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Budget 2017: The policies behind the controversy

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We said at the time that it would be controversial, and so it has proved. Philip Hammond’s decision to raise the National Insurance Contributions made by self-employed workers has dominated the coverage of his Spring Budget. It has even provoked several members of his own party to speak out against him.

The Chancellor’s response has been firm – he’s not for turning, he says. And he has the backing of the respected Institute for Fiscal Studies, who agree with him that this policy ‘reduces the unfairness’ in how employed and self-employed people are taxed. But the Government won’t be legislating for these tax increases until the autumn, so there’s plenty of time for political wrangling between now and then. It’s certainly possible that Hammond will be forced to change his plans. We will just have to wait and see what happens.

In the meantime, it’s worth putting the politics aside to explore the detail of these plans. The full story begins with changes that George Osborne announced in his very last Budget. Back then, the goal was to cut taxes for the self-employed, and the former Chancellor intended to do this by abolishing their Class 2 National Insurance Contributions. This change will come into force in April 2018.

Now, however, the goal of the current Chancellor is to increase taxes for the self-employed. He’s still going ahead with Osborne’s abolition of Class 2 NICs, but accompanying this will be hikes to Class 4 NICs. In April 2018, the main rate will rise from 9% to 10%. In April 2019, it will go up again, to 11%.

So, what’s the overall effect? The combination of these two tax changes means that every self-employed worker making over £16,250 will have to pay more. The average NICs increase will add up to 60p a week.

These numbers, or at least the implications they have for workers’ wallets, have overshadowed some of the Budget’s other measures. It’s true, as we predicted earlier this week, that this was a rather petite fiscal statement. But it still managed to include a number of policies that will be welcomed by fleet operators and motorists.

The most eye-catching of these was Hammond’s investment in infrastructure. There was £220 million for tackling pinch points and £690 million for Local Authorities to relieve congestion. But more exciting still was the establishment of a new £270 million Industrial Strategy Challenge Fund to support new technologies, including electric and driverless cars. All of this money will come from the £23 billion National Productivity Investment Fund that the Chancellor set up in November.

There was also a little bit of good news for hauliers. Both the Vehicle Excise Duty rates for HGVs, and the Road User Levy that they have to pay, will be frozen for another year.

And there was good news, too, for those businesses that are worried about the upcoming Business Rates revaluation. Hammond has put aside £435 million to help those who will be hardest hit by rate rises in April.

As for another of Hammond’s most significant announcements, it remains shrouded in mystery. The Budget reveals that the Government is reviewing the taxation of diesel vehicles, and will consult with interested parties ahead of potential changes in the Autumn Budget.

Of course, this could have dramatic implications for fleet professionals. We’ll be watching carefully to see what the Government has planned – and, as always, we’ll keep you informed on this blog.

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