UK Budget: Is Hammond Robin Hood or Robbin’ the Hood?
“Boring is good,” Hammond advises his colleagues according to The Financial Times. Thus, there were no surprises when Hammond’s familiar lifeless tone delivered an equally lifeless budget. From the Telegraph to the Guardian, Hammond’s budget was described as “boring”, delivered in his formulaic style: “make them laugh, make them sigh and bore them to death.”
His Spring budget offered a “positive” economic outlook with £1.7bn stimulus, only hinting at UK’s high debt as something that might be tackled with further changes in the autumn statement. He didn’t stress Brexit, but only in passing to assure us that the government would do anything it can to keep Britain at the forefront of global economy, while giving special attention to education, skills and productivity.
As if he was in a weird David Lynch film, Hammond carried the symbolic red briefcase. The little mysterious red briefcase, referred to as the “budget box”, is what has been traditionally used to carry the budget speech from Number 11 to the House of Commons for the last 150 years.
What’s in the box?
Of course, we all know that the famous line “what’s in the box” uttered by Brad Pitt marks one of the most gruesome scenes in David Fincher’s film Seven. Fortunately, Hammonds’ red box didn’t enclose anything as nightmarish as Fincher’s box in the film.
The red briefcase tradition was inspired by a real-life episode in 1869 when George War Hunt, arriving at the House of Commons realised that he forgot his speech, so from then on, the Chancellor always carries the box on Budget Day, and, customarily, shows it to the assembled crowd in front of Number 11.
What the budget means to you and me:
While the Conservative manifesto promised that there would be no increases in income tax, VAT or NICs for the years 2015-2020, Hammond announced in his budget yesterday that there would be increases in national insurance contributions (NICs) for self-employed people earning more than £16,250 a year. He will raise the rate on class 4 NICs paid by the self-employed from 9% to 10% next year, and to 11% in 2019.
The reason he gave for this was the weak financial position of the government which has created the need to raise money so that an extra £2bn could be given for social care in the next three years, provide for companies that would struggle with upcoming business rate increases and help fund higher education and training spending.
The NICs change will increase Treasury revenues to approximately £600m in 2019-20.
Employed workers, for example, pay class 1 NI at 12pc on earnings between £8,164 and £45,000. As a result of the changes, both self-employed and employed people qualify for the same state pension.
Tax-free dividend allowance reduced
Hammond also announced a reduction in allowance that will come in effect in April 2018. It refers to company owners who are paid in the form of dividends instead of a salary and who will find their tax-free allowance cut in half: from £5,000 to £2,000. This will also affect investors with portfolios of shares that are outside Individual Savings Account (Isa)s or pensions.
Hammond said the purpose is to balance the taxation of self-employed people and small businesses with the tax paid by employees. Director shareholders of private companies and investors with over £50,000 in share portfolios are the main people affected from the change.
Paul Haywood-Schiefer of the accountancy firm Blick Rothenberg, said: “The dividend allowance cut from £5,000 to £2,000 will cost basic-rate taxpayers £225, higher-rate taxpayers £975 and additional-rate taxpayers £1,143.”
Personal allowance—the amount you earn before paying income tax—will increase in the new tax year (6 April) from £11,000 to £11,500. The threshold for paying a higher rate, 40pc, will also increase from £43,000 to £45,000. By 2020, only people earning more than £50,000 will pay a higher-rate tax, while those with an income over £150,000 will continue to pay an additional 45pc.
Overseas pension transfers
Although only a small number of transfers will be affected by the change, a new 25pc tax charge will apply from 8 March 2017 to overseas transfers of pensions to foreign schemes outside the European Economic Area or when they are not provided by an employer. The charge applies to transfers when the saver is not residing in that country.
National Savings and Investments (NS&I)
Hammond said that a new bond from NS&I, paying 2.2pc on savings up to £3,000 will come in effect in April. While Hammond claimed that the bond was “a welcome break” for savers, the bond will only pay a meagre £6 a year in interest.
Sugar tax: Stealing candy from babies?
Sin taxes are imposed on goods that are considered harmful, such as alcohol, tobacco, drugs, candy, sugar or gambling. Sin taxes don’t affect the wealthy, but the poorer sections of society.
Alcohol and tobacco will remain the same, but the new minimum excise tax will raise prices for cheaper cigarette brands. The cost of a pack of cigarettes will rise to at least £8.81. Giles Roca, director general of the Tobacco Manufacturers’ Association (TMA), said: “Taxation on tobacco in the UK is already the highest in the EU meaning that prices in the UK are up to four times higher than in other European countries.”
There is also a new sugar tax introduced on soft drinks, set at 18p per litre and 24p per litre for the sweetest drinks. The £1bn raised from the tax would go to funding sport at schools. Companies are basically using less sugar in their drinks already, and the tax wouldn’t make such a big difference according to the companies. Soft drinks then will be taxed heavily, while wine, beer and spirits will be rising with inflation. This means 2p added to a pint of beer, 8p to a bottle of wine and 40p to a litre of gin.
While the sugar tax is aimed at reducing sugar levels in drinks to improve people’s health, this is also something that will affect working-class and poorer people who are the main consumers of such drinks as Irn-Bru.
Labour, Liberal Democrats and Conservatives’ criticism:
Labour shadow chancellor John McDonnell said: “The Tories talk of being a ‘workers’ party’, but they have betrayed millions of people today, by breaking another manifesto commitment.”
Liberal Democrat leader Tim Farron called the measures “omNICshambles” and that they showed the government’s “slimmed-down ambition.”
Conservatives also criticised the government, saying that their plans would hurt self-employed businesses. John Redwood said: “I always think it is a good idea to tax things you don’t approve of very much ... I don’t think we should be going out of our way to tax work and enterprise and success.”
Office for Budget Responsibility (OBR)
The independent OBR said that growth would be weaker in the long future but the economy’s short-term future looks bright. It said that he economy has proven to be more resilient than last November’s autumn statement. The OBR revised its growth forecast from 1.4% to 2% for 2017 and that the budget deficit would be less, at £51.7bn. But for the OBR, the UK is still expected to borrow £16.8bn in 2021-22 to fill in the gap between spending and revenues.
National Pensioners Convention
The National Pensioners Convention’s general secretary, Dot Gibson, said: “The additional £2bn from the chancellor won’t reverse the £5bn cut that the service has suffered since 2010, it won’t give services to the 1.2 million people who have been rationed out of the system and it won’t ease the burden on millions of unpaid older carers who are working 24/7 to look after their loved ones.”
From Hammond’s sugar tax to the increase in national insurance contributions, the government’s measures are going “to hit people - middle and low earners in particular - at a time when consumer spending is dipping. These small traders, sole traders, the self-employed, are usually at the front line when consumer spending dips and they are the ones who suffer the most. It’s the wrong policy and it’s certainly the wrong timing.”
This is what the shadow chancellor John McDonnell said this morning in an interview, stressing that “there’s got to be an element of fairness about our taxation system.” Hammond then is no Robin Hood but robbing the hood and ordinary people by cutting the taxes to the rich and increasing them on the lower-paid.