,000.
Soft drinks industry levy – this will be 18p per litre for added-sugar drinks with a total sugar content of 5 g or more per 100 ml and 24p per litre for those with a total sugar content of 8 g or more per 100 ml.
Insurance premium tax – the standard rate will increase to 12% from June 2017, as already announced, and legislation will introduce anti-forestalling provisions.
Making Tax Digital – the introduction of Making Tax Digital and quarterly reporting for unincorporated businesses and landlords with turnover below the VAT threshold will be deferred by a year to April 2019. There will be consultation on the design aspects of tax administration, including interest and penalties.
Tax simplification – the cash basis entry threshold will be increased to £150,000 and the exit threshold to £300,000, with extension to unincorporated landlords. Rules for capital and revenue expenditure will be simplified.
Large business risk review – HMRC will consult on its process for risk-profiling large businesses and promoting compliance.
Avoidance, evasion and compliance
Avoidance – legislation will be introduced to tighten the regime applicable to promoters of tax avoidance schemes. There will be a new penalty for a person who has enabled another person or business to use a tax avoidance arrangement that is later defeated by HMRC, and the defence on having relied on non-independent advice as taking reasonable care will be removed. The ability to convert capital losses into trading losses will be removed. A 25% charge will be introduced on transfers to qualifying recognised overseas pension schemes, subject to exceptions where the need to transfer is genuine. The VAT use-and-enjoyment provisions for business-to-consumer mobile phone services to individuals will be removed.
Evasion – there will be a consultation on options to combat missing-trader VAT fraud in the construction sector, including applying the reverse-charge mechanism so that the recipient accounts for VAT. The government will call for evidence on a new VAT collection mechanism for online sales, addressing non-payment of VAT by overseas traders by allowing VAT to be directly collected at the point of purchase (the split-payment model).
Compliance – guidance will be provided for employers who make payment of image rights to their employees. Compliance with National Insurance employment allowances will be monitored.
Fraud, error and debt
Tax credit debt – the Department of Work and Pensions will recover a volume of HMRC tax credit debt, partly by way of direct earnings attachments, as already announced.
Benefit fraud and error – the DWP will work with an external data provider to identify fraud and error by undeclared partners.
Further and higher education – following the recommendations of Lord Sainsbury’s review, programmes for 16–19-year-olds on college-based technical routes (T-levels) will last for two years, with programme hours increased by more than 50% to an average of over 900 hours a year from 2019–20; over £500 million additional funding will be provided annually. Maintenance loans will be provided to students on technical education courses at levels 4 to 6 in national colleges and institutes of technology in the same way as to university students. Up to £40 million will be spent testing approaches to help people retrain and upskill throughout their working lives. £5 million will be provided to increase the number of returnships for those who have taken lengthy career breaks. The terms of maintenance loans for part-time undergraduates are confirmed, and will be made available for degree-level study in 2018–19 and for distance learning and sub-degree study in 2019–20.
Schools – the free schools programme will be extended with £320 million investment to help fund up to 140 schools, including independent-led, faith, selective, university-led and specialist mathematics schools. A further £216 million is provided for school maintenance. Pupils who receive free school meals or whose parents claim maximum working tax credit will get free transport to attend the nearest selective school in their area.
Digital infrastructure – the government has published its 5G strategy, including investment of up to £16 million in a new 5G facility for trials, overseen by a new centre of expertise within government, and a response to the National Infrastructure Commission’s recommendations for improving coverage on roads and rail and on the regulatory environment. £200 million will be invested to test ways to accelerate market delivery of new full-fibre broadband networks, such as bringing public sector customers together, offering connection vouchers, directly connecting public sector buildings, and opening up assets such as existing ducts. £400 million will be provided for a new digital infrastructure investment fund, to be matched by private sector investment.
Transport – £690 million will be competitively allocated to local authorities for transport projects; options will be developed for relieving congestion on the south-west sections of the M25; and £220 million will be allocated to relieving pinch-points on the strategic road network (details to be announced).
Research and development – a new industrial strategy challenge fund will receive initial investment of £270 million to fund the development of disruptive technologies including the development, design and manufacture of the next generation of batteries for electric vehicles; artificial intelligence and robotic systems to operate in extreme and hazardous conditions; and new technologies for medicine manufacture.
Talent funding – £90 million will be provided for an additional 1,000 PhD places in areas aligned with the government’s industrial strategy. £160 million will support new fellowships for early- and mid-career researches in such areas. Over £100 million will be invested in fellowship programmes to attract global talent, especially researches from countries such as India, China, Brazil and Mexico.
Cities and regions – a memorandum of understanding on further devolution to London has been announced, including consideration of devolution of criminal justice services, action on congestion, infrastructure funding, business rates, careers and employment support services and the apprenticeship levy. A second memorandum on health and social care will be agreed. Negotiations have been opened on a city deal for Stirling, and proposals are expected for a Tay cities deal and a North Wales growth deal.
Public services and markets
Social care – an additional £2 billion will be provided for adult social care services over the next three years. A green paper on social care will be published in due course.
Health care – £100 million will be provided for NHS A&E departments in England, and £325 million over three years for capital investment to deliver more effective services to patients.
Competition and consumer markets – a green paper on markets will be published shortly. Initial steps to benefit consumers include legislation to enable enforcement bodies such as the Competition and Markets Authority to ask the courts to order civil fines against companies that break consumer law; protecting consumers from unexpected payments when a subscription is renewed or a free trial ends; and considering how to make consumer terms and conditions clearer, simpler and shorter. The regulatory burden on small co-operatives will be eased by increasing the turnover threshold for a full audit from £5.6 million to £10.2 million and the assets threshold from £2.8 million to £5.1 million.
Spending – the government will consult on a detailed draft plan for improving air quality and explore the appropriate tax treatment of diesel vehicles. A new £5 million fund will be created for projects celebrating the centenary of the introduction of women’s suffrage in 1918. An additional £20 million will be provided to combat domestic violence and support victims. Women’s charities will benefit from £12 million from the tampon tax fund. A Government Representative for Mayflower Anniversary Celebrations will be appointed. In particular circumstances, such as multiple births, there will be exceptions to the principle that support for the child element in child tax credits and universal credit is limited to two children.