The chancellor—hair freshly cut for the occasion—rose to speak after a Prime Minister’s Questions which featured a slew of jokes about Theresa May’s lost voice.

He wasted no time in making his views on Brexit even better known, and returned to the topic consistently throughout the speech. The economy was “robust” he declared, but there was a “cloud of uncertainty” hanging over it.

Despite this, the news on the economy was good, with nine years of uninterrupted growth, 3.5m new jobs created and the fastest rate of wage growth for ten years. “All,” said the chancellor, “thanks to the hard work of the British people”—provided, of course, that we reach a deal with the European Union (EU).

The economic forecasts

The chancellor unveiled the growth forecasts from the Office for Budget Responsibility (OBR): 1.2% this year, followed by 1.4% in 2020, then growth of 1.6% for each of the next three years.

Those growth forecasts were better than those for the German economy and would, he said, see the creation of 600,000 new jobs in the UK by 2023. Aiming the first of many barbs at the Labour front bench, the chancellor stressed that 96% of the new jobs created in the UK last year were full-time jobs, and that the OBR expected wage growth of 3% or higher throughout each of the next five years. With the OBR forecasting that inflation would stay close to the target level of 2%—that would mean “real wage growth.”

The public finances

Turning to the public finances, the chancellor stated that government borrowing this year would be 1.1% of Gross Domestic Product (GDP)—equal to £130bn less than “under the last Labour government.”

Total government borrowing was expected to be £29.3bn in this financial year, falling to £21.2bn next year and falling further to £17.6bn, £14.4bn and then £13.5bn by 2023/24, to give the lowest government borrowing in 22 years.

Total debt as a percentage of GDP would also fall over the same period, from 82.2% next year (having reached a peak of 85.1% in 2016/17) to finally reach 73% of GDP by 23/24. The chancellor stressed that the public finances had continued to improve since the autumn, with the forecasts for borrowing and debt consistently lower in the Spring Statement than they had been in the Budget.

All this added up to what the chancellor described as a “journey of recovery” from the last Labour government as he gave himself a hearty pat on the back from having had such a clear plan, “since I became chancellor in 2016.” In fact, the chancellor was—given the background to his statement—quite upbeat.

He made much of the “investment” in the public finances—a total of £150bn since 2016—highlighting the Prime Minister’s announcement of £34 billion of additional funding per year for the NHS. The chancellor then went on to talk of the benefits that could flow from a ‘deal dividend’, assuming that a deal could be reached with the EU. Reaching a deal would, he said, release both a fiscal dividend and would provide a boost to business confidence.

He also gave a very clear indication that his Autumn Budget would be long and complicated, as he announced a comprehensive three year spending review to start before Parliament’s summer recess. By that time, of course, he should know the details of the UK’s departure from the EU. What is less certain, though, is whether he will be in a position to deliver his planned spending review. If Theresa May is not Prime Minister at that point, which seems entirely plausible, then there is very little prospect of Mr Hammond being Chancellor come the autumn. The mooted spending review and significant Autumn Budget are therefore things to keep an eye on for another day and, potentially, another chancellor!

Although it was a quiet Statement for pensions, we’ve outlined below the key information that could affect your finances in the new financial year, and over the years ahead.

WORKPLACE PENSION CONTRIBUTIONS TO INCREASE

FROM 5%

TO 8%

Minimum contributions to workplace pensions will increase from April 2019. If the total that you, your employer and the taxman currently contribute to your pension is less than 8%, then you’ll all put in a little more when this change comes in to effect. This small increase now could really pay off in the future.

 

STATE PENSIONS TO INCREASE

£129.20 PER WEEK	£168.60 PER WEEK
Basic State Pension amount from April 2019.	New State Pension amount from April 2019.

The new State Pension is to increase from £164.35 to £168.60 per week in April 2019. The basic State Pension, which applies to people who reached the State Pension age before 6th April 2016, will also increase from £125.95 to £129.20 per week.

