Philip Hammond wants to build a ‘stronger, fairer, better’ Britain, and it was the ‘fairer’ notion that stood out in his Budget speech. However, the challenge for any Chancellor wanting to achieve fairness is that getting there will always result in winners and losers.

The disparity between the tax rates paid by the self employed and employees has been ‘undermining the fairness of our tax system’, he said, before stressing that the tax consequences should not be the main reason for choosing whether to be employed or self employed. Given the exponential growth of the gig economy in recent years and its cost to the Exchequer, it is not surprising that workers who are self employed have been hit with a tax rise.

He cut the tax-free dividend allowance from £5,000 to £2,000, which will hit self-employed people who pay themselves through dividends and tackles what he called the ‘proliferation of incorporation’, and he also announced a phased 2% increase in Class 4 NIC for the self employed.

Given the exponential growth of the gig economy in recent years – and its cost to the Exchequer – it is not surprising that workers who are self-employed have been under scrutiny.

The Chancellor cut the tax-free dividend allowance from £5,000 to £2,000 which will hit self-employed people who pay themselves through dividends and tackle what he called the “proliferation of incorporation”. He also announced an ill-fated 2% increase in Class 4 NIC for the self-employed, which was scrapped within a week following objections that it broke the Conservative manifesto of a ‘triple tax lock’.

Although now abandoned, it does indicate that the Chancellor was keen to level the playing field for workers (albeit levelling it upwards rather than down) and the Taylor Review may give him some support to do so in the future.

The issue with scrapping the proposed NIC increase is that it was one of the few revenue raising measures in the Budget which would have raised an extra £2 billion in taxes by the end of the current Parliament.  The Chancellor will now have an even bigger challenge to balance the books in the Autumn Budget.

Small business

Small businesses have come out on top. The government often describes small businesses as being the lifeblood of the UK economy and this time the Chancellor supported them with business rate reliefs and a delay to digital quarterly reporting for those under the VAT threshold.

Although welcomed by start-ups and small business owners, it is frustrating that mid-sized businesses, those that grew faster and created more jobs than small or big firms last year, were once again largely ignored by policymakers.

Future tax clampdown

There were not many giveaways or surprises in this ‘last’ spring Budget. Hammond wants to keep his powder dry for when the UK starts to feel the Brexit tremors as EU negotiations commence. However, he did give us some insights into what the future may hold. Innovation, fairness and an economy ‘that works for all’ were his fail safe messages. I believe this has given us some clues as to what the Chancellor’s long-term fiscal strategy could look like, and they are:

Digital real estate tax: business rates have caused a major headache for the Chancellor and businesses alike. He will be glad when the revaluation saga is over but hinted that the bigger problem has yet to be solved. His next job will be to tackle the unfair tax disparity of traditional and online retailers, an issue that is adding to the huge pressure already faced by high street retailers. I would not be surprised if the government introduced some form of additional new tax on the ‘digital real estate’ of large online retailers.

Annual investment allowance: Hammond remained focused in his speech on creating a system that supports innovation and productivity. Money is being set aside for Brexit jitters but once negotiations are over, say in Budget 2019, the Chancellor may look towards increasing the annual investment allowance (AIA) to help increase productivity and unleash our manufacturing might. An increase to £5m over a five-year period would be a game changer. It would provide a significant incentive for businesses to invest in capital assets, such as plant and machinery, which will drive future growth and automation, and give businesses the confidence to plan ahead.

Non-payroll labour: it is surprising the forthcoming clampdown on public sector employers using non-payroll labour has not been extended to the private sector. As the changes within IR35 take effect from April, there are reports that contractors are already moving away from public sector contracts. If the private sector was subject to the same regime, it would limit the public sector’s ‘brain drain’ concerns while addressing another tax imbalance. It is likely this will be on his future list of things to do.

This article has been updated since the Chancellor’s U-turn on Class 4 National Insurance Contributions