UK Budget boosts business confidence and pledges end to austerity by 2019

Declaring a wish for Britain to become “the most prosperous nation in the world”, George Osborne has delivered a Budget for business ahead of the general election. Our UK experts look at the big ticket items from yesterday’s session.

“Today I present the Budget of an economy stronger in every way from the one we inherited," said the Chancellor George Osborne, the UK’s Finance Minister, as he wrapped up his fifth Budget and the last before May’s general election. “The share of national income taken up by debt - falling. The deficit down. Growth up. Jobs up. Living standards on the rise. Britain on the rise. This is the Budget for Britain, the comeback country.”

And the statistics hint that he’s right. The Office for Budget Responsibility confirms that Britain’s growth in 2014 was 2.6%, “faster than any other major advanced economy in the world last year.” Growth for 2015 has been revised up to 2.5%; 1.9 million jobs have been gained. Debt as a share of GDP falls from 80.4% in 2014-15 to 80.2% in the year 2015-16. And it is forecast to keep falling: to 79.8% in 2016-17; then down to 77.8% the following year, to 74.8% in 2018-19 before it reaches 71.6% in 2019-20. 

Britain will be running a surplus by 2018/19, he says, when it will be 0.2% of GDP. But it will be just £7bn by 2020, not the £23bn figure seen in the autumn statement.

Manufacturing output has grown more than four and a half times faster than it did in the decade before the crisis. And Osborne declared it a “truly national recovery”, with the North growing faster than the South.

And it is the North that may hold the key to the future. Much has been said about London driving the UK economy, but this Budget puts emphasis on the regions. As well as hinting at regional devolution, Osborne spoke of a provisional agreement to allow Greater Manchester – and its new elected mayor – to keep 100% of additional growth in local business rates, helping to “build up the Northern Powerhouse”. Cambridge is also set to get a similar deal.

Banks

With the financial sector now recovering, the rate of the bank levy is being raised to 0.21%, raising an additional £900m a year. Compensation for product mis-selling – such as PPI – can no longer be deducted from corporation tax. It’s the Chancellor’s way of getting support for the country after the country supported them through the crisis. 

Headlines

  • Selling off more Lloyds Bank shares to pay off government debt

     

  • An increase in the bank levy

     

  • Compensation for mis-selling bank products to be no longer corporation tax deductible

     

Business and industry

Six months after the Scottish independence referendum, the Budget throws a bone to the North Sea oil industry. From the start of next month there will be a "single, simple and generous tax allowance to stimulate investment at all stages of the industry". New seismic surveys in under-explored areas of the UK Continental Shelf will help to find potential new reserves, and the Petroleum Revenue Tax will be cut from 50% to 35% to support continued production in older fields.

According to the Chancellor, these oil industry measures amount to £1.3bn of support for the industry. He says the OBR's assessment is that it will boost expected North Sea oil production by 15% by the end of the decade.

Then there are the five million people who are self-employed – they will no longer have to pay class 2 national insurance contributions, nor will they need to fill in the annual paper tax return as these will go digital. The minimum wage will also rise.

However, the once-mooted “Google tax” is now a reality: Companies that move their profits overseas to avoid tax will be subject to a "diverted profits tax" from April. The crackdown on tax evasion continues, with firms that aid it to face new penalties and criminal prosecutions.

Headlines

  • Support for the North Sea oil industry
  • Cut in Petroleum Revenue Tax to 35% to support continued production in older fields
  • The Abolition of National Insurance Contributions for under 21s
  • The Abolition of Class 2 national insurance contributions in future
  • A review of the business rates system
  • The threshold at which people pay the higher tax rate is rising above inflation, not just with it, from £42,385 this year to £43,300 by 2017-18
  • An increase in the personal allowance (the amount of income you can earn tax free per annum) to £10,800 from 6 April 2016 and £11,000 from 6 April 2017
  • Farmers can elect to average their income over five years for tax purposes
  • Support for the creative industries: film and tax credits being made more generous, the video games industry set for more support and a new tax credit for orchestras

Pensions and savings

Got a very large pension pot? From next year, the Lifetime Allowance will be reduced from £1.25m to £1m, saving an expected £600 million a year, the chancellor says. But he says that fewer than 4% of pension savers currently approaching retirement will be affected.

A new Personal Savings Allowance will take 95% of taxpayers out of savings tax altogether. From April next year the first £1,000 of the interest earned on all savings will be completely tax-free. Higher rate taxpayers will have their allowance set at £500. 

Headlines

  • Pension pots capped at £1 million per person
  • An increase in gift aid for small cash gifts from £5,000 to £8,000 per charity
  • Changes to pension laws to allow annuitants to access their capital
  • The ability to move money out of an Individual Savings Account (ISA) and then replace it during the same tax year
  • A special ISA for first time buyers
  • A new tax-free personal savings allowance of £1,000 per person (or just £500 for higher rate taxpayers) to reduce tax on interest
  • A review of use of deeds of variation to save inheritance tax

Read more on doing business in the UK
Michael Adams
Michael  Adams
Opinion

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