Chancellor of the Exchequer Philip Hammond used his final spring Budget to announce increases in tax for self-employed workers as well as a rise in spending on care for the elderly.
But there were few surprises and even fewer giveaways than has been the case in recent years.
Potential diesel threat for motorists
There were barely any concrete proposals directly affecting motorists in the Budget: the fact that fuel duty is to be frozen once again in 2017-18 was already announced in last November’s Autumn Statement.
But Hammond indicated that the government could be willing to introduce tougher tax treatment for owners of diesel vehicles in this year’s autumn Budget in order to address growing concerns about the role they play in rising levels of air pollution.
As well as devising a draft air-quality strategy for the UK over the next few months, Hammond said the government would “explore the appropriate tax treatment for diesel vehicles” ahead of making any changes at the end of the year.
This could suggest that ministers are considering higher rates of vehicle excise duty (VED) for diesel owners – mirroring the higher charges imposed on diesels for parking permits and entering congestion zones by a growing number of local authorities.
Action on congestion
Hammond confirmed the plans announced in November to spend over £1 billion more on dealing with traffic congestion.
Today he said an extra £490m would be made available to local authorities by this autumn for investment on reducing congestion and improving transport networks.
One of the only surprises in the Budget was the decision to change the tax treatment of self-employed workers and individuals who set themselves up as private companies.
Hammond said he wanted to reduce the incentives to enter self-employment purely as a means of reducing tax bills.
Higher national insurance rate for self-employed
As such, from April 2018, self-employed workers will see their Class 4 national insurance contribution rates increase from 9% to 10%, and then to 11% a year later.
Hammond said this change would bring the amount of national insurance paid by the average self-employed worker into line with that paid by employees.
The Chancellor is also reducing the amount of money that can be taken as tax-free dividends by directors of private companies, as well as other investors.
At present the dividend allowance is £5,000 a year but this will be cut to £2,000 from 2018.
Rise in personal allowance
From April 6 this year, the personal allowance – the amount that can be earned before income tax is payable – will go up to £11,500 as previously indicated.
Hammond said he wanted the threshold to rise to £12,000 by 2020, with the starting point for higher-rate tax increasing to £50,000 at the same time.
There was confirmation also that the amount that can be put into tax-free ISAs every year will increase from £15,240 to £20,000 from April 6.
- Small businesses will have an extra year to prepare for the new digital tax regime, which will see them filing returns online every quarter. Companies with annual turnover below the VAT threshold (currently £83,000; £85,000 from April 2017) have an extra 12 months’ grace and will not have to join the new system until probably 2019 at the earliest.
- A new three-year investment bond run by the state-backed bank National Savings & Investments will be available from April paying 2.2% a year over three years. The maximum deposit is £3,000 per person.
- The government will spend an extra £2 billion on social care for the elderly over the next three years. But Hammond said there were no plans to introduce an additional form of inheritance tax to cover the UK’s rising care bill.
- More money has been earmarked for investment in science, technology and innovation, including extra funding for driverless vehicle research.
- The government has confirmed that a higher number of free hours of childcare will be available from the autumn. Ministers are also planning to consult on new rules to give self-employed workers the right to take parental leave.
- Small firms will have any increases in business rates capped at £50 a month in 2018, while most pubs will be entitled to a £1,000 discount on their rates next year.