'A BUDGET FOR THE NEXT GENERATION'
 By the time Chancellor George Osborne
stood up on 16 March to deliver his
eighth Budget Speech, the outside world
knew much of what would follow. Some
proposals had been pre-announced, as
had the shelving of major changes to the
tax treatment of pension contributions
and benefits.
Setting the scene for his Budget
announcements, the Chancellor
delivered a summary of the uncertain
geopolitical climate and updated the
government's finances, with June's EU
referendum in mind. He asserted that
with unemployment still falling the British
economy is set to grow faster than any
other in the developed world and that
the deficit has reduced by two-thirds. He
warned, however, that weakness in the
global economy presented a challenge
that he would confront in 'a Budget for
the next generation'.
OBR FORECASTS
The Office for Budget Responsibility's
latest forecasts outline that GDP had
grown 2.2% last year and is forecast to
rise 2% this year, 2.2% next year and 2.1%
in each of the following three years. CPI
inflation is forecast at 0.7% this year and
1.6% next, whilst the national debt should
fall to 77.2% of GDP by 2019-20. The
OBR's figures, he stressed in an overtly
political part of his speech, reflected an
assumption that Britain remains in the EU.
The OBR, he added, reckoned that a vote
to leave would bring uncertainty, negative
implications and market volatility.
REGIONAL ISSUES
Focusing on falling unemployment
(to 1.68m), Mr Osborne claimed success
in rebalancing the economy, with
employment rising faster in some UK
regions than in the Southeast. Expected
references to 'the Northern Powerhouse'
linked in with a range of measures
including increased devolution to
Scotland, Wales, Northern Ireland and the
English regions. He committed to major
infrastructure expenditure, including a
rapid HS3 railway between Leeds
and Manchester, Crossrail 2 in London
plus upgraded trans-Pennine road links.
More than £230m was earmarked for
road improvements in the north of
England and £700m pledged for flood
defence schemes.
EDUCATION
Building on the benefits some of his
measures would bring for the next
generation, the Chancellor confirmed
pre-announced plans for all English state
schools to commit to academy status free
of local authority control by 2020. Funds
would be found to improve standards
and widen extra-curricular activities. The
Chancellor pledged £500m to ensure "fair
funding" formulas for schools in England,
with a focus on performance of schools.
Other action to improve children's wellbeing
include a sugar levy on the soft
drinks industry by 2018. A White Paper
to set out further improvements to the
quality of education to be published on
17 March 2016.
PERSONAL TAXATION
The Chancellor announced that the
threshold at which people pay 40% tax will
rise from £43,000 in 2016–17 to £45,000
(from 6 April 2017). Tax-free personal
allowance, which is set to rise to £11,000
from 6 April 2016, will be further increased
to £11,500 from April 2017 – a tax cut for
31 million people and consistent with the
Conservative manifesto pledge to raise
the allowance to £12,500 by the end of
this Parliament.
In a major overhaul, the government will
cut the headline rate of Capital Gains
Tax (CGT) from 28% to 20%, and from
18% to 10% for basic-rate taxpayers,
effective from 6 April 2016, except for
residential property (an 8% surcharge will apply on gains on residential property,
CGT does not apply to an individual's
main home, only to additional residential
properties) and carried interest (share of
any profits that the general partners of
private equity and hedge funds receive as
compensation).
Entrepreneurs' Relief will be extended to
long-term investors in unlisted companies,
with 10% CGT from gains on newly issued
shares – time constraints apply.
Osborne announced an increase in
Insurance Premium Tax (IPT) by 0.5%
to 10%, which is the second increase
in nine months to tax on general
insurance premiums.
PENSIONS AND SAVINGS
 Following wide consultation last year,
the Chancellor announced that there was
no consensus on pension reform. It was
previously expected that he would use
the Budget to announce radical reforms
regarding pensions tax relief, but these
plans have been temporarily put on hold
due to the unrest surrounding Brexit.
This is welcome news for the financial
industry, still contending with pensions
freedom reforms.
The Chancellor reiterated the plans
about 'Help to Save', a scheme open to
around 3.5 million adults who receive
universal credit or tax credit, incentivising
them to save. These accounts will be
available from April 2018, consultations
on their implementation will begin after
the Budget.
A new 'Lifetime' ISA was announced,
allowing under-40s (from age 18) to
save for their first home or retirement.
Available from April 2017, people will be
able to save £4,000pa and receive a 25%
additional bonus from the government.
Savers can access the money at any
point, but will lose the bonus and incur
a small charge. Osborne will consult
the industry on whether customers can
return money to the account to reclaim
the bonus. Those who have already taken
out a Help to Buy ISA will be able to roll
it into the new Lifetime ISA and preserve
the government match. By investing
£4,000, the government will contribute
£1,000. For the basic rate tax payer, this
is the equivalent of tax free savings into
a pension, but unlike a pension, tax will
not be payable on withdrawal. As with the
Help to Buy ISA, the bonus comes with
certain conditions.
The Chancellor praised the benefits of ISA
investment and said he would increase the
annual ISA limit from £15,240 to £20,000
from April 2017.
THE BUSINESS SECTOR
The Chancellor's headline announcement
for the business sector was a further
reduction in Corporation Tax, currently
20%, to 17% by April 2020. This he said
would encourage investment in the
UK, creating more jobs in future, but
more action would be taken to ensure
multinational companies did not divert
taxable profits elsewhere. Other measures
would also help small UK firms, 600,000 of
which would pay no business rates from
next year.
Stamp duty on commercial property is
being revised so that the burden on many
smaller business premises will fall. The
Carbon Reduction Commitment scheme
is being abolished, but the climate
change levy will rise. In the hard-pressed
oil and gas sector, concessions include
the abolition of Petroleum Revenue Tax,
backdated to 1 January 2016.
BUT WHAT ABOUT THE
DEFICIT?
Would all these measures enable the
Chancellor to eliminate the notorious
deficit? His forecasts suggest so. It would
fall from 2.9% of GDP in 2016-17 to 1%
in 2018-19, with a 0.5% (£10.4bn) surplus
in 2019-20. Though, with so many global
uncertainties around, there will be scope
to blame spanners in the works if there is
still a deficit in 2021.
OTHER NEWS IN BRIEF
- Abolition from 2018 of Class II
National Insurance contributions for
the self-employed
- Disability benefits bill pledging £1bn to
support disabled people
- Committing £12bn to tackle tax evasion
- Fuel duty to be frozen for sixth year in
a row
- Beer and cider duty to be frozen
- Excise duties on tobacco to rise by 2%
above inflation
- Major new package to support homeless
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