Yahoo Finance Budget 2018: What to expect for the NHS, taxes, pensions and more
The UK government’s highly anticipated budget will be unveiled on Monday, giving citizens insight into spending, taxing and borrowing plans.
This is the final annual budget before the UK leaves the European Union in March 2019, and it comes as UK unemployment is at its lowest level in decades but economic growth is significantly below other developed nations.
The new budget will be unveiled in an afternoon speech by Philip Hammond, who is formally known as the chancellor of the exchequer, but more informally known to outsiders as the country’s finance minister. His speech is expected at 3:30pm local time.
He’s been tasked with executing on promises by prime minister Theresa May to end years of austerity and give billions in extra funding to the NHS, the country’s national healthcare service.
“Promises of extra funding for the NHS and ending austerity could signal unexpected announcements, and taxes may have to rise,” said Deloitte’s head of tax policy, Daniel Lyons.
The UK’s Office for Budget Responsibility (OBR) is also set to publish revised forecasts for the economy and public finances on the same day.
Here are some of the key things to watch for in Hammond’s budget speech:
NHS
May promised in June to increase NHS funding by about 3.4% annually, saying “the NHS is this government’s number one spending priority”.
By the 2023-2024 financial year, the NHS in England is set to receive about £20bn ($26bn) in additional financing each year.
May said this funding would come from higher taxes, and she also planned to divert some money to the NHS that would have otherwise been spent on the country’s membership in the European Union.
Experts have outlined a range of possible areas where Hammond could try to raise more tax revenue.
“If the chancellor feels that now is the time to increase tax revenue to meet the NHS funding commitment, he will probably introduce a range of different measures that will bring in relatively modest sums, rather than any one big revenue raising change,” said Iain McCluskey, a tax partner at PwC.
Chris Sanger, head of tax policy at EY, predicts that Hammond might introduce increases in National Insurance (NI) contributions and VAT in order to pay the higher NHS bill. Sanger said that if Hammond specifically points out that these higher taxes will go directly towards the NHS, it may make the tax rises more palatable.
An increase in National Insurance contributions would mean employers would deduct more money off employees’ salaries for the government, and self-employed people could also have to make higher payments.
Corporate and ‘digital’ taxes
The UK government has plans to continue lowering corporate tax to 17% in a bid to attract global companies and jobs to the country. Some have suggested that leaving corporate tax rates steady at 19% might be a wise move.
“Corporation tax is due to be cut to 17% from 1 April 2020. Cancelling this reduction would bring in a small amount of money in 2020-2021, but up to £5bn in the succeeding years,” noted Daniel Lyons, head of tax policy at Deloitte.
This move “would still leave the UK with the most competitive corporation tax rate in the G20,” he said.
The government is also expected to make an announcement on a “digital” tax that would apply to tech companies. This comes as Brits have grown weary hearing about how big multinational tech companies use various business techniques to avoid paying UK taxes.
“The chancellor has indicated that an entirely new digital services tax is a potential tool for tackling [tax] avoidance and levelling the playing field between digital and bricks-and-mortar businesses and we expect he will make further announcements in this regard in the budget,” said tax partners at the accounting and business advisory firm, RSM. “It is widely recognised that the existing rules are no longer fit for purpose.”
PwC’s head of digital tax, Alena Turnsek, said that it’s important the UK aligns its digital tax rules with other countries.
“The tax system absolutely needs to keep pace with with the modern economy but we don’t want to be left with an unworkable mish-mash of rules,” she said.
Personal finances
Expect the “personal allowance” to rise, which is the set amount of income that workers can earn each year that is tax-free.
“The personal allowance for 2018-2019 is £11,850 but the government has already announced that it will increase to £12,500 by 2020-2021 … we are likely to see an increase to somewhere in the region of £12,200 announced for 2019-2020,” said RSM tax experts.
And Individual Savings Accounts (ISAs) might get some attention:
“In search of a good news story, the chancellor may tinker with the Lifetime ISA. Increasing the amount that can be saved each year, allowing savers to make withdrawals without incurring penalties and increasingly the eligibility to those aged up to 50 might make the product more attractive,” said PwC tax partner Iain McCluskey.
The budget is also expected to have further details about tax changes for contractors who work for private UK companies. Experts have warned that forcing any changes now could create big administrative burdens for British businesses.
Pensions
Tax experts have warned the chancellor may look to introduce new restrictions on pension contributions.
“Tax relief on pension contributions costs £38.6bn a year and it is possible that some restrictions on relief might be introduced to raise revenue, either by restricting the annual limit or reducing the amount of relief due,” said Deloitte’s tax director, Patricia Mock.
Specifically, tax relief for high earners could be tapered off, according to some experts.
Property and housing
The government has already announced a range of programmes and taxes to help first-time home buyers get onto the property ladder and dissuade international investors from buying UK homes.
“The last couple of years have seen an unprecedented amount of changes to property taxes … it’s difficult to see any further new measures this time round,” said Rob Walker, head of real estate tax at PwC.
Universal Credit
Experts have suggested Hammond could announce a new injection of cash for the country’s Universal Credit programme, demonstrating that the government’s austerity push is over.
Universal Credit is a new system providing benefits to working-age households that replaces legacy systems. There have been concerns that many families could receive substantially lower benefits as they swap over to the new system.
More plastic taxes?
In a bid to tackle the world’s growing plastics problem, some experts have suggested Hammond may announce plans to increase charges on plastic bags.
“It’s likely that we’ll see a multi-pronged approach aimed at reducing single-use plastic. The plastic bag levy may well double from 5p to 10p,” said Jayne Harrold, PwC’s UK environmental tax leader.
Tax changes for e-Books and sanitary products?
It’s possible the chancellor could also scrap VAT on women’s sanitary products and electronic publications, including e-books and e-newspapers, according to RSM tax experts.
The UK may opt to “apply VAT at the zero-rate to women’s sanitary products” after Brexit, they suggested.
And he could announce plans to scrap VAT charges on e-books and e-newspapers, “thereby satisfying UK publishers and consumers, while at the same time keeping the UK aligned with developments in digital policy of EU member states,” they said.
