Budget 2018: the devil in the detail

The hammed-up circus that is the chancellor of the exchequer’s Budget statement is full of dreadful jokes, political point scoring and a field full of rabbits from hats.

It bigs up the giveaways, breaks and pro-active actions that the government wants us to focus on.

But released alongside this frustrating and socially awkward one-man show, the tome that is the Budget document itself (and its reams of supporting paperwork) is obliged to include the details, decisions and unpalatable fiscal swerving that the government is desperate to sweep under the nearest threadbare carpet.

Here are the bits of this week’s Budget that Hammond et al didn’t really want to admit to.

Giving and taking away – income tax

The big news in Hammond’s much anticipated speech was the increase in the income tax thresholds for lower rate and higher rate taxpayers from April 2019.

In fact, the chancellor has been far less generous to millions of higher earners than appeared at first sight, according to detailed study of Budget papers by mutual insurer Royal London.

In his speech, Hammond announced that the starting point for higher rate income tax would increase from ?46,350 to ?50,000. This will reduce the income tax rate on the slice of pay between ?46,350 to ?50,000 from 40 per cent to 20 per cent.

But a detailed paper published alongside the Budget says the upper earnings limit for national insurance contributions will be increased in line with the rise in the increase in the floor for higher rate tax.

This means that instead of paying an NIC rate of 2 per cent, workers will pay the full rate of 12 per cent on this same slice of earnings, an increase of 10 per cent.

So the 20 per cent income tax cut is tempered by a 10 per cent increase in the NIC rate by 10 per cent.

“The chancellor is well within his rights to increase the bands over which the full rate of NI contributions is payable,” says Steve Webb, director of policy at Royal London.

“But as this wipes out half of the income tax gain for higher earners, he should have come clean and mentioned this in the Budget speech rather than leave it in the Budget small print.”

Steven Cameron, pensions director at Aegon, warns: “Scottish residents face a worse situation.

“The Scottish government sets its own threshold for higher rate tax, which is currently ?43,000. We will need to wait until the Scottish Budget on 12 December to see if they will unfreeze this. But the changes to national insurance apply across the UK. This means someone in Scotland earning ?50,000 will pay an extra ?30.41 in NI without saving anything in income tax.”

Freedom to tax – taking ?400m more from pensions

The pensions industry heaved a sigh of relief that retirement savings had seemingly dodged a tax raid this week after years of fundamental and confusing upheaval.

But one document – published alongside the Budget - reveals a significant upgrade in the estimate pension freedoms tax take for this tax year.

Coming to light on page 113 of The Office for Budget Responsibility’s fiscal outlook is the revelation that the Treasury will net an extra ?400million in tax as a result of people paying tax on their retirement withdrawals.

Based on the Spring Budget 2017 costings – which factored in a tax take of ?900million in 2018/19 – this suggests a near 50 per cent increase in revenue raised from the policy this year to ?1.3billion, taking the total tax generated by the policy to ?5.5billion.

“The OBR says this is because older retirees ‘are drawing down their pensions for longer’,” says Tom Selby, senior analyst at AJ Bell.

“This could be explained by the fact buoyant stock markets have allowed savers to take income from their pensions for longer than expected. Alternatively, the OBR’s initial guess may simply have been wrong.

“Either way, there is no doubt the policy has been hugely successful from the Treasury’s perspective, both in boosting the attractiveness of pensions and raising additional tax revenue.”

Foreigners forfeit – penalising property buyers

Then there’s the next latest tinkering in a desperate bid to grab the reins of an unruly property market.

“Buried within the ‘Red Book’, the Chancellor has pledged to publish a consultation in January 2019 on a Stamp Duty Land Tax (SDLT) surcharge of 1 per cent for non-residents buying residential property in England and Northern Ireland,” notices

Ashley Osborne, head of residential at real estate business Colliers International.

“Introducing a 1 per cent surcharge for overseas buyers will only put further pressure on housing supply, as foreign demand enables many developers to build more homes.

“The government continues to push the false belief that foreigners are buying up homes in the capital in droves and leaving them empty, despite the fact there is almost no evidence to suggest this is the case. The sub ?600,000 price bracket – already popular with domestic investors and Help to Buy purchasers – will become even more overburdened by an increase of foreign buyers looking for lower priced properties in order to reduce their exposure to higher levels of SDLT.”

Charlie Wells, managing director of buying agency Prime Purchase, adds: “On the one hand, the government claims to champion social mobility and diversity but on the other, it is saying that if you are foreign you are not welcome. There is no logic to it.

“If this government thinks that penalising the people at the top, particularly foreigners, will revitalise the economy and get things going, then it is very wrong."

Moving on – the divorce disaster

The Budget contained two key proposals to the way we’re taxed when selling our main residence.

The first, which he set out in his speech is to effectively abolish the ?40,000 ‘lettings relief’, which applies if you let out your property. It can be worth as much as ?11,200 in Capital Gains tax (CGT).

But the second, which wasn’t mentioned so clearly, is the proposal to half the amount of time you have to sell your main home after you move before you are hit with CGT.

If the proposal is adopted, you will have to sell your main home within 9 months after moving out – a potentially huge and expensive problem for divorcing couples, for example, or accidental landlords.

But believe it or not there were also some details, omissions and confirmations in this year’s Budget that could also make a huge and positive difference to our money.

What’s on your dashboard?

The pensions dashboard is a huge piece of work currently being undertaken by the pensions industry and government to provide Brits with a single point to review pensions savings that are often all over the place and forgotten.

In response to widespread confusion over how much we need to save for retirement, the plan is that a consumer can log into their personalised pensions dashboard and check the details, values, charges and other aspects of every pension pot they have to give them a clear idea of how much their total savings are worth – including their state pension.

“Although the Government’s commitment to the dashboard appeared to waiver earlier this year, the announcement of ?5m to consult on the design of the dashboard is a positive step, and confirms Westminster’s commitment to it,” says Alistair Wilson, Zurich’s head of retail platform strategy.

“With the Government seemingly firmly behind the dashboard and state pension information also likely to be included on it, this should increase the pressure on providers who have so far been reluctant to sign-up to it.”

Social care clarity, or lack of it

One of the greatest demands on our personal and national funds for the future will be the cost of an ageing population.

The current funding gap is so concerning, and so many individuals have faced such problems and financial hardship arranging the care they or their loved ones need, that it has become hugely political – an issue that could sway general elections.

So it’s a relief, but not a surprise that this week’s Budget included measures to help curb the crisis, or at least pay it lip service.

“The Chancellor’s announcement of an additional ?650 million to help English councils meet social care costs will be welcome,” says Tom McPhail, head of policy at Hargreaves Lansdown.

“However it’s disappointing the government still hasn’t published its paper setting out plans for a coherent long-term strategy to address the financial and social challenges of caring for an ageing population.

“The government urgently needs to set out its policy on how much individuals should have to pay themselves, and under what circumstances. The last Conservative manifesto flirted with a comprehensive care policy, before retreating in disarray. The sooner they address this pressing issue, the better.’

Other long-term problems playing out in the personal finance have also been acknowledged.

In this week’s Budget the government has finally confirmed it will bring forward regulations to ban cold calling around pensions - welcome news in the fight against fraudsters.

And the DWP will publish a paper this winter setting out the government’s ideas on boosting pensions savings among the millions of self-employed workers left out in the cold by the workplace pension.

All in all, the ramifications of this week’s Budget should keep us going until the spring, when, Phil suggests, we could see a Budget event resurrected as Brexit kicks in. Which could be even more fun.