Budget 2016 Review
The UK Budget 2016 saw a continuation of the Conservative Government’s commitment to austerity, with a further £3.5bn of efficiencies forecast to be made by 2020. However the Chancellor also outlined measures to boost business growth; here BiP Solutions reporter Julie Shennan examines their implications.
Justifying the Budget cuts, Chancellor George Osborne explained that the Office for Budget Responsibility (OBR) had reduced its 2016/17 forecast for UK GDP growth to 2% (down from the 2.4% growth rate predicted in the Chancellor’s Autumn Statement).
This reduction in growth forecast was explained as a result of ‘global uncertainty’, to which Mr Osborne said the Government would react with ‘sound public finance’, aiming to get the UK into a budget surplus by 2019/20.
More specifically, the Chancellor outlined plans to:
- Reform the business tax system;
- Devolve power to local communities; and
- Commit to national infrastructure projects.
Mr Osborne’s business tax system reforms include:
- Supporting a £1bn tax break for the oil and gas industry, including abolishing Petroleum Revenue Tax.
- Cutting business rates for all small businesses that occupy property with a rateable value of £12,000 or less, as of April 2017.
- Cutting Corporation Tax to 17% in 2020.
- Scrapping Class 2 National Insurance contributions (NICs) for self-employed people from April 2018, meaning that the self-employed only have to pay Class 4 NICs if their profits are over £8,060 per year.
- Class 4 NICs will also be reformed so self-employed people can continue to build benefit entitlement.
- Introducing a tapered rate of relief on properties worth up to £15,000.
- Reducing Capital Gains Tax from 28% to 20%, and the basic rate from 18% to 10%, as of 6 April 2016.
- Adding an 8 percentage point surcharge to be paid on residential property and carried interest (the share of profits or gains that is paid to asset managers).
- Maintaining National Insurance on redundancy payments above £30,000, from April 2018.
- Changing stamp duty rates for commercial property from 17 March 2016, so that tax bands will be 0% for the portion of the transaction value up to £150,000; 2% between £150,001 and £250,000, and 5% above £250,000.
- Reduction of stamp duty for buyers of commercial property worth up to £1.05m.
- Introducing a new 2% stamp duty rate on leases with a net present value over £5m.
Tax Avoidance Crackdown
Mr Osborne also outlined plans to raise £8bn over the next five years by closing the loopholes which allow large companies to legally avoid tax. He plans to do this by:
- Capping relief on interest payments at 30% of UK earnings (with exceptions for groups with legitimately high interest payments).
- Legislating against hybrid mismatching tax avoidance.
- Taxing outbound royalty payments better – increasing multinationals’ UK tax payments.
- Tackling suppliers storing goods in Britain and selling them online without paying VAT.
- Ensuring offshore property developers are taxed on their UK profits.
Just as Mr Osborne said he was making UK taxes work for UK businesses, he said he would put the power to spend those taxes into the hands of local governments. This means:
- Devolving local government business rates by the end of the Parliament.
- Starting the devolution of business rates in London, with the deadline of April 2016.
- Backing elected mayors in Manchester, Liverpool, Tees Valley, the North East and Sheffield and the West Midlands.
- Establishing mayors across English counties and southern cities.
- Transferring new criminal justice system powers to Greater Manchester.
- Introducing a single powerful East Anglia combined authority, headed up by an elected mayor and almost £1bn of new investment.
- Agreeing a West of England mayoral authority and pledging almost £1bn to the region.
- Giving Greater Lincolnshire new powers, new funding and a new mayor.
- Implementing a new fiscal framework in Scotland.
- Negotiating a City Deal for Edinburgh.
- Devolving new powers to the Welsh Assembly.
- Starting a £1bn City Deal for Cardiff.
- Negotiating a City Deal for Swansea and a Growth Deal for North Wales, so it’s better connected to the Northern Powerhouse.
- Planning the devolution of Corporation Tax in Northern Ireland.
- Enhancing capital allowances to the enterprise zone in Coleraine.
To back this ‘devolution revolution’, the Chancellor laid plans to boost national infrastructure by:
- Approving development of High Speed 3 between Manchester and Leeds.
- Commissioning Crossrail 2.
- Finding new money to create a 4-lane M62.
- Developing the case for a new tunnelled road from Manchester to Sheffield.
- Upgrading the A66 and A69.
- Accepting the Infrastructure Commission’s recommendations on energy and on London transport.
- Setting out measures to speed up the planning system, zone housing development and prepare the country for the arrival of 5G technology.
- Increasing the standard rate of Insurance Premium Tax by half a percentage point, and committing the £700m extra revenue raised to flood defence spending.
- Backing flood defence schemes for York, Leeds, Calder Valley, Carlisle and across Cumbria.
- Backing community development grants projects from Truro to Hull.
- Extending the Cathedral Repairs Fund with an extra £20m.
Concluding his Budget 2016, George Osborne said it put ‘the next generation first’. With business rate relief, infrastructure investment and plans to strengthen devolution it is also a budget which supports businesses of all sizes, across all sectors, in the immediate months and years ahead.