Chancellor Philip Hammond’s Autumn Budget contained tricks and treats for your personal finances
The move of this year’s Autumn Budget to Monday this week rather than its traditional Wednesday slot was ostensibly to give MPs more time to debate the chancellor’s proposals before the House of Commons rises for recess on 6 November.
But presumably Philip Hammond also hoped to avoid some Halloween-themed headlines, which he himself alluded to with his “Hammo House of Horrors” line at the start of his speech.
The Budget certainly contained a mix of tricks and treats for consumers, businesses, and government services.
But looking beyond the figures on national debt, growth and deficit forecasts, and the tinkering with departmental spending, how do the proposals actually affect your wallet?
Terrifying taxes
Probably the biggest impact in the Budget were the changes to tax-free
allowances. Hammond announced that reductions to income tax rates planned for 2020 were being brought forward a year to April 2019.
The personal allowance – the amount people can earn before paying 20 per cent income tax – is rising from £11,850 to £12,500 (meaning £130 more in your pocket every year), while the point at which the higher 40 per cent rate of tax hits is jumping from £46,350 to £50,000 (so higher earners will be an additional £730 a year better off).
This fulfills a key Conservative election manifesto pledge, and amounts to a tax cut for 32m workers, while also taking 1.7m people out of tax altogether and one million out of the higher rate tax threshold.
Low earners also got a boost, as workers aged 25 or over and receiving the National Living Wage will see their income rise from £7.83 an hour to £8.21 from April. This is expected to benefit 2.4m workers, and equates to an annual pay rise of £690 for a full-time employee.
These changes mean that workers will be broadly better off next year. However, not everyone is impressed by this bag of treats.
“Those working 35 hours a week on the National Living Wage will still be paying nearly £500 a year in income tax,” says Tom Evennett, private client services partner at EY.
“The National Insurance (NI) threshold remains much lower than the personal tax allowance. This means, assuming 2018/19 rates, that these individuals would also pay over £750 in NI. Those under 25 on the National Minimum Wage may be outside the income tax net, but even these people find themselves paying NI.
“A move to align the NI and tax thresholds would have had a much bigger impact on the really low paid.”
Iain McCluskey, personal tax partner at PwC, also points out that the very lowest paid won’t benefit from raising the personal allowance, as they already earn less than the threshold. He criticised the budget as “fiscal confetti”.
“Hammond’s scattering of a fistful of cheap, light, and airy personal tax measures was more tinkering than transformational,” he adds.
Petrifying pensions
But what the chancellor did not announce was also a welcome treat, at least for savers. Many expected Hammond to turn off the tap of tax relief on pension contributions, which he has previously described as “eye-wateringly expensive” – lump sums added to pensions receive 20 per cent tax relief, which rises to 40 per cent for higher rate taxpayers.
Instead, he left the system alone, which is welcome news, according to David Bird, head of proposition development at LifeSight pension trust.
“Meddling with the pension tax relief would have likely just contributed to an erosion of trust in the UK’s pension system,” he says. “What we should be looking for from the Budget are measures that will help Brits prepare for a secure retirement.”
Horrifying Housing
Hammond also threw a bone to those looking to get onto the property ladder – albeit a small one.
After axing stamp duty for house purchases of £300,000 or less for first-time buyers in the 2017 Budget, the chancellor extended this to shared ownership properties worth up to £500,000. This has been applied retroactively, meaning that anyone who has bought a shared ownership home since last November will be able to reclaim the stamp duty – someone who bought a 50 per cent stake in a property valued at £500,000 will be £2,500 better off.
“The first stamp duty exemption has already helped 121,000 first-time buyers,” says Kevin Roberts, director of Legal & General Mortgage Club.
“This extension is very welcome news for buyers up and down the country. The government clearly recognises the benefits of shared ownership as a genuine option for individuals, couples, and families who want to become homeowners.”
The Help-to-Buy scheme has also been extended for two years, to 2023.
Ectoplasmic extras
There were smaller treats in the Budget. For instance, duty on fuel, as well as on beer, cider and spirits (though not wine, sadly) were frozen, rather than rising with inflation.
Smokers lost out, as tobacco duty will rise two per cent above inflation.
However, don’t get too attached to any of these measures. Hammond announced a final Halloween trick prior to his speech, saying that a no-deal Brexit might require an emergency Budget, which may mean repealing or delaying any giveaways.
Neil Winstanley, chartered financial planner at Ascot Lloyd, notes that Brexit remains the elephant in the room.
“The tax reductions look generous, and the extra funding for public services signalled by Theresa May’s intention to ‘end austerity’ provide much-needed support, but how long will they hang around if the economy suffers a ‘Brexit shock’ and borrowing has to increase sharply?”
Alas, without a crystal ball, we cannot say. Only time will tell if Hammond’s Budget of Horrors will survive Brexit, or come back to haunt the chancellor in the night.