9th March 2017

M&G: Spring Budget 2017: what stands out for UK Investors

The British Chancellor of the Exchequer, Philip Hammond, has delivered his first (and final) Spring Budget, painting a picture of a resilient UK economy but refraining from announcing any major tax or spending policies.

Contrary to forecasts made soon after the referendum vote to leave the European Union last June, the UK economy appears to have so far avoided any slowdown in growth. Indeed, the UK’s Gross Domestic Product (GDP), which measures the total value of economic output, rose by 1.8% in 2016 and is forecast by the independent Office for Budget Responsibility (OBR) to rise by 2.0% in 2017.

The chancellor also confirmed that the UK Government would need to borrow less than previously expected. Borrowing in 2016-2017 was forecast to fall to 2.6% of GDP, down from 3.8% in 2015-2016. The government continues to aim to reduce the fiscal deficit to zero during the next parliament, between 2020 and 2025. Despite lower government borrowing, this Spring Budget was, in the chancellor’s own words, “fiscally neutral” – meaning new tax-raising and spending policies are expected to cancel each other out. 

Among new announcements, the following could be especially pertinent for private investors:

Dividend allowance – One of the most significant tax increases announced by the chancellor, raising £870m in 2019-2020, is a reduction in the annual dividend allowance. From April 2018, the amount of dividend income that is tax-free will be cut from £5,000 to £2,000 a year – potentially adding up to £1,143 in tax for the highest earners. 

Dividends paid on investments, such as company shares or funds, that are held within an Individual Savings Account (ISA) will remain free of personal tax, however. ISA tax rules may change in the future and ISA tax advantages depend on your individual circumstances. 

National Insurance – The main rate of ‘Class 4’ National Insurance contributions, paid by self-employed taxpayers, will increase from current rate of 9% to 10% in April 2018 and 11% in April 2019.

The OBR expects consumer price inflation to rise to 2.4% in 2017, up from 0.7% in 2016. Higher prices mean real household disposable incomes – after tax and the effects of inflation – are forecast to remain unchanged in 2017, according to the OBR, before slowing rising again in 2018.

For further investment insights visit: http://www.mandg.co.uk/adviser/insights-and-market-updates/

Budget