Budget 2018 - Good for some. Great for others.
In a controversial budget, full of surprises, the Chancellor of The Exchequer, Philip Hammond, sent the political world topsy-turvy, as he signaled the ‘beginning of the end of austerity’.
Those poor political parties just don’t know which way to turn. No one can recall a budget having an effect quite so confused as this. On the one hand, you have Conservative MPs uncomfortably describing it as a socialist budget, while on the other, the Labour shadow chancellor declares that his party will be voting in favour of the proposed tax cuts. Yes – you heard it right. White is black and black is white.
Here’s a very brief guide to the personal tax changes proposed in the recent budget.
Increase in personal tax allowance from £11,850 to £12,500 to be brought forward to April 2019
Increase in the higher rate threshold from £46,350 to £50,000 to be brought forward to April 2019
From April 2019, the National Living Wage (NLW) will rise by 4.9% from £7.83 to £8.21.
In 2020, these levels will be frozen, but from then on, they will rise in line with inflation. As people earn more, they won’t automatically be dragged into a higher tax band.
What will this mean overall?
30.6m people will benefit
26.2m will be basic rate taxpayers
4 million, higher rate taxpayers
499,000 people will come out of income tax altogether
479,000 will come out of higher rate income tax
Some of the benefits will be reduced with the anticipated increase in National Insurance Contributions
So – what will this mean for me?
Well, of course, this depends on a number of factors, such as how much you earn per annum and whether or not you receive benefits.
an extra £66 a year in the pay packet of basic rate taxpayers
£387 for higher rate taxpayers
£236 for additional rate taxpayers.
A single parent, receiving universal credit and working 25 hrs week for the National Living Wage would benefit by £890.
Is everyone a winner?
Not quite. With increases in the upper profits and upper earnings limits for National Insurance, 625,000 people will be worse off by an average of £107 in 2019/20.
How much will this cost the country and how has the chancellor been able to pay for it?
This budget will cost the Treasury £2.8bn in the next financial year and 1.93 billion the following year. The Office of Budget Responsibility recently forecasts better than anticipated growth figures. It’s this extra money (which, remember, hasn’t actually come into the coffers yet) that will pay for the tax cuts
Are there any ‘buts’?
Funny you should ask. There is one rather big ‘but’. Philip Hammond made it very clear that in the case of ‘unforeseen circumstances’, he reserves the right to tear up these apparently generous measures and start again.
And what might those ‘unforeseen circumstances be’?
A no-deal Brexit!
Will these changes apply throughout the UK?
Not exactly. Changes to the basic rate limit will apply to non-savings and non-dividend income in England, Wales and Northern Ireland and to savings and dividend income in the UK.
Scotland is slightly different. The Scottish Parliament sets its own basic rate limit and higher rate threshold for non-savings, non-dividend income.
Currently, the starter rate also begins when annual earnings reach £11,850, but this will have to rise to £12,500 next year.
The higher rate currently starts at £43,430. The Scottish parliament will announce its own changes in the Scottish Budget in December.
What do the politicians think?
In the old days, party lines were much more clearly divided. Today it’s different. This is perfectly illustrated by politicians’ reactions to this budget. It’s as though they don’t know what to think. Conservatives are traditionally in favour of cutting taxes – but only when it can be afforded and certainly not when money is as tight as it is today. So, some Conservatives are delighted that the Chancellor has granted high earners such a generous tax reduction. Others are fearful that the government is trying to spend its way out of our difficulties, by making large increases to certain public services. One Conservative MP went as far as to describe the measures as a ‘socialist budget’.
On the other hand, you have the Labour Party. They traditionally approve of improving a lot of the lower paid and of spending their way out of recession. With the tax savings for the less well-off and the increases in public spending, many of their MPs find themselves saying they’ll be supporting the chancellor’s measures and voting them through.
I’m still confused. Should I worry?
Definitely not. We’re tax specialists. Why not give us a call? We’d love the chance to guide you through these potentially complex issues. Speak to us. After all – we’re here to help.
This legal information is not the same as legal advice and you may not rely on our post as a recommendation of any particular legal understanding. Pease, consult an attorney if you’d like to get an advice on your interpretation of this article.