Delivering the 2016 Budget, Chancellor George Osborne said that the economy was set to grow faster than any other major advanced economy in the world, and the labour market was delivering the highest ever levels, while the deficit was on course for a Budget surplus.
He highlighted the challenges created by weak global economic performance and productivity challenges, declaring that the UK must “act now so we don’t pay later”.
“We choose to put stability first”, he said, declaring that he was presenting “long-term solutions to long-term problems” and putting the next generation first.
Turning to the Office for Budgetary Responsibility (OBR), he said that he was accepting all of Sir Charlie Bean’s recommendations.
Following, he stated that the OBR had forecast economic and productivity growth over the coming years, but had revised down future estimates of world growth and trade.
This was attributed to turbulence in the financial markets, alongside slower growth in developing and developed countries, he said.
The OBR no longer thought that productivity growth in the UK would happen as fast as it had suggested before, he said. While stating that this revision was a highly uncertain judgement call, he said that he backed their estimate.
Following on, Mr Osborne referred to how British banks had doubled the borrowing ratios and balanced foreign borrowing. He said that the hard work of fixing the economy was paying off, meaning that the UK was now one of the world’s fastest growing economies.
The Chancellor said the OBR estimated that growth would be 2 per cent in 2016 and 2.7 per cent in 2017. He noted that latest international forecast expected the UK to grow faster than any other major advanced economy.
Mr Osborne stressed that forecasts were connected to the UK remaining within the EU.
He said the OBR would not be assessing the costs and benefits of EU membership, but claimed the body believed any attempt to leave would usher in a period of uncertainty.
Further, the OBR was forecasting lower inflation, the Chancellor said, confirming that the MPC would still be targeting 2 per cent.
He highlighted the publication of new analysis which he claimed show how cumulative borrowing could have been £930bn higher if he had not followed his economic policies in response to the crisis.
The Government’s spending had gone from an “unsustainable” 45 per cent to 40 per cent, to fall to 36.9 per cent by the end of the decade – at which point the deficit would be eliminated.
The Chancellor also highlighted that employment in the UK had “reached the highest level ever”, and noted that the number of people claiming out of work benefits was at the lowest level since 1974.
Further, he said that the OBR had forecast that 1m more jobs would be created over this Parliament, with 90 per cent in skilled occupations and three quarters full-time. Unemployment was falling the fastest in the North East of England, he highlighted.
Deficit, borrowing and growth
Mr Osborne said the deficit was forecast to a quarter of its 2010 lower next year and would continue on a downward trajectory. He claimed that borrowing for 2015-16 would be lower than the OBR forecast.
The Chancellor said the further action on spending would give the UK a surplus of £10.4bn in 2019-20. The surplus was set to rise to £11bn the year after, he declared.
The Red Book would therefore include details on action to be taken to shut down disguised remuneration schemes, changes to tax paid on UK property developments and the introduction of a duty on public sector organisations for those working to pay the correct tax.
Further, the Government would tighten rules around termination payments of over £30,000, and would now apply Employer National Insurance.
“I can report solid, steady growth”, he declared, highlighting how his statement showed that the Government had “stuck to our long-term economic plan”.
Mr Osborne pointed to the need for structural reforms to set the economy in good stead for the future, and declared that he would be overseeing “fundamental reform of the business tax system”; “radical devolution of power”; “major new commitments” on national infrastructure projects; an effort to confront obstacles to economically beneficial provision such as education; and measures to help people save.
SMEs would be able to pay less tax following a lowering of Corporation Tax, which would fall to 17% by April 2020.
He then addressed unfair competition facing businesses from online companies. He said that start-ups were enabled through websites such as Amazon, but that these platforms had also led to foreign companies misusing these website’s goods and services storage facilities. He said this would be addressed.
Additionally, the Chancellor announced two new tax free allowances for micro-entrepreneurs as a “tax break for the digital age”. He underlined that half a million people would benefit from this.
Following on from this, he made announcements regarding business rates which were currently “weighing” down the activities of SMEs.
Business and energy
Mr Osborne explained that he had asked the Office for Tax Simplification to consider the situation experienced by small firms. Noting the complaints he had received from small business, he also declared his intention to abolish the Carbon Reduction Commitment while increasing the Climate Change Levy.
