Budget 2017: What the Experts Say

Industry insiders give their views on the 2017 Budget - giving Philip Hammond an A* for innovation spend but a C- for the raid on self-employed purses

Emma Wall 8 March, 2017 | 2:03PM
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This week as part of our Guide to ISA Investing we reveal the top rated and top performing stock and fund ideas – as well as sharing where the experts stash their cash, the latest news from the 2017 Budget Report and how to reduce your tax bill.

“Expect More Pension Contributions”

Les Cameron, head of technical at Prudential

The introduction of Pension Freedoms in 2015 combined with the abolition of the dividend tax credit last year, has already resulted in many business owners revaluating at their remuneration strategies, making greater use of the tax advantages of pension contributions. As a result of the effective increase in dividend taxation, arising from today’s announcement of the reduction of the Dividend Tax Allowance from £5,000 to £2,000 we expect to see more financial planning in this area.

The reduction in the Dividend Tax Allowance will increase thee income tax payable on dividends for basic, higher and additional rate tax payers by £225, £975 and £1,143 respectively. Likewise those people with investment portfolios that are generating dividends will also see an increase in their tax bill.

“Stop Moving the Pension Goal Posts”

Richard Parkin, head of pensions policy at Fidelity International

With pension freedom being such a success in terms of encouraging engagement with retirement saving, we are disappointed that the government has chosen to proceed with the Money Purchase Annual Allowance (MPAA) reduction to £4,000 come April. It is likely to affect good consumer behaviour more than it will reduce poor behaviour causing some to reduce their retirement saving or have restricted access to pension freedoms.

This constant moving of goal posts on pension rules only serves to undermine people’s confidence in pensions. Our customers tell us that one of the main reasons for not saving more for retirement is they don’t trust that the rules won’t change again. Not only that, this change makes life harder for employers offering generous pension schemes who now have to deal with yet more administration and cost.

“Self-employed Don’t Get Workplace Benefits”

Steven Cameron, pensions director, Aegon UK

The introduction of higher national insurance rates for the self-employed will not be welcomed by this group but were perhaps to be expected. This is because there is an increasing division between employees and the self-employed with the latter paying rates around 3% lower than those of employees. National insurance contributions notionally pay for state pensions and with the self-employed being key beneficiaries by now receiving the same single state pension as employees, it’s not unreasonable to reflect that in national insurance rates. However, this justification would have been easier to use had the changes to national insurance happened at the same time as changes to state pension entitlements.

In addition, employees receive other benefits such as statutory maternity and sick pay from the national insurance system which the self-employed and those in the gig economy don’t qualify for.

“Pro-growth But Could Do More”

Nancy Curtin, chief investment officer, Close Brothers Asset Management

This was not the most memorable Budget on record by any stretch of the imagination, but it did bring a dose of good news. The economy has grown far faster than almost anyone expected in the aftermath of the referendum, and the brighter outlook for 2017 has made life somewhat easier for the Chancellor. The boost this growth has given to the public purse has taken the pressure off austerity, with tax receipts climbing without additional growth-threatening taxes.

Investors would no doubt have preferred to see a greater commitment to pro-growth investment from Hammond. Measures like the £500 million investment in technology, innovation and robotics are positive, but limited in scope. It’s clear that Hammond is setting aside a fiscal shock absorber should Brexit negotiations de-rail growth, or indeed, if monetary policy changes to combat inflationary pressure.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Emma Wall  is former Senior International Editor for Morningstar