A new market-leading savings bond and some significant changes to the taxes paid by self-employed people were the highlights of Philip Hammond’s first (and last) Spring Budget as Chancellor.
While people working for themselves will see the amount of National Insurance they pay gradually increase between 2018 and 2019, there was little in the way of new policies or major disruptions to impact on your finances in an unflashy Budget short of the spectacle we’ve seen in years gone by.
And of course, this is the last Spring Budget – as the Chancellor plans to move his key policy announcements to Autumn this year.
Here, Which? Money outlines the key announcements of the days and what they could mean for you – starting with our very own Harry Rose and Gareth Shaw answering your Budget questions in the video below.
Earn 2.2% a year with NS&I
The Chancellor confirmed something we’ve long suspected – that the National Savings and Investments ‘Guaranteed Growth Bond’, which launches in April 2017, will pay 2.2% a year for three years.
The maximum you can invest in the bond is £3,000 – but how does it compare with the rest of the savings market? And will it keep up with inflation, which is forecast to soar to 2.4% this year?
Read our in-depth analysis of all today’s savings changes.
Tax hike for the self-employed
As widely-trailed, National Insurance – a tax on earnings which qualifies you for benefits such as the state pension – will be increased for self-employed people.
Currently, the self-employed pay lower National Insurance contributions than employed people – 9% on earnings between £8,060 and £43,000, compared to 12% for employees.
From April 2018, Class 4 National Insurance contributions for the self-employed will rise to 10%, and then again to 11%.
Read our in-depth analysis of all today’s tax changes.
Investors get hit with higher taxes
A new £5,000 tax-free allowance on dividend income was only introduced in April 2016, but it seems that government can’t afford such a generous giveaway.
Next tax year (2018/19), this tax-free allowance will fall to £2,000, which will impact on people who owns shares outside of an Isa.
See below for more detail on how this works.
A quiet year for pensions
After years of seismic changes to pensions, they barely got a mention in this year’s Budget.
Aside from confirming the ongoing review of the state pension age, the only major change was announced in the Autumn Statement last year – a reduction to the amount you can put into a private or workplace pension after you’ve started drawing on your retirement savings.
The ‘money purchase annual allowance’, as it’s known, will drop from £10,000 a year to £4,000 from April 2017.
The Chancellor also announced a review to help people meet the cost of care in older age.
Read our in-depth analysis of all today’s pensions changes.
Read our live coverage of today’s Budget below.
Help for people to fund long-term care
Mr Hammond says that a green paper will be issued to look at ways to help people meet the cost of care when they are older. We haven’t seen that yet, but rumours are that tax-free access to pensions, the launch of a ‘Care Isa’ to save tax-free and a potential cap on the total cost of care, are being considered.
Dividend tax changes – what do they mean for me?
A bit more detail on those changes to the dividend tax allowance.
Dividends are the payment of part of the profits a company makes to shareholder. If you own shares, an annual dividend payment can turn into a decent regular income.
Currently, you can earn £5,000 in dividends before you pay tax. Then:
- Basic-rate taxpayers pay 7.5% tax on anything above that amount
- Higher-rate taxpayers pay 32.5% tax on anything above that amount
- Additional-rate taxpayers pay 38.1% on anything above that amount
From 6 April 2018, that tax-free allowance will drop to £2,000, which means anything above that amount will be subject to the tax rates above based on how much you earn.
Bad news? Perhaps, but remember that money invested in a stocks and shares Isa grows completely free of dividend tax. And you can put £20,000 into one from April 2017.
More power to consumers! We like that…
The government will tackle dodgy small print, increase powers to fine unregulated or unscrupulous companies and help consumers avoid getting ripped off. More detail to come on this, but that’s music to the Consumer Association’s ears.
NS&I Guaranteed Growth Bond rate confirmed at 2.2%
We suspected this would happen. A new bond designed to give a market-beating rate to savers will be available from April 2017. The National Savings and Investments bond will pay 2.2% a year, fixed for three years.
