We consider what the Budget, which will take place on 11 March, will mean for your money.
Chancellor Sajid Javid has kicked off 2020 by announcing the Budget will take place on Wednesday 11 March. What can savers and investors expect from the Tories tax and spend plans?
A Conservative leadership race followed in quick succession by a general election has revealed some of the current government’s intentions for the money in our wallets.
Amid these promises, Javid has some big problems on his plate – the NHS pension crisis, the care funding crisis, a shaky pledge on wages. Looming over it all is the economic impact of Britain’s exit from the European Union.
Here are six key areas the Tories pledged to voters they would tackle, from property to income tax, and pensions to social care.
Initiatives from the Help to Buy Isa and equity schemes to the Lifetime Isa, have been used by successive governments to try to boost home ownership among young people, who have been locked out by a decade of soaring prices.
Boris Johnson’s government is considering an alternative to Help to Buy, but has a new plan. In the Queen’s Speech, the Tories promised to make “homes available at a discount for local first-time buyers”.
It’s expected to consult on the idea of offering a 30% discount, which will be assigned to specific houses and passed on when the homeowners sell up to locals.
First-time buyers may also benefit from plans to allow mortgage lenders to loosen affordability tests, put in place in the wake of the 2008 financial crisis. Encouraging longer-term loans, which cut the cost of monthly mortgage repayments, although are more expensive overall, has also been hinted at.
The Tory party has pledged a 3% stamp duty surcharge for overseas buyers to curb international money coming into the UK property market and pushing up prices.
A previous plan to overhaul the stamp duty system – raising the threshold for paying it from £125,000 to £500,000 at the same time as lowering the top rate from 12pc to 7pc – was dropped from the Tory manifesto, but could be resurrected by the Chancellor.
2. Income tax
Better earners hopeful for a raise in the higher income tax threshold to £80,000 were disappointed when it was dropped from the manifesto. But no one should see a personal tax or VAT rise in the Budget – the Tories pledge not to raise National Insurance, income tax or VAT rates.
Chancellor Sajid Javid had pledged to raise the current National Living Wage from the current £8.21 an hour to £10.50 in five years’ time. However, when this pledge appeared in the Queen’s Speech it was linked to economic growth, so it may not actually happen.
3. National Insurance
Under current Conservative party plans, the earnings threshold for paying national insurance contributions (NICs) is set to rise to £9,500 in the first Budget of the new government. From there, they have pledged to increase it until it is eventually £12,500.
Employees still paying NICs – those earning more than £9,500 – would each see their liability reduced by £85 a year, and by £500 a year if raised to £12,500, according to AJ Bell.
Raising National Insurance thresholds rather than income tax levels helps the lowest earners most, in particular those on less than the current £12,500 personal allowance.
A break down of voting demographics showed the “grey vote” from older Britons is what really helped push the Conservatives back into power. Pensions are a key battleground for this group.
The state pension triple-lock, which increases the amount that pensioners receive by inflation, earnings, or 2.5%, whichever is higher, is expensive to maintain in an ageing society such as the UK, but the Tories have pledged to keep it.
However, the planned increase in the National Insurance threshold could usher in problems for pensioners if it is badly managed. Everyone needs 35 years of NI contributions to qualify for the full state pension, so lifting people out of NI now could leave them better off today, but much worse off in retirement.
The NHS pension crisis has been a thorn in the side of the Conservatives since problems began to emerge in 2018. Pension tax changes, which introduced the tapered annual allowance in 2016, reducing how much higher earners can put into a pension from £40,000 to as low as £10,000, risks one in 10 doctors leaving to avoid tax rates of up to 100%.
The Tories have put together a fix to benefit senior doctors and others affected by the tapered annual allowance tax charge. It will allow them to pay the tax owed through their pension scheme, as they can do today, but with the government pledging to make good any tax charges through higher pension benefits.
Calls are growing, however, for the Chancellor to simply scrap the tapered annual allowance in the Budget as an easier way out. In this case, all higher earners would benefit. Politically the move may be difficult. Instead, he may raise the threshold at which the taper kicks, currently on earnings of around £110,000.
5. Social care
This year the number of over 90s in Britain will have increased by more than a third (36%) since 2010, bringing them to 616,000, according to projections by the Office for National Statistics (ONS). Growth of this grey army is significantly outpacing that of the wider population, which is up only 7% for the same period.
Thirty years ago the UK was home to just 237,900 over-90s – less than half the figure for today. A growing and ageing population means demand for care services is increasing, and funding has not kept pace.
The long-awaited government Green Paper on care fees has yet to materialise. The Tories have pledged £1 billion a year to plug gaps in the system until a cross-party agreement on reforming the entire social care system can be agreed.
Their starting point for negotiations would be that no one should have to sell their home to meet care costs. According to a report by healthcare specialists Laing & Buisson in 2018, private care homes costs can range from £27,000 to £39,000 per year for a residential care home, or £35,000 to £55,000 per year if nursing is required.
More detail on concrete plans is sorely needed, and the Budget would be a good opportunity.
6. Corporation tax
The Tories planned 2% corporation tax cut has been shelved in favour of a pledge to keep it at 19%.
The Queen’s Speech did contain a promise to make changes to business rates. This has been trailed as a 50% discount in business rates for small retailers – which currently have a 33% discount. It’s expected to help nine in 10 independent retailers.
Boris Johnson and his government are also acutely aware that voters in the regions of the UK only lent him their support, and will now want to see serious investment in their towns and businesses, something that Javid may want to address in the Budget.
The number of businesses grew by only 4% across the decade in Northern Ireland, and by 16.5% and 17.1% in Scotland and Wales, respectively, according to figures from the UK Business Angels Association. This is in stark contrast to London, which saw a growth in the number of business by 51%.
This article was first written by our sister magazine Moneywise.