If we turn the clock back to the Chancellor’s Autumn Statement, we recall an ebullient Mr. Osborne handed a £27bn windfall, which enabled the Chancellor to reverse the planned cut in tax credits, relax a further tightening on Government department spending and bolster Britain’s infrastructure.
Since the Autumn Statement, as the Chancellor said recently, ‘storm clouds are gathering again’. However, despite a slowing of growth, the UK remains one of the best performing developed economies.
The Chancellor trailed his Budget by saying that we need to ‘offer long term solutions to long term problems’. His speech focused on putting ‘stability’ and ‘the next generation’ first.
In terms of the economic highlights, the OBR offered a relatively buoyant view of UK economic performance against the backdrop of the gloomier global picture. The UK economy is set to grow faster than any other advanced economy.
Office for National Statistics this morning stated that UK unemployment fell to 1.68 million between November and January, down 28,000 from the previous quarter.
Inflation is indicated as 0.6% for this year and 1.6% in 2017.
The Budget surplus is estimated as £10.4bn in 2019/20 and £11bn in 2020/21.
The OBR forecast for GDP is as follows;
2% – 2016/17.
2.2% – 2017/18.
2.1% – 2018/19.
2.1% – 2019/20.
2.1% – 2020/21.
However, these GDP figures are predicated on the UK remaining in the EU. The OBR states that leaving the EU could ‘usher in uncertainty’.
The Chancellor themed the Budget as follows;
- Reform of the business tax system.
- Devolution of power to local communities.
- Commitment to infrastructure.
- Investment in education.
- Making it easier for people ‘who work hard and save’.
Turning to the specifics, here are the highlights of Mr. Osborne’s eighth Budget;
- Series of measures for multinational tax avoidance – interest deductibility to be restricted from April and withholding tax to be strengthened.
- Close the loopholes for people using personal service companies in the public sector.
- Corporation Tax to drop to 17% in 2020.
- Changes to Corporation Tax loss relief – more flexible to use, but the amount limited to 50%.
- Small business rate relief to rise from £6,000 to £15,000 – half of all businesses will see their business rates fall.
- Scrap the link between business rates and the Retail Prices Index, and instead from 2020 use the typically lower Consumer Prices Index as a measure of inflation.
- Commercial property Stamp Duty to be overhauled.
- Tax breaks for the oil and gas sector to offset the effects of lower prices.
- Insurance Premium Tax (IPT) to rise by 0.5%.
- Fuel duty frozen.
- Tobacco to rise 2% above inflation.
- Beer and cider duty frozen.
- Class 2 NI to be abolished in 2018.
- CGT to be cut to 20% (but not for residential property).
- Entrepreneurs’ Relief to be extended to long term unconnected investors.
- Increased tax rate of 32.5% on loans to close company participators.
Big extensions of devolution, especially in England.
- Scotland – a new city deal for Edinburgh.
- Wales – a £16bn deal for the Cardiff region.
- Northern Ireland – devolution of Corporation Tax.
- England – new justice powers for Greater Manchester. New communal authorities in East Anglia and the West of England. Full retention of business rates by the Great London Authority.
Welfare and Education
- £115m support package for the homeless.
- New sugar levy on the soft drinks industry.
- By 2020 every Primary and Secondary school to commit to become an Academy.
- A focus on improving schooling in the North.
- Compulsory maths education to the age of 18.
- A fairer national funding formula.
- Use the Libor fines to double the funding for school sport and lengthen the school working day.
- £12m from the ‘tampon tax’ directly to charity.
- HS3 from Manchester to Leeds is given the green light.
- Cross Rail 2 approved.
- £700m boost to flood defences from the receipts from the IPT rise.
- New tax breaks for museums.
- From April the ISA limit will rise to £20,000 from £15,000.
- For the under 40s there will be a new Lifetime ISA, allowing younger people to save for their first home and/or their retirement. For every £4 saved the Government will contribute £1.
- Tax free personal allowance to rise to £11,500 in April 2017 – giving a tax break for 31 million people.
- Higher rate tax threshold to rise to £45,000 in April 2017.
If you have any questions regarding our budget highlights, please contact your nearest Wilkins Kennedy office.