The Government would also be conducting further renewables auctions and backing the development of small modular nuclear reactors, the Chancellor stated.
For the oil and gas sector, hit by falling prices, the Chancellor said he would halve the Supplementary Charge to ten per cent and effectively abolish Petroleum Revenue Tax.
The Chancellor announced that he would be raising the business rates relief to cut or abolish it for half of all British properties.
He added that the system would be simplified and shift the uprating from RPI to CPI from 2020.
He said there would be a new threshold for small businesses’ rate release, with a higher maximum threshold of £15,000.
Commercial Stamp Duty would be set at a zero purchase rate of properties of £150,000, with 2 per cent on the next £100,000. The new tax regimes would come into effect from midnight tonight, he announced.
Reforms would raise £500m a year, he said, and amounted to a “big tax cut for small firms”.
Mr Osborne said the Government was committed to devolving new powers, including a new £1bn deal for Cardiff, as well as a number of other city deals. He announced that from 2018, he would halve the price of tolls on Severn crossings.
In Northern Ireland, he spoke of the devolution of corporation tax, as well as a commitment of £4m to help establish the first air ambulance service for Northern Ireland.
The Chancellor said when the Coalition came to power in 2010, 80 per cent of Local Government funding was from ring-fenced grants from central government, which he said was an “illusion of local government”. He announced that by 2020, 100 per cent of revenue would be from local government sources.
The Mayor of London passionately argued for devolution of business rates, he continued, and said that from April 2017 the Greater London Authority would have full retention, three years early. He also noted that Michael Heseltine would lead a Thames Estuary Growth commission.
The Government would accelerate capital investment, he said, noting that new stamp duty rates would come into effect next month, and would apply to larger investors. The Government would use receipts to support community housing trusts, he added.
The Government would be offering a new package of support for the homeless, designed to reduce rough sleeping, announced the Chancellor.
Hailing the work of the National Infrastructure Commission, he said that the Government was giving the green light to HS3 and M62 improvements, and would also develop the case for a new northern intercity tunnel link. He also stated that the Government would upgrade the A66 and A69.
The Chancellor said that he was also accepting recommendations from the National Infrastructure Commission on energy and transport in London, and confirmed that Crossrail 2 would be going forward.
This Budget would also invest in infrastructure, he said, and in order to respond to increasing extreme weather events there would be a substantial increase in spending on flood defences. The standard rate of insurance premium tax would increase by 0.5%, he said, with all additional revenues being spent on flood defences.
While stating that the ongoing reviews would determine how this money would be best spent, he said that schemes in York, Leeds, Calder valley, Carlisle and across Cumbria would go ahead.
Turning to indirect taxation, the Chancellor said the Government would allocate £12m from the “tampon tax” to a selection of charities.
He went on to announce his intention to continue the freeze on fuel duty, frozen throughout the last Parliament, despite having previously planned to increase it in light of the drop in wholesale prices. He highlighted how this would save the average driver £75 a year.
To help entrepreneurs and the self-employed, he announced that class two National Insurance contributions would be abolished. In order to help people invest in businesses, he made announcements on the capital gains tax.
He said currently it was amongst the highest in the developed world; therefore the headline capital gains tax rate would be cut to 20%, and the basic capital gains tax from 18% to 10%.
The Chancellor also announced a new 10% rate on long term investment. He raised the issue that many young people had no pension or savings, leading them to face “agonising choices” over buying houses and making other major investments.
Turning to the final measures in the Budget, the Chancellor said that the Government was elected to back working people. As such, he announced that the tax free personal allowance would increase to £11,500 by April 2017.
“Social justice delivered by conservative means”, he declared. Further, he said that the Government would increase the threshold at which the higher rate of tax was paid, and from April 2017, it would increase to £45,000.
The Government had delivered “a Budget for working people”, the Chancellor declared. He highlighted his desire to ensure the UK was never “powerless in the face of global storms”, and declared that “we act now so that we don’t pay later”.
The Budget would benefit the next generation with “imaginative steps” to improve education and “bold decisions” in favour of health, he concluded, declaring his desire to build a “low-tax enterprise Britain”.