Given the weaker outlook for the global economy, and falling productivity growth, the UK Chancellor, George Osborne, announced that forecasts for GDP growth have been revised downwards from 2.4% for 2016 to 2%, and down to 2.2% for 2017 (from 2.5%).
Mr Osborne’s theme was that the policies he announced in this year’s budget were designed for the benefit of the ‘next generation’, and to this end he announced that deficit reduction would continue, and debt burdens would fall over the next Parliament, with the fiscal deficit projected to shrink to just 2.9% in 2016-17. He also announced that the public sector would be in surplus by 2019-20, and that public spending as a share of GDP would also fall – to just under 37% by 2020.
THE KEY POINTS OF THE BUDGET:
- New income tax rates and thresholds, with the tax free allowance rising to £11,500 of income (effective from 2017), and with promise to increase this to £12,500 by 2020. The basic rate of tax remains, at 20% on the next £33,500 of income. The 40% rate now starts at a higher income, with the 45% remaining unchanged, and starting at earnings above £150,000.
- Corporation tax to be cut to 17% by 2020.
- Tax cuts for the oil and gas industries of £1bn, through a reduction in the existing supplementary charge.
- Capital gains tax to be cut from 28% to 20%.
- A crackdown on tax avoidance.
- A new sugar levy, which will come into effect in 2018. This is hoped to achieve revenues of £520m, which will help fund sports programmes in primary schools, and enable the length of the school day to be increased.
- No change in duties on beer, cider and spirits.
- Duties on tobacco will rise by 2% above the inflation rate, plus the introduction of a price floor, created through a minimum excise duty on cheaper cigarettes.
- Fuel duty frozen.
- Rise in the Insurance Premium Tax, from 9.5% to 10%. Most insurance will be affected, other than life insurance which is exempt from the duty.
Savings and pensions
- The introduction of a lifetime ISA, intended to encourage under 40s to save for retirement, and an increase in the ISA limit, from £15,000 to £20,000.
- Already announced, and coming into effect include a 3% stamp duty surcharge on buy-to-let properties and second homes, and a new state pension.
Other taxes, charges and spending
- An increase in the climate change levy, with effect from 2019.
- Spending on renewable energy (£730m).
- A pledge of £115m to help reduce rough sleeping.
- HS3 to go ahead, connecting Manchester and Leeds – part of the ‘northern powerhouse project’.
- Crossrail 2 to go ahead.
- Flood defences to be improved via an injection of £700m.
- All schools to become academies by 2020.
- Review into the compulsory teaching of maths up to the age of 18.
- Length of the school day to be increased.
- Development aid budget to be tightened to keep to the 0.7% target.