Budget 2018. Purposeful.Money's Key Notes

In his third Budget Phillip Hammond has heralded that the era of austerity is now finally coming to an end – Note the careful language that he has used here, he has not said that austerity is over but ‘coming to an end’! He has also discovered that he had more money to play with than he had expected.

The Overview

The dramatic improvement in the outlook for the UK’s public finances gave the chancellor enough leeway to fund previous government pledges of extra money on the National Health Service and housing without big increases in taxes.

Borrowing has persistently come in under forecast. The OBR (Office for Budget Responsibility) expects borrowing to be £11.6bn lower than forecast at the Spring Statement.

But, with so much uncertainty in the air, economic growth remains anaemic by both historic and international comparison. The OBR now expects the economy to grow by 1.6% next year, 1.4% in 2020 and 2021, before picking up to 1.5% in 2022 and 1.6% in 2023.

The proposed digital tax is a political statement but won’t be the sales tax that might have affected UK internet businesses. Duty was frozen on beer and spirits (instead of increasing as it did for wine) which is good news for pubs.”

Aside from an increase in the tax-free personal allowance and higher-rate tax threshold there were no major tax announcements for individuals. This makes it an opportune time to make the most of valuable tax allowances, reliefs and exemptions that already exist – especially as this could be a short-term window of opportunity, with just five months to go to Brexit.

What are the key Purposeful notes from the budget

Plastics tax

A missed opportunity!

The Government will impose a new tax on the manufacture and import of plastic packaging that contains less than 30% of recycled plastic.

Disappointingly there will be no special levy on disposable plastic cups.

The Chancellor has reiterated previous comments that the UK must become a world leader in tackling ‘the scourge of plastic littering our planet and our oceans’. Mr Hammond stated that there are ‘billions of disposable plastic drink cups, cartons, bags, and other items are used every year in Britain. Convenient for users but deadly for our wildlife and our oceans’. These are sentiments that we at Purposeful.Money fully endorse.

It is sad that this commitment did not extend to a so called Latte Levy which had previously been suggested as a means of dealing with the country’s disposable cup waste. 

2.5 Billion cups are being thrown away every year. (Image Source: Acre)

The latte levy which was first floated by the Environmental Audit Committee would constitute 25p being added to the price of each coffee to encourage the use of reusable alternatives and also provide a fund for proper waste management.

Mr Hammond stated however that ‘I have concluded that a tax in isolation would not at this point deliver a decisive shift from disposable to reusable cups’.

It is important to note however that in 2015 the government added a 5p charge to plastic bags, a move that appears to have cut the sales of these bags by 86% and therefore seen fewer entering the environment.

There have been many calls therefore for the government to repeat this success with coffee cups and plastic bottles.

Greenpeace Executive director John Sauven said ‘Three weeks since the world’s leading climate scientists said government have just 12 years to turn the tide on the catastrophic and irreversible consequences of climate change the Chancellor has delivered a budget that reads as though he has missed the memo’

It does look as though when we are currently in the middle of a plastics pollution crisis the Chancellor has failed to take even a small step towards reducing the usage of single use plastics by not introducing a tax on disposable coffee cups.

Pensions

Pension tax breaks are safe…. for now!

This is despite the Chancellors recent gripes that the bill for pension’s tax relief is ‘eye wateringly expensive’.

This statement prompted many to think that he could be about to do something radical with pensions. So, it will have been a good news for many savers that he had little to say on this subject.  It has been a relief that the popular ‘perk’ which allows everyone to save into a pension from untaxed earnings  has remained untouched despite the bill being £39billion a year to the Government.

Specifically Mr Hammond did not cut the tax-free annual savings limit, or introduce a flat-rate of tax relief as had been feared.

The annual allowance – the maximum that most savers can put in pension pots each year and enjoy tax relief has also been left intact despite fears it could be reduced from £40,000 to £30,000.

The Lifetime allowance however for pensions will rise in line with inflation from the current £1,030,000 ceiling to £1,055,000 in April 2019.

The Chancellor’s comments on how expensive the current system is could however mean that the current pension tax reliefs are on borrowed time.

Inheritance tax

Earlier this year, the chancellor asked the Office of Tax Simplification to review the level of complexity in the current inheritance tax system. Its report is due this autumn, and Mr Hammond had nothing to say on it in the Budget.

Once again, given the interest the chancellor has expressed in the subject, and the possibility that there could be changes ahead, it makes sense to make the most of the existing allowances while you still can.

You don’t have to wait until death to pass on wealth – as most people do. Transferring wealth while you are alive can have a transformative effect on your family’s life and reduce an inheritance tax (IHT) liability.

