Last Tuesday, 13 March, Chancellor Phillip Hammond delivered his 2018 Spring Statement.
Although he’s described as “positively Tigger-like”, many economists are not feeling quite so upbeat by Hammond’s recent announcements. Overall, the news was focused on household finances with respect to higher wages and lower unemployment rates. We have put together a summary of the key things you need to be aware of.
Updates on our economy
The Chancellor reported that the UK economy exceeded expectations in 2017 and has continued to grow consecutively for the past five years. The Office for Budget Responsibility (OBR) has forecast 1.5% GDP growth for 2018 (previously, this figure was expected to be 1.4%.) GDP growth is then forecast at 1.3% for 2019 and 2020, increasing to 1.4% in 2021 and 1.5% in 2022. However, some economists argue that these rates actually reflect the fall in inflation rather than an increase in wage growth.
It has been highlighted that the Spring Statement lacked many initiatives to increase productivity, which plays a key part in GDP growth forecasts – read our previous blog, Productivity and Investments for more information on that.
On a brighter note, borrowing is now forecast to be £45.2bn for 2018, which is £4.7bn lower than previously forecast back in November 2017 (nearly 1% lower). In simple terms, in 2018, the UK will borrow £1 for every £18, compared to £1 for every £4 back in 2009-10.
Currently, inflation is above the 3% target, but this is expected to fall within range over the next 12 months. Why is this important? Put simply, as inflation rises, you pay more for goods and services, although it can have positive and negative effects depending on your situation.
The Chancellor announced the following findings:
Employment has increased by 3 million since 2010, which is the equivalent of 1,000 people finding work every day. The unemployment rate is close to a 40-year low. There is also a joint record number of women in work – 15.1 million. The OBR predict there will be over 500,000 more people in work by 2022.
However, due to the increase in zero-hour contracts, many people argue this may not be a fair representation of employment figures.
Tax, ISAs and Pensions
There are no significant changes to tax rates, ISA allowances and pensions other than what we already expected following the Autumn Budget. Here’s a quick recap:
- Income Tax – the Personal Allowance will increase to £11,850 on 6 April 2018 and the Higher Rate 40% tax band will start at £46,350.
- Capital Gains – the ‘Annual Exempt Amount’ will increase to £11,700.
- Inheritance Tax (IHT) – remains frozen at £325,000. However, last April the new ‘residence nil-rate tax band’ (RNRB) was introduced as an extra allowance when passed to a direct descendent (this can also be used for a surviving spouse or civil partner). In 2018-19, the RNRB will be £125,000 per person. So, effectively, a married couple could pass £900,000 of their estate to their children without paying IHT (two times £125k and two times £325k) – to find out more about this, please talk to our financial planners.
- ISAs – the ISA allowance remains frozen at £20,000, although Junior ISAs will now go up with Consumer Price Index inflation (CPI).
- Pensions – although the annual allowance for tax relief will remain at £40,000, you could still be affected by other factors – we advise booking a full pensions review to check your individual situation.
There are also continuing plans for investment into housing, transport, and digital connectivity across the UK. For a more detailed look, please see the gov.uk website – Spring Statement 2018: what you need to know.
If you are worried about how you or your business could be affected by the recent Spring Statement, then please get in touch to speak to one of our financial planning team. We will carry out a full financial review to help put your mind at ease.