Judging the Budget

01 April 2015
Volume 31 · Issue 4

Richard Lishman reviews the pre-election budget and considers its impact on dentistry.

The Chancellor’s sixth budget announcement was incredibly political, as you would expect, being so close to the upcoming election. With just 50 days until the country goes to vote, he promised no gimmicks and no give-aways, but there were certainly some highlights and points of contention to consider.
George Osborne claimed that Britain was “walking tall again” and in the last year the UK economy had grown faster than any other advanced economy in the world. He stressed the long-term benefits of a recovering financial landscape,
such as reduced borrowing and increased public spending, setting the goal for Britain to be the most prosperous economy in the world.
His budget announcement promised new investments in manufacturing and science, increased support for savers, pensioners and small businesses, and boasted an economy no longer in crisis and that is fundamentally stronger than it
was five years ago.
 
Growth
At 2.6 per cent, Britain grew faster than any economy in the world last year, with growth for 2015 set to be 2.5 per cent. Since 2010, business investment has grown, with the North growing faster than the South, it was claimed. What’s more, the Chancellor was keen to highlight that Britain now has the highest rate of employment in its history, with the benefit claimant rate at its lowest since 1975.
While the unemployment rate was predicted to fall to 5.3 per cent this year, the budget also announced an increase in the national minimum wage to £6.70, which is on course to be £8.00 by the end of the decade. As a result, George Osborne claimed that household incomes would go further, with the lowest rate of inflation, 0.2 per cent, driven by falling world oil and food prices.
 
Welfare
According to the Budget, the latest economic forecasts revealed that the Government would be ending the squeeze on national spending cuts and austerity by 2019/20. However, until then we are likely to see increased savings made on welfare and public services, as £12bn is needed from welfare over the course of the next few years.
The Chancellor was at pains to stress that in spite of recent cuts, the quality of service delivered by the NHS and national welfare was going up, with satisfaction reports showing the NHS to be improving.
However, in his response to the Budget announcement, Labour’s leader Ed Miliband attacked George Osborne’s minimal mention of the NHS and public spending, asking, “Where was the investment into public services?”
 
Tax
With its announcements on taxation and savings, this year’s budget claimed to be the beginning of a fairer tax system, protecting those who are genuinely self employed. It announced new initiatives to address tax avoidance and evasion, with reviews for the avoidance of inheritance tax and new criminal measures for tax evasion.
While many dental practices will be welcoming the changes to small business rate relief, which was doubled, and to corporation tax, which was cut to 20 per cent, the further changes to Entrepreneur’s Relief will leave many feeling hard done by. This was already impacted by December’s Autumn Statement, which made it less attractive for a dentist to incorporate. So on the one hand the Government is saying it is trying to help small businesses, but at the same time it seems that they are making it far less attractive, reducing the benefits.
Meanwhile, something that will make things easier for practitioners, as well as their accountants, is the abolition of
the annual tax return, which is to be replaced by online tax accounts. This will be really beneficial for dentists, as long as they remember to keep track of it, or have a good adviser that can help and assist.
While there were certainly some questionable elements to the budget, there were also some real positives, for instance the personal allowance is set to rise from £10,600 to £10,800 next year and to £11,000 by 2017. Through this, the typical working taxpayer will be £900 better off per year. What’s more, the higher rate threshold is also set to rise to £43,300 by 2017-18. However, one thing that should always be remembered is that while the Government gives out in one hand, it will be taking away in another. The cost of running the country will not have gone down, and so the extra relief seen in income allowance will have to be offset somewhere else.
 
Savings and pensions
The budget claimed to be creating a new “savings culture” with the introduction of initiatives designed to encourage people to save. These included a more flexible ISA that allows people to withdraw and put back money later in the same year without incurring any tax penalties. As well as this, a brand new “help to buy ISA” was introduced to combat low interest rates on savings and the high payments needed to buy a house – for every £200 paid in, the
Government will give £50 to go to the initial deposit.
There were also pension reforms that will allow 5m existing pensioners access to their annuity. From the Government’s perspective this is a very clever approach as it means they will receive the tax from those pensions now, rather than over the course of many years. Although there was some debate as to whether there is the protection necessary to prevent pensioners being exploited.
Finally, there was one big change to pensions that will greatly, and adversely affect almost all practising dentists. The Government has changed the lifetime allowance, (the amount you can invest into pension over your lifetime). At the moment this is £1.25m but this will soon fall to £1m, which is undoubtedly a massive change. Ultimately this will affect most dentists, but especially any NHS dentist that has been practising for 15 years or more. And
anyone who might be on course to invest over this amount will now be in breach of HMRC rules and face extra taxation.
While there will be some protection for those affected, up to a certain amount, this will have a huge impact on a very large proportion of dentists. For instance, a fund of £1m will likely provide an income of around £40k a year, so if you’re expecting to earn more than this in retirement, your pension fund is likely to be higher than £1m.
All things considered, this is very much a budget that looks good at first glance, but with a little deeper inspection soon reveals some real concerns. So if you are unsure of what it means for you or your practice, it is imperative to seek experience professional financial advice.