Budget notes for people who don’t care about the Budget

Written by Rebecca O'Connor on 7th March 2017

Philip Hammond, the still new-ish Chancellor stands up with the famous “red box” on Wednesday to give his first proper Budget speech.

There have been two Budgets a year for the last eight years, so it’s no surprise that many of us are a bit numb to the whole thing.

More than half (54%) of people don’t know what financial measures were introduced in last year’s Budget, according to research released today by Zurich, the insurer.

Phil’s a bit bored of them too – he’s cutting it down to one a year after this one.

But like them or couldn’t-give-a-monkeys, the Budget can have a dramatic, immediate impact on your finances, so it’s worth keeping one eye on the highlights.

Here are the essential questions – and answers:

  • Will it make me richer?

The Chancellor always giveth with one hand and taketh with another. So in short, probably not.

If you are a benefit claimant, you will almost certainly not be richer. The website turn2us has compiled a timetable of benefit changes, so you can check what changes will affect you and when.

If you are an income tax payer, then you will be a little richer from April – your personal tax allowance is going up from £11,000 to £11,500 – and so is the basic rate threshold from £32,000 to £33,500 and the higher rate tax threshold, from £43,000 to £45,000. You will notice the reduction in the amount of tax coming out of your pay packet.

However, what you gain in savings on income tax, you are likely to be paying in higher consumer prices – inflation is going up. This will hit food and petrol most noticeably.

If you have children, whether you are better off depends on how old they are. If they are between 3 and going to school, you will get 30 hours childcare a week for free, instead of the current 15. In theory, anyway. This could make a big difference to parents who work.

The old childcare voucher scheme is also being replaced by a top-up scheme. But whether or not you will benefit depends on whether you work full-time or part-time, among other things. Turn2us has a good section on this too.

  • Is the economy a total mess – or not?

The Chancellor makes many boasts in any Budget speech, regardless of whether they are an accurate reflection of the reality felt by most people. The economy is in a perilous state – Brexit will affect trade and growth, one way or another. Consumer debt is very high, and inflation is rising. But Phillip will give us a different picture of confidence and success.

Confidence is key – every economist knows it is a self-fulfilling prophecy  – ie. if everyone thinks the economy is a mess, it more than likely will be so, and vice versa. So one of the main roles of the Chancellor’s speech is to keep that confidence high, so that if it is genuinely a mess, we can think ourselves out of it.

  • Is now a good time to buy a house/ invest in property?

That locus of dreams and aspiration – the home of one’s own – is a key barometer for economic confidence. So the Government is always trying to help first-time buyers through new schemes and anything other than making homes actually affordable based on people’s incomes.

There are indications that people are choosing to stay put and conserve cash rather than moving right now. The answer to the question is – is it the right time for you? Trying to second guess the economy when buying a home is a recipe for disappointment. Sometimes timing is good, sometimes it is bad – and anyone who owns a home will tell you it is more luck than judgment.

What might be a good idea, though, is if you can save up a bit more to reduce the interest rate you will pay. With the Help to Buy ISA and from April, the Lifetime ISA, both of which offer a 25% top-up for first time buyers at the point they buy, are good incentives to save as much as possible.

  • Should I start my own business?

Business rates – taxes paid by businesses that own retail premises – are about to rise, big time. And the flat rate of VAT is being abolished, penalising VAT registered small businesses with relatively low turnover. There is now also a 7% tax on dividends for company directors (they used to be tax-free), making setting up a limited company less tax advantageous than it was two years ago. A decision to go self-employed is about lots more than tax – but it is worth a think about whether you are going to be better off after tax – or not. A good accountant will help.

  • Should I change jobs?

There is no reason not to look for another job if that’s what you want to do. Bear in mind that some European companies with UK divisions may be assessing the value of those UK operations after Article 50 is triggered.

  • What about buying a car?

It might be a good idea to steer clear of diesel – the Government is introducing new charges for diesel drivers in London and the fuel – now considered public enemy number one on London’s busy and seriously polluted streets, is on its way out. A hybrid or even better, full electric car, will earn you maximum tax benefits, but of course, will cost you more upfront. The range of these vehicles is getting longer all the time.