The Chancellor’s first joke was his best. He reminded the House that the last time a Chancellor proposed merging the Budget and the Autumn Statement (1993 - Norman Lamont) he was praised by his Prime Minister for delivering ‘the right budget, at the right time, from the right Chancellor’. Pause for effect….'ten weeks later he was fired. So wish me luck’.
Philip Hammond is dry but self-deprecating and funny. He even poked fun at his nickname, Spreadsheet Phil, as he rattled through the traditional list of financial projections. His sense of humour was just as well, because there was precious little else in this most neutral of budgets.
In the first two years of the five-year forecasting period, the Chancellor promised just under £2.4bn of net spending. During the next three years he will claw back about £2.2bn of it through higher taxes. That is exactly as it should be at this most delicate moment for the UK economy. We are about to embark on two very rocky years of Brexit negotiations. This is not the time to scare the horses.
Napoleon once said ‘don’t bring me good generals, bring me lucky ones’. Philip Hammond will consider himself extremely fortunate to have inherited a much stronger economic backdrop than was predicted after the EU referendum last summer. The growth, inflation and fiscal environment is much better even than predicted at the time of the Autumn Statement in November.
As ever with the Budget speech, it is best not to focus too hard on what the Chancellor says in the House for political effect but to focus instead on the pluses and minuses of the policy and spending decisions. Many of these sound good while he’s on his feet but amount to very little against the unsentimental backdrop of the Budget Red Book’s five year table.
This time around, there are only a handful of measures that jump out:
Extra spending on social care and the NHS is largely upfront amounting to £1.5bn next year and falling away quite quickly after that.
The other big spending commitment, worth £1bn extra in five years’ time, is on education (both free schools and raising the status of technical education). This is largely weighted to the back-end, most of it after the next election.
To pay for these two, he has raised some taxes under the cloak of increasing the fiscal system’s fairness.
The increase in National Insurance contributions for the self-employed (and quasi-self-employed sheltering in a company of convenience) will raise about £500m extra in 2021/22.
Worth almost twice as much is the decision to revoke 60% of George Osborne’s new dividend allowance. This will raise £930m in 2021/22.
The rest is really shrapnel.
For savers and investors there was very little. In one sense that is a welcome relief. The past few years have seen a torrent of changes to the pension and ISA regimes. As our customers tell us, one of the main reasons not to save more is the thought that the Government is only going to change the rules in future. A do-nothing Chancellor is a welcome change after Gordon Brown and George Osborne, arch-meddlers both of them.
The measures that were announced, particularly the reduction in the dividend allowance, make the case even more strongly for using the tax reliefs and allowances that are now in place.
For many investors the reduction in the dividend allowance won’t be an issue because they have already sheltered their savings in ISAs and SIPPs. The £20,000 ISA allowance from next month is a really generous and useful perk, not least because it applies to both partners in a couple. Added to the £40,000 a year pension contribution allowance enjoyed by all but the highest-paid, there is plenty of headroom to shelter your short, medium and long-term savings.
There have been plenty of changes announced in recent years to both ISAs and SIPPs. There have been changes in allowances, changes to the inheritance rules, new vehicles announced, flexibilities introduced and complexities added. This time Mr Hammond left well alone. Even the bad ideas - like the reduction in the Money Purchase Annual Allowance announced in the Autumn Statement - were untouched.
One savings measure was confirmed - the introduction of a £3,000 National Savings & Investments bond paying 2.2%. With the average deposit account paying less than 1%, that will obviously be popular but in truth it is barely keeping pace with inflation. Another reason to move further up the risk spectrum to invest in equity income funds - the yield on the FTSE 100 today is 3.8%.
What about the investment implications of the Budget? Usually, investors shrug off the Chancellor’s measures for the good reason that the UK’s most international of markets is more concerned about global factors like decisions from the Federal Reserve, movements in the oil price or how much copper the Chinese are buying.
Today was no exception. There were some incentives for technology companies - robotics, driverless cars and biotech. Funds specialising in these areas will likely benefit from the supportive environment in these areas. But as the Chancellor sat down, the FTSE 100 was 0.1% lower while the FTSE 250 index of more domestically-focused companies was 0.1% higher. Sterling, which has been weak in the run up to the Budget, was largely unmoved. In fixed income, the attention is more on what Janet Yellen has to say next week.
So, yes, this was the right Budget at the right time. He’s probably the right Chancellor too. But thank goodness for the jokes.
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