The economy is growing faster than predicted
The independent Office for Budget Responsibility (OBR) has raised its economic growth expectations for this year. It now forecasts that the UK economy will grow by 2% this year, up from the 1.4% increase previously predicted.
In 2018, growth will slow slightly to 1.6%, before rising again to 1.7% in 2019 and back at 2% in 2021. However those figures for 2019 and 2020 are downgrades from previous forecasts as the ONS casts doubt over growth after the UK leaves the EU.
A squeeze or a boost to disposable income?
Chancellor Philip Hammond said that “almost 10 years since the financial crash too many families are still feeling the squeeze”. And he revealed a number of changes to attempt to improve that.
The living wage will rise again in April, with Hammond claiming it has already delivered a pay rise to a million of the lowest paid. The personal allowance will also rise again, meaning people will not pay tax until they earn more than £11,500, a move he said meant 29 million would be better off.
He also claimed real wages have grown for 27 straight months while the “wages of the lowest grew faster last year than in any of the previous 20 years”.
However, inflation is forecast to hit 2.4% this year, according to the OBR, falling to 2.3% in 2018 and 2% in 2019. That means it will be above the Bank of England’s 2% inflation target for the next three years.
Increased tax on the self employed
The Government is increasing national insurance contributions for the self employed, raising the rate to 10% next year and 11% in 2018. Hammond said the aim is to make taxation “fairer” between the employed and self-employed.
“The employed and self-employed alike use public services in the same way but are not paying for them in the same way,” he added. There will also be a report in the summer further looking into this issue.
Hammond said this change is in reaction to a dramatic increase in the numbers of people working at self-employed or through their own companies brought about by changes in the economy due to globalisation and the emergence of new tech.
“This government will always encourage and support entrepreneurs and innovators who are the lifeblood of the economy,” he said.
Brands embrace cuts to sugar levels in sugary drinks
Hammond said there has been a reduction in the expected yield from the so-called sugar tax. The plan is to tax producers of sugary drinks 18 pence per litre or 24 pence per litre depending on sugar levels. However, with producers already reformulating the sugar content of drinks, the Government is predicting a lower revenue from the tax.
Nevertheless, the Government has said it will fund the Department of Education to the tune of £4bn (the original expected to be raised) to invest in school sports and healthy living.
A new way to tax the digital economy
Much has been made of new business rates following the first revaluation in seven years. High street retailers in particular have raised concerns over the increases and how heavily they are hit, especially given the rise of online businesses. Hammond admitted that the Government will have to find new ways to tax the increasingly digital economy and will set out that approach in due course and consult on it before the next valuation.
Yet there will be some relief for the hardest hit small businesses. The Government is making a £300m fund available for discretionary relief in local areas, while pubs with a rateable value of less than £100,000 (which is 90% of all pubs) will get a £1,000 discount.
For small businesses coming out of rates relief, there will be a cap, meaning their bill will not increase by more than £50 a month.
Reacting to the news, Mike Coupe, group chief executive at Sainsbury’s, says: “Business rates are an analogue tax, not fit for the digital age. The UK needs wholesale reform of business taxation. We would ask the Government to carry out a root and branch review of business taxation to create a level playing field across all businesses, rather than penalise property-based companies.”