There are a number of annual gift allowances which you lose if you don’t make use of them before the tax year end. For example, you can give away £3,000 each year and this will not be subject to IHT. You can give as many gifts of up to £250 per person as you want during a tax year, as long as you haven’t used another exemption on the same person.

If a gift is regular, comes out of your income and does not affect your standard of living, any amount of money can be given away and ignored for IHT. It is also possible to make further tax-free gifts – potentially exempt transfers – but you have to survive for seven years after making the gift to get the full benefit of it being outside of your estate for IHT purposes.

Income tax and ISAs

The Chancellor announced that from next April people will be able to earn £12,500 a year tax free and furthermore not pay 40 per cent tax until they have reached earnings of £50,000.  This increase has taken place a year earlier than planned.

This makes the tax-advantaged savings available in an ISA even more valuable. Investment returns are tax-free in an ISA. That means there is no income tax or capital gains tax (CGT) to pay – whether those returns come in the form of interest, dividends, or shares going up in value.

This tax year adults can put up to £20,000 a year into ISAs (so for a couple that is £40,000) and up to £4,260 a year into a Junior ISA for a child. The adult ISA annual subscription limit for 2019-20 will remain unchanged at £20,000. The annual subscription limit for Junior ISAs for 2019-20 will be increased in line with CPI to £4,3685.

Remember:

When you look to utilise your allowance in a stocks and shares ISA consider whether the investment also meets with your ethical values and concerns. 

Purposeful.Money can offer you advice to ensure that your ISA or pension is invested in funds where these important considerations are taken into account.

(Image Source: Which?)

Other Key Points from the Budget

• Stamp Duty abolished for all first time buyers of shared ownership properties valued up to £500,000, applied
  retrospectively to the date of the last budget.

• A freeze on beer and cider duty for the next year and a freeze on spirits duty, saving 2p on a pint of beer, 1p on a pint of cider and 30p on a bottle of scotch or gin.

• National Living Wage will rise in April from £7.83 to £8.21

• New Millennial railcard available by end of year

• Income tax personal allowance threshold to rise to £12,500 at the same time from April 2019

• Higher rate tax threshold to rise to £50,000 at the same time

• Counter terrorism police to get an extra £160 Million fund 2019/20

• A one off £400 million payment to schools to allow them to ‘buy kit’.

• An extra £1 billion for the MOD

• Business rates bills curt by one third for the next two years for all retailers in England with a rate able value of £51,000 or less, delivering an annual saving of up to £8,000 for up to 90% of all independent shops, pubs, cafes and restaurants.

• Start-up loans funding to be extended to 2021.

• The Private Finance Initiative PFI and its successor PF2 abolished for future government projects

• UK Digital Services Tac to be introduced in April 2020 targeting On-Line giants with more than £500 Million in global revenues.

• Freeze of fuel duties for ninth consecutive year

• An immediate £420 million payment to tackle potholes, bridge repairs and other minor road works – Good news for cyclists!

• An extra £1 billion over 5 years for the Universal Credit benefit programme.

Planet Meat: What is your steak doing to the environment

When we think about Planet Earth and humanity damaging it the first thoughts to come to mind are the heavy consumption of fossil fuels for energy, our crippling dependence on plastic and possibly the quality of air falling due to high usage of petrol fuelled vehicles. What one wouldn’t expect is that the amount of environmental damage from the animal agriculture industry is slowly poisoning our planet, quite literally. In 2006 the UN described the livestock sector as ‘one of the most significant contributors to the most serious environmental problems’.

Intensive farming is the use of highly intensive practices to produce livestock; poultry, pigs and cattle are confined and crammed in huge numbers into tight cages and sheds where they are reared to their biggest size to yield the best profits for their producer. Producers say this process is supposedly driven by the demand of cheap food. Intensive farming not only meets but facilitates this need providing a product efficiently and competitively. Almost every aspect of the environment is being damaged by this cheap and efficient farming process.

Intensive farming puts a heavy strain on our resources, an example of the extent is that if all grain currently fed to livestock in the US was to be consumed directly by people, then those who could be fed would almost reach 800 million. There are some 795 million people on the planet (Food Aid Foundation) that do not have enough food to be considered that they have a healthy, reasonable quality of life. If resources were allocated more efficiently then world hunger could practically be eradicated. But that’s just one of many, in this blog I will be exploring in more detail the environmental effects that intensive farming has on the planet.

Land

Continual ploughing of fields to grow endless amounts of grain to feed livestock, means soil is more exposed to oxygen and its carbon is released into the air, making it bind less effectively. Not only does the soil lose its elasticity, it’s also less able at storing water – which diminishes its role as a barrier to floods and a nutrient rich base for plants. These weak soils are also being washed away by harsher weather events caused by climate change. Combined with heavy use of fertilisers, this has degraded soils all around the world to their bare mineral components, erosion happening at a pace of up to 100 times greater than the rate of soil formation.

