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On 16th March 2016, George Osborne delivered his eighth Budget.
This was one of the most challenging speeches he has had to deliver since he took charge of the Treasury six years ago, made in the shadow of economic uncertainty and an imminent referendum on Britain’s EU membership.
Last autumn, Mr Osborne was given room for manoeuvre by some generous forecasts from the Office for Budget Responsibility. But in the last few months the economic situation has deteriorated and the Chancellor has breached some of his own fiscal rules.
Mr Osborne emphasised the importance of a long-term plan and said the Government had chosen “sound public finances to deliver security” although critics pointed out he had missed his target for cutting the national debt.
The Chancellor said that the UK was on course for a Budget surplus by 2019/20, the economy was growing faster than any other major nation’s and that employment was at an all-time high. He said that this situation had been shaped by the fact that the Government had not sought “short-term fixes.”
But he reiterated warnings earlier this year that the outlook for the global economy was perilous and that Britain must be aware of the gathering storm clouds.
In his opening statement, he confirmed the OBR had revised down forecasts for global growth and UK productivity.
The OBR calculated growth was 2.2 per cent last year and predicts it will be two per cent this year and 2.2 per cent in 2017, although Mr Osborne clarified that their predictions were based on the UK voting to remain within the European Union. Voting to leave would cause “disruptive uncertainty” he warned.
Inflation in 2016 will be just 0.7 per cent, down from one per cent expected in November 2015.
Business and enterprise
Mr Osborne said that Britain already had one of the most competitive tax regimes in the world and now he was publishing a “road map” to make business taxation fit for the future.
A number of changes were announced to business rates, following a review of the current system.
As of April 2017, around 600,000 small businesses will be taken out of business rates altogether saving them in the region of £6,000 annually. A further 250,000 firms will benefit from a reduction in their current rates.
Plans were also announced to reform stamp duty for businesses. He said the changes to rates would mean big tax cuts for small firms.
As of midnight tonight, commercial stamp duty will have a zero rate band on purchases up to £150,000; a two per cent rate on the next £100,000; and a five per cent top rate above £250,000.
A further cut to corporation tax was also confirmed, with the rate set to be reduced to 17 per cent by 2020.
As had been speculated beforehand, the Chancellor confirmed an increase in Insurance Premium Tax – which will rise 0.5 per cent to 10 per cent. The move, which comes hard on the heels of an increase last autumn, is likely to be unpopular in sectors that will bear the brunt of the changes.
There was also bad news for the drinks industry, with a sugar tax to take effect in two years’ time. The levy is expected to raise £520million, although Mr Osborne said it would be down to manufacturers whether to pass on the price to consumers. Pure fruit juices and milk-based drinks, as well as small producers, will not be affected by the levy.
Outlining plans for further devolution, Mr Osborne said that a new city deal had been agreed with the Cardiff region. Elsewhere the Greater London Authority would move towards the full retention of business rates from next April.
Following Low Pay Commission recommendations, the Government will increase the National Minimum Wage rates from October 2016.
Transport and infrastructure
Mr Osborne paid tribute to the work of the National Infrastructure Commission and confirmed plans would advance for the HS3 rail link between Manchester and Leeds.
Further proposals were also outlined to widen the M62 between Leeds and Manchester, and improve the road network in the North Pennines.
Elsewhere, the tolls on the Severn Crossings between England and Wales will be halved by 2018 and an extra £700million will be pumped into resilience and flood defences.
The Chancellor made a surprising number of tax announcements.
The personal allowance will increase to £11,500 from April 2017, which the Government claims will deliver a tax cut for 31million people.
At the same time the 40 per cent higher rate threshold will also rise to £45,000, a move likely to be welcomed by many of Mr Osborne’s own MPs.
In addition there was the announcement that Capital Gains Tax (CGT) will be cut from 28 per cent to 20 per cent and from 18 per cent to 10 per cent for basic-rate taxpayers
Mr Osborne also announced that he would abolish Class 2 National Insurance (NI) contributions for the self-employed from 2018.
Although a fuel duty increase was being considered for this year, Mr Osborne said that any such rise would place an extra burden on families and confirmed the tax would be frozen for the sixth year running. He claimed that the move would save the average driver £75.
Duty on beer, cider and spirits will be frozen, while tax on other alcohol is to rise in line with inflation.
Pensions and savings
Ahead of the Budget, Mr Osborne had been forced to abandon some of his more radical changes to pension rules in the teeth of fierce opposition from his own MPs.
There was nonetheless an announcement which will enable under-40s to open lifetime ISAs. Under this arrangement, for every £4 a person saves, the Government will give them £1 up until the age of 50.
This money can be used to save for a pension – the Chancellor acknowledged that many younger people are struggling to save for retirement – or to buy a home (people will have the option to roll help-to-buy ISAs into the scheme).
In addition, the annual ISA limit will rise to £20,000 from next year.
As was widely trailed ahead of the Budget, Mr Osborne confirmed that all schools across England would be “freed from local authority control” and become academies by 2022.
Work would continue on making improvements to the current schools funding formula – much maligned by head teachers – and there would be a drive to turn around failing schools in the north.
The Chancellor confirmed that a white paper would be published on 17th March 2016 containing further details about the new education strategy.
Tax evasion, avoidance and aggressive tax planning
The Chancellor announced a series of measures to crack down on tax avoidance and evasion which will total £12billion. These include bringing an end to the use of “personal service companies” by employees in the public sector who are looking to minimise their liabilities.
The Chancellor also said that many firms feel they face unfair competition from online retailers, some of which do not pay VAT. In an effort to address their grievances, Mr Osborne announced he would be closing a loophole used by some overseas internet companies.
Mr Osbourne will hope that changes to the business rates regime and stamp duty will win support among small businesses, with changes to income tax thresholds likely to prove popular with many families.
Critics are likely to seize on the fact that the Chancellor has failed to meet debt targets and there will be lingering concerns that the UK is not immune to the uncertainty gripping the global economy.