The Chancellor of the Exchequer, George Osbourne, delivered his eighth Budget to Parliament on Wednesday 16th March 2016 in what he claims is a Budget that is putting the next generation first. In the new Budget he has proposed more cuts and taxes in a bid to to meet his plans of delivering a £10bn public finance surplus by 2020. We look below at just what’s been announced in the Budget 2016.
The UK government, as announced in their Budget 2016 Policy Paper, have stated that “businesses are the lifeblood of the economy, and…the government recognises the importance of small businesses, responsible in 2015 for almost half of employment and a third of turnover in the private sector.”
With this in the mind, the government have proposed corporation tax cuts to raise productivity, create more jobs and also increase wages. The government plans to cut the main rate of corporation tax from 28% to 20%, and then to a further 18% in 2020. They also plan to raise the annual threshold for 100% relief on business rates for SMEs from £6,000 to £12,000.
They will also be clamping down on foreign firms selling online products in the UK while avoiding paying tax and plan to raise £12bn by 2020 through anti-tax evasion measures.
Transport & Infrastructure
The newly proposed HS3 rail link between Manchester and Leeds has been given the green light to help improve transport links in Northern England, with the government committing £300m to the project. This will also include work on the Crossrail 2 line in London to link Hertfordshire and Surrey.
Alongside these reforms to the rail system, the 2016 Budget has also brought a new focus to improving the roadways in the North of England, particularly the M62, with £230m set aside for this project. George Osbourne said that these new and improved travel links would “be a huge boost to the economy of the north of England and the whole of the United Kingdom.”
George Osbourne has had to revise down growth forecasts over the next five years, after the Office for Budget Responsibility (OBR) predicted that the economy would grow 2.0% this year instead of the previous figure of 2.4% announced in November’s Autumn Statement. Alongside this, the GDP figures have been revised for the next 2 years, with growth now predicted to be at 2.2% and 2.1% in 2017 and 2018 as opposed to the previous figures of 2.4% and 2.5% respectively.
However, the UK’s economy is still forecast to grow faster than any other major Western economy, with a million jobs to be expected to be created by 2020, and the Chancellor has said that he is still on track to meet his budget surplus by 2019-20. The amount the UK government is set to borrow has fallen for this year, although it is expected to go up for the next three.
The revised figures from the OBR are due to the expectation of less growth elsewhere in the world, on which they have said “In the short time since our November forecast, economic developments have disappointed and the outlook for the economy and the public finances looks materially weaker.”
Health and Education
One of the most widely talked about reforms from the 2016 Budget is the new sugar tax that has been announced on soft drinks to be brought in in 2018. This plans to raise £520m a year, with the money to be funnelled into primary school sport, doubling the funding they currently receive. This tax will be calculated depending on the levels of sugar that are in the soft drinks, and pure fruit juice and milk-based drinks, as well as small suppliers, will be exempt from the new taxes.
To further increase those that participate in extra-curricular activities, secondary schools in England are set to bid for £285 in funding for activities such as sport or art. The Conservative government plans to make all schools in England academies by 2022 which will end the role of local authorities as providers of education. There are also plans to look at compulsory maths lessons until the age of 18.
Perhaps one of the more controversial elements of the Budget 2016 was the plans to cut disability benefits in a bid to get more people into work, an issue over which the former Work and Pensions Secretary, Iain Duncan Smith, has just resigned. Following the fallout from his resignation, the government has put aside these plans, and so MPs have approved Osbourne’s Budget with votes of 310 to 275.
The tax-free personal allowance is to rise to £11,000 in April 2016 and to £11,500 in April 2017, and the threshold at which people pay the 40% band of income tax is to rise from £42,385 to £45,000 in April 2017. This will only apply to Scotland if the Scottish government choose to adopt it.
The UK government also plans to raise the insurance premium tax from 9.5% to 10%, as well as cutting the Capital Gains Tax from 28% to 20%, and 18% to 10% for the basic-rate taxpayers.
The government has stated that the UK is forecast to grow faster than any other G7 economy this year, and that the Budget 2016 has been set out to solve long-term problems with long-term solutions and delivers security for working people while empowering the next generation. Many however, including The Independent, have said that the Budget 2016 delivers “significant give-aways for the biggest earners, while the poorest get a mixed bag.”
The announcement of the Budget was initially dominated by the new sugar tax, which was hailed by many, but since the resignation of IDS the government, and its Budget, have been viewed in a much more ruthless way. With each Osbourne Budget over the last 8 years being geared towards producing a budget surplus, it will be interesting to see if he achieves this by 2020.