Soybean farming (Image Source: PETA)

Over 90% if the world’s soy crops are grown and used to feel animals, in order to cope with the projected world demand for meat, the production of soy would have to increase by 80% by the year 2050 (PETA).

It can take around 500 years for just 2.5cm of top soil to be created amid unrestricted ecological changes, with the extent of the damage caused it would take centuries to replace the same quality of lost soil.

A 2009 study found that four-fifths of the deforestation across the Amazon rain forest could be linked to cattle ranching. And the water pollution from factory farms where animals can produce as much sewage waste as a small city, according to the Natural Resources Defence Council (NRDC).

In the UK The Environment Agency and its counterparts in Scotland and Wales have recorded 536 of the most severe incidents between 2010 and 2016, the worst instances among more than 5,300 cases of agricultural pollution in the period across Britain. These figures relate to pig, poultry and dairy farms in the UK whereas in Scotland they refer to all livestock farms. While there is not official estimate of the cost of the damage caused, or future cost of the damage being fixed/cleaned up will present, but many farmers appear to be struggling with the price of pollution – under investment in equipment such as slurry stores is likely the reason behind breach cases. Moreover, the investigation also found evidence that some farmers are possibly ignoring the pollution risks and are regarding the fines incurred if caught as if a cost of doing regular business. The financial pressures farmers are facing that is making them be ‘careless’ about waste disposal methods, these pressures are likely to only get tougher under Brexit and there is little knowledge so far on what subsidies will be operating in 2022.

Water

Just to initially put things in perspective, around 3.8tn cubic metres of water is used by humans annually with 70% being consumed by the global agriculture sector. Livestock production accounts for around 23% of all water used in agriculture - equivalent to more than 1,150 litres per person per day (WWF). With the world population growing this value is more than certain to increase. The impacts of augmented water scarcity are already being felt. About half of the world’s wetlands have been destroyed since 1900 (WWF), water sources provide a habitat for a high concentration of animals – mammals and fish and even birds. Wetlands also provide a range of services as an ecosystem such as storm protection, flood and climate control, water filtration and recreation. Also effected are the natural landscape

Oceans

Most food grown does not end up in our plates. Crops and grains grown that could be feeding us are used to feed animals being reared – these animals will generate around 500 million tons of waste each year, just in the US (Environmental Health Perspectives). Waste such as manure and fertilizer are rich in nitrogen, a primary polluter of (US) coastal rivers and bays, which in conjunction with phosphorous increases algae growth. The algae growth is harmful as it leads to surrounding areas to be depleted of oxygen, causing marine life to either flee or die – this process has already massively depleted two-thirds of our coastal waters oxygen supply. In the States, a vast number of agriculture waste is dumped into the Mississippi, the longest river of North America, which eventually feeds into the Atlantic where dead zones peak in the summer, every year. The Gulf of Mexico sits in the Atlantic Ocean just under where the Mississippi feeds out and the damage stretches out close to 8,185 square miles.

Oxygen depleted zones of the Gulf of Mexico via satellite (Image Source: Clean Technica)

Curbing the discharges that are let into the lake will alleviate the effects but once a water source enters the state of “hypoxia” there is no turning the effects back, especially keeping in mind the current standard of living that people are expected to.

The number of ocean dead-zones have increased by four-fold in size in the last 50 years and this increase has been linked to the animal agriculture industry and its practices. This brings environmental risks such as increased temperatures reducing the capacity of the ocean to hold oxygen in the future, habitat loss worsening and leading to horizontal and vertical migration of aquatic species, lower oxygen concentrations resulting in a decrease in the reproductive capacity and biodiversity loss. One of the most impactful risk is microbes that multiply at very low oxygen levels produce lots of nitrous oxide, the greenhouse gas that is 300 times more potent than carbon dioxide.

What can you do

Reducing your meat intake is a step you’ve heard everywhere before, but instead of turning a full-fledged vegan right away you could gradually decrease your meat consumption over time. This is particularly directed to you if you have an addiction to bacon! ‘Meat-free Mondays’ is global movement where a person will give up meat for a whole day. For one day a week you can explore amazing different meat-free foods, of which recipes are widely available online. Of course, for those who feel more strongly and believe that they could take the plunge, there is always the route of becoming vegetarian or vegan. Eating a balanced vegetarian or plant-based diet can bring many health benefits such as lower blood pressure, lower cholesterol, better blood sugar levels- all while making sure animals aren’t being treated cruelly.

Contact Purposeful.Money to find out if your money is invested in companies that support Intensive farming.