Please note, this applies to those who have a sufficient National Insurance record for a full State Pension.

 

MARRIAGE ALLOWANCE IS CHANGING

£1,250 PER YEAR

If your income is less than your annual tax allowance of £12,500, you may now be able to transfer up to £1,250 of your unused allowance to your spouse so they pay less tax.

 

THE JUNIOR ISA ALLOWANCE IS INCREASING

FROM £4,260 PER YEAR

TO £4,368 PER YEAR

This allows you to save up to £4,368 tax free per year for your children’s future.

 

THE ADULT ISA ALLOWANCE REMAINS UNCHANGED

£20,000 PER YEAR

You can continue to save to up £20,000 tax free per year.

 

THE LIFETIME ALLOWANCE IS INCREASING

FROM £1,030,000

TO £1,055,000

This increase allows you to save up to £1,055,000 in your pension pot without incurring any extra charges.

 

THERE WILL BE NO CHANGE TO THE ANNUAL ALLOWANCE

£40,000 PER YEAR

Pension tax relief continues to be available on contributions up to £40,000.

 

THE TAPERED ANNUAL ALLOWANCE WILL STAY THE SAME

How much you or your employer can contribute to your pension effectively tax-free will be reduced if your adjusted income exceeds £150,000 and your threshold income exceeds £110,000.

Tapering reduces the annual allowance by £1 for every £2 over the adjusted income limit—up to a maximum reduction of £30,000.

 

THE MONEY PURCHASE ANNUAL ALLOWANCE WILL REMAIN UNCHANGED

£4,000 PER YEAR

If you’ve ever ‘flexibly accessed’ a pension, the Money Purchase Annual Allowance will apply to you. This would mean having to pay a tax charge if more than £4,000 were paid into your money purchase pensions in any tax year.

 

THE PERSONAL ALLOWANCE IS INCREASING

FROM £11,850

TO £12,500

The personal allowance increases to £12,500 for 2019/20, up from £11,850 in 2018/19. The personal allowance starts to be tapered off once an individual’s adjusted net income reaches £100,000. By the time this income reaches £125,000 in 2019/20, the personal allowance will be nil.

If you pay more than 20% tax on some of your income, you can claim additional tax relief on personal pension contributions either by contacting HMRC, or via your self-assessment tax return.

Tax treatment depends on your individual circumstances. Your circumstances and tax rules may change in the future.

 

THE ANNUAL DIVIDEND ALLOWANCE WILL REMAIN THE SAME

£2,000 PER YEAR

Shareholders will continue to have to pay tax on any dividend income that exceeds £2,000 per year.

 

DIVIDEND RATES OF TAX WILL STAY THE SAME

7.5%	32.5%	38.1%
Basic Rate	Higher Rate	Additional Rate

There are no changes to the dividend rates of tax which apply to all UK taxpayers. The first £2,000 of dividends is tax free. If you are a basic rate taxpayer, you’ll continue to pay 7.5% tax on dividends over this amount (up to £37,500 on top of the personal allowance).

If you pay higher rate income tax, you’ll pay 32.5% on dividend income between the higher rate threshold and the additional rate threshold of £150,000. 38.1% will be paid on dividend income above the additional rate threshold of £150,000.

 

SAVINGS ALLOWANCES WILL STAY THE SAME

£1,000 PER YEAR	£500 PER YEAR	NIL SAVINGS ALLOWANCE
Basic Rate Taxpayers	Higher Rate Taxpayers	Additional Rate Taxpayers

Savings allowances, which apply to all UK taxpayers are also to remain the same. If you are a basic rate taxpayer, you can continue to receive up to £1,000 of interest tax free and £500 if you are a higher rate taxpayer. This is in addition to your ISA investments.

 

If you have any questions around this topic, please feel free to get in touch with us directly on 01789 263888 or email hello@charterswealth.co.uk.