The maximum you’ll be able to invest, though, is £3,000.
Dividend tax allowance to be hacked to £2,000
Unexpected. It was only introduced last year, but the £5,000 dividend tax-free allowance will be chopped down to £2,000 from April 2018.
The Chancellor says that it is mainly company directors benefitting from this (and people with investments above £50,000) and has been done to bring the taxes self-employed people pay in line with employees.
As predicted, self-employed taxes to rise…
So… National Insurance will rise for self-employed people, to bring it in line with employed people.
Class 2 National Insurance contributions will be abolished from 2018, so the government plans to increase the amount of Class 4 National Insurance contributions paid by the self-employed. This is how it works:
- People earning between £8,060 and £43,000 pay 9% of taxable profits
- In 2018/19 it will increase by 1% to 10%
- In 2019/20 it will increase by 1% to 11%
Softening the blow on business rates
Business rates raise £25bn a year, according to the Chancellor, but some businesses were facing potentially huge increases. The Chancellor lays out that no business losing small business rate relief will see their bill increase next year by more than £50 a month, and giving pubs (valued at less than £100,000) a £1,000 discount on business rates.
Economic growth to be higher than expected
The Office for Budget Responsibility (OBR) revises down public sector borrowing but the Chancellor says that this is down to one-off factors, which he doesn’t expect to last. The Chancellor says that the OBR expects growth to be 2% this year, but to slow to 1.6% in 2018 and then rise steadily back to 2% in 2021.
But inflation is going to rocket – as high as 2.4% this year. Are there any savings products out there that can even match that? Check out our savings accounts to beat inflation to find out.
The Chancellor begins his speech…
Philip Hammond raises a laugh by referring to the OBR forecast as the ‘spreadsheet bit’. Living up to his name of ‘Spreadsheet Phil’.
Updated at 12:32
An even nicer Isa?
The limit for individual savings accounts, or Isas – which allow you to save or invest and see your money grow tax-free – has risen rapidly over the past few years. It has stood at £15,240 for the past two tax years but will rocket to £20,000 from the 6 April 2017.
The Budget is the place where any increases to the Isa limit will be announced. Is the £20,000 limit the ceiling? Or will the Chancellor push that higher for future tax years?
Updated at 12:01
Which? Money’s experts preview the 2017 Budget
Watch Which?’s Harry Rose and Gareth Shaw discuss the potential announcements and answer your questions in our pre-Budget video.
Updated at 11:32
Budget 2017: what we know so far
While only the Queen and her government’s Cabinet have been privy to the actual details of the Budget so far, a few details have already been released or at least hinted at. When it comes to what will affect your finances, this is what we know so far:
National Insurance hiked for the self-employed?
There’s been plenty of speculation that National Insurance will be increased from 9% to 12% for the self-employed, bringing their payments in line with company employees.
A major review into the cost of care
The government is thought to be announcing additional spending to help deal with the social care crisis. But it may use today’s Budget to announce a major review to help people meet the cost of care in older age. This could include tax-free access to pensions to pay for care, the launch of a ‘Care Isa’ savings product, or a cap on the total amount you pay for care.
A pay rise for low and middle earners?
The Conservative party has a long cherished ambition of increasing the amount of income you earn before you pay any income tax – and increasing the amount you earn before you pay the higher 40% rate. The Chancellor is likely to announce future increases to the personal allowance (the amount you can earn before you pay tax) and the higher-rate threshold (the amount you can earn before paying 40% tax).
A new National Savings and Investment bond?
A new savings bond is set to launch from National Savings and Investments, that will pay a fixed rate of interest for three years on a maximum of £3,000. We expect the Chancellor to confirm the rate on this, which is thought to be around 2.2% a year.
Tackling dodgy terms and conditions
The Chancellor is also expected to announce ways of making small print shorter and clearer to customers. The Government plans to look at the standard usage of tick boxes and improve understanding of which terms cause particular confusion in its efforts to simplify small print. There will also be new powers to impose fines on companies that mistreat customers.