Five things you should take away from the Budget

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The Chancellor of the Exchequer presented his 2018 Budget on 29 October. Our Director of Policy Steve Webb explains how it will affect you

Much of the discussion around the 2018 Budget focused on the Chancellor’s spending plans, ranging from a large long-term boost to spending on the NHS to additional short-term spending on everything from schools to pot holes. But Budgets often also have implications for our personal finances, and this one was no exception. Here are five key things that changed: 

  1. Income tax

    Income tax bills came down in April 2019. The point at which we start paying income tax (the personal allowance) rose from £11,850 to £12,500, which was a bigger increase than expected, but the personal allowance will be frozen in April 2020. The starting point for higher rate income tax also rose, from £46,350 to £50,000, but will also be frozen the following year. There are different rates and thresholds in Scotland.
  2. National Insurance Contributions (NICs)

    Higher earners who celebrated the increase in the starting point for higher rate income tax may have found that their gains were lower than expected. This is because the limit on the main rate of NICs (12%) was also raised from £46,350 to £50,000. Above the limit, the NICs rate drops to 2%, so a large increase in the limit for NICs means more of the wages of higher earners are charged at the full 12% rate.
  3. Excise duties

    The Chancellor had a ‘pick and mix’ approach to the duties on items such as beer, wine, spirits, petrol and tobacco. Petrol duties were frozen again, as were duties on beer, cider and spirits, but duties on wine and on tobacco were increased in the usual way.
  4. Taxation of contractors

    HM Revenue and Customs (HMRC) has been carrying out a long-running campaign against people who are registered as self-employed, but who HMRC believes to be, in effect, employees. In 2018, the government clamped down on the use of contractors by the public sector. In the Budget, the Chancellor announced that in 2019 the same restrictions would apply to larger private sector employers who use contractors.

    These employers have a legal duty to check whether their contractors are ‘genuinely’ self-employed, and are responsible if it’s decided afterwards that they should have been treated as employed earners. The Chancellor expected this rule change would be his biggest revenue-raising measure in the Budget.
  5. Universal Credit 

    The government's Universal Credit benefit replaced six existing benefits and tax credits. The system has proved to be controversial, partly because of delays in payments and partly because certain groups get less support than under the old rules. The Chancellor announced that there would be extra money for Universal Credit to benefit families in low-paid work and also help to smooth the transition onto the new system for those currently receiving existing benefits, such as Jobseekers Allowance.

    Sometimes, the most interesting aspect of the Budget is the ‘dog that didn’t bark’. Despite warning in the run-up to the Budget that the cost of pension tax relief was ‘eye-wateringly expensive’, the Chancellor didn’t make any changes to the system. But we believe it’s only a matter of ‘when’ rather than ‘if’ this Chancellor (or a successor) further reduces the limits on pension contributions, which benefit from tax relief.

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