This week has been important for many business people, savers, students and families across the UK; this is because, the Budget was released and it is the annual financial statement that sets out the Government’s plans for spending and taxation for the coming year. As of Tuesday 8th of March, Chancellor Philip Hammond presented his first and last Spring Budget. It is his last because of the transition to a single fiscal event each year, an Autumn budget.
The Office for Budget Responsibility expects the economy would expand by 2% this year, which is an increase from their previous forecast of 1.4% economic growth. They judge that growth will moderate during 2017, as real incomes are affected by an increase in inflation due to sterling’s depreciation which leads to a slowdown in consumer demand growth. However, growth in the future years have been expected to be lower: in 2018-19, 1.6%; in 2019-20, 1.7% and in 2020-21, 2%. This means that the British economy will grow at a slower rate than before the Brexit referendum until the EU withdrawal and maybe even beyond. Higher levels of growth mean higher tax receipts and lower levels of borrowing; however, growth will be better in the short-run than in the long-run. Britain can, therefore, no longer claim to be the fastest-growing economy in the G7 group (which is a group consisting of Canada, France, Germany, Italy, Japan, the UK and the US – they are the major advanced economies as reported by the International Monetary Fund, together they represent more than 64% of the net global wealth).
There has been an increase on duties for demerit goods, for example: a packet of 20 cigarettes will cost 35p more; while it will be 44p more for a packet of 30g of hand-rolled tobacco. This is another way of decreasing the amount of demerit goods consumed. This is an example of an increase in tax revenue, which the Government can use to pay back what they have borrowed or to pay their bill to the EU. This then has an effect on public sector net borrowing, this has been forecasted to decrease from 3.8% of GDP to 2.6% this year, and reaching 0.7% in 2022.
The government has announced that it is getting rid of the Class 2 National Insurance contributions (NICs) from April 2018. The self-employed also have access to the same pension scheme as employers. This leads to an increase in the main rate for the Class 4 NICs from 9% to 10% in April 2018 and to 11% in April 2019. This means that only self-employed individuals with profits above £16,250 will have to pay more NICs. This affects 5 million people (who are self-employed) and breaks the Tory’s manifesto promise of “no increase in National Insurance contributions” that was made during the elections of 2015.
These are just some examples of the key points that were written in the Budget 2017. There are many other changes (increases or decreases) in spending, for example: the additional £2 billion given to councils in England over the next 3 years for adult social care.