It’s fair to say that Chancellor Philip Hammond’s Budget speech yesterday was lacking in much to write home about.
There were some bright spots: a better than predicted economic performance gives us a stronger foundation for when we step into the unknown and trigger Article 50. Also, the Making Tax Digital announcement, giving businesses and landlords under the VAT threshold an extra year to prepare for the changes, are a welcome victory for AAT, which originally proposed the idea.
But there were a number of announcements that, for self-employed workers, SMEs, and average families, are bound to sting.
The NICs hike for self-employed
The Chancellor highlighted the differences in National Insurance Contibutions (NICs) between employed and self-employed workers, describing the system as it stands as unfair. From April 2018, Class 4 National Insurance, based on self-employed profits, will increase from 9% to 10% of income, and is set to increase further to 11% by 2019. It means that any self-employed people earning profits above £16,250 will have to pay more National Insurance.
While the drive for fairness makes sense, it’s hard to see how this move is actually fairer. Many self-employed people are not earning huge wages. In fact, as we covered in our Jan/Feb issue of Accounting Technician, many people have been forced into self-employment due to a lack of available salaried work. It’s also worth noting that self-employed people don’t have many of the protections and benefits that salaried workers have – if there’s no work, they don’t get paid.
The disappearing dividend allowance
As of April next year, the £5,000 dividend allowance, only introduced in 2016, will be slashed to £2,000. This is bad news for small business owners, but it also has far reaching effects on individuals. Pensioners with modest share investments, for example, will lose some of their savings. Again, this is a measure that proclaims to be fairer, but hits small businesses and those with modest shares harder than anyone else.
Rent-a-room relief – redesigned?
The Budget book lists proposals to “redesign” rent-a-room relief – currently at a threshold of £7,500 – in order to “ensure it is better targeted to support longer-term lettings”. This, the government says, will align the relief more closely with its intended purpose: to increase supply of affordable long-term lodgings. This is uncomfortably vague, and the fact that it’s buried within the Budget document suggests, to me at least, that renters might lose out.
The income squeeze continues
The Resolution Foundation’s analysis of OBR figures points out that average earnings will not return to 2007 levels until 2022. While there was much to be positive about in the OBR’s revising up of its forecasts, the question remains whether the average household can take another five years of strain on their finances.
Mark Rowland is a journalist and former editor of Accounting Technician and 20 magazine.