Spring Budget 2017

9 Mar 2017

Despite being buoyed up by revised growth forecasts, there were few giveaways or rabbits from hats in Chancellor Philip Hammond’s last Spring Budget – and little to address the real issues facing low-income households.

The Chancellor presented his budget confident in the knowledge that the UK economy has been outperforming predictions made in the wake of the Brexit referendum in June, with the OBR revising its growth forecast for 2017 from 1.4% to 2%. But it remained a largely subdued affair – as the Spring Budget and Autumn Statement are replaced with a single Autumn Budget, Hammond is holding back on major announcements until later in the year. For now, we’ve highlighted some of the most important financial health points, as well as giving a roundup of key comment and analysis.

One of the most important issues facing this government is the social care crisis. Cuts to the social care budget have left councils unable to adequately look after elderly and disabled people. This has had knock-on effect to the NHS, as hospital workers cannot move “bed blocking” patients that have nowhere else to go. Health charity and think tank the King’s Fund has said that the social care budget requires £1.9bn just this year, while the Communities and Local Government Committee puts the figure at £1.5bn, rising to £2.6bn in 2019-20. However, the Chancellor was only able to offer £2bn over the course of three years.

Also notable was the increase in National Insurance contributions for the self-employed. Hammond argued that tax benefits for self-employed people reflect their historically different entitlement to the state pension and are no longer justified. Class 4 NIC for the self-employed will rise from 9% to 10% from 2018, and then to 11% from 2019, still 1% below the rate for employees. As the Resolution Foundation has pointed out, more than half of self-employed workers will be better off in 2019-20 as they save more from the abolition of Class 2 NICs than they lose from the increase in Class 4 NICs.

The Chancellor stated that the objective of the government’s economic policy is to support ordinary working families, and to build an economy that works for them. But with no new giveaways to offer he was forced to rely on policies previously announced in the Autumn Statement and the Conservatives’ 2015 manifesto. He restated the government’s commitment to increase the tax-free Personal Allowance to £12,500 by the end of the parliament, and confirmed it would rise to £11,500 from April. The Chancellor says this will help squeezed families and will take many people out of tax altogether. However, critics argue the money lost to the exchequer could be used in a more efficient and targeted way, as the majority of the benefits will go to those who aren’t in real need.

Similarly, Hammond repeated earlier commitments to increasing the National Living Wage, which will increase by 30p to £7.50, as announced in the Autumn Statement (though the OBR notes this is not on track to match the government’s target of £9 by 2020). He also trumpeted the previously announced reduction in the Universal Credit taper rate from 65% to 63%, though this is just a partial reversal of a £3.4bn cut from 2015.

This budget failed to address the real issues facing ordinary people in the UK. There was no mention of housing or pensions. Rhetoric around wage growth and living standards did not adequately address the scale of the problem. The relatively small funding boost to social care is nowhere near enough to save a system on its knees. Yet the Chancellor was still able to push forward with breaks for higher rate taxpayers, as well as a reduction in corporation tax, to the lowest rate in the G20.

Responding to the Spring Budget Campbell Robb, Chief Executive of the Joseph Rowntree Foundation, said:

“It is disappointing that the Chancellor’s warm words about the challenges that many families are facing across the country have not resulted in real support. The Chancellor acknowledged that many people have been suffering a living standards squeeze for almost a decade. This won’t be changing any time soon with wages predicted to rise barely faster than prices and benefit changes beginning to bite.

“With a working family of four on Universal Credit likely to be £1000 worse off than expected by 2020, millions of working families could see a real drop in their living standards. That’s why it’s essential that the Chancellor uses the money gained from a growing economy to ensure that families can continue to make ends meet.”

Torsten Bell, Director of the Resolution Foundation, addressed the changes to National Insurance contributions, saying:

“Today’s announcement is a bold and welcome move to ensure the tax system catches up with the modern world of work. There are lots of good reasons for people to be self-employed but unfair and expensive tax advantages shouldn’t be one of them.

“By abolishing Class 2 NICs and staggering the increase in Class 4 NICs, most self-employed workers will actually be better off next year, with higher paid accountants and management consultants taking the biggest hit.

“These tax rises should be part of wider reforms that address remaining incentives to become self-employed while offering greater support with the likes of maternity pay and pension savings that are particularly needed for the millions of workers at the precarious end of self-employment. This will send a firm message that the government really is on the side of ordinary working families.”

Citizens Advice Chief Executive Gillian Guy, responding to the proposed Green Paper on protecting the interests of consumers, said:

“The Chancellor’s announced crackdown on subscription traps which trick consumers into paying membership fees is welcome news. Bad business practices that rip customers off and exploit their loyalty are rife across sectors and jeopardise household finances. The Chancellor was right to say more needs to be done to intervene in markets that let consumers down.

“Our evidence shows some of the poorest pensioners and families are paying £141 a year over the odds for their energy.  Heating and lighting your home is not a luxury – they are basic essentials.  Government could help those struggling with their energy bills by extending the prepayment meter cap to customers on the standard variable tariff – initially this could be done for low income pensioners and families on the Warm Home Discount.

“Consumer loyalty is taken advantage of in other markets – like mobile phones, broadband and insurance – where customers pay more for using the same provider. Our research shows wider consumer problems cost people an average of £450 a year – the government must use its upcoming consumer green paper to address shoddy business practices and help protect household finances.”