Budgets Just Ain’t What They Used to be
Former Business Editor of The Times, Rob Ballantyne, reflects on the Chancellor’s latest offering
They are too early in the day, for a start. Budgets used to be announced at 4pm, when the Chancellor of the day, replete from a long lunch, would hand down the financial figures to MPs who, also replete from lunching, would cheer and bray from either side of the green benches. It meant ludicrously tight deadlines for those of us in the media, of course, but at least it guaranteed decent stories for the following day.
Budgets are also far too frequent these days — we now have the Autumn Statement, and we endured a post-Election Budget last summer. Each new Budget serves only to dilute the annual impact of the next, and announcements are carefully staged over months and years.
And as for secrecy — Budget options are all too often selectively leaked, not least by Treasury ministers themselves, to open up debate and tee us all up for at least some of the changes planned. How else would we already know about the later school hours planned for England?
And, other than funding, how is that anything to do with the Budget anyhow? The answer, as all government departments have found, is that the Treasury has an interest in everything, if it so wishes.
And when George Osborne is seen as a likely future Prime Minister, be sure the Treasury wishes to impose its will on everyone.
So, much trumpeted, we had the Budget for the Next Generation — which turns out include extra funding to allow schools to stay open till 4.30pm, though not in Scotland.
The Next Generation has to be a wealthy generation, so the Chancellor produced his first rabbit — the Lifetime Isa, a tax-free savings account for under 40s to save for a house or a pension.
The Next Generation also has to be healthy, so the Chancellor produced an even bigger bunny — a sugar tax, to be imposed, after due discussion with the soft drinks industry, on all fizzy drinks. This not being a devolved matter, this gigantic Easter Bunny was immediately christened the Irn Bru tax. And just to hammer home the point, the £520m it would raised would be spent on increasing sports funding in primary schools.
But for this generation, rather than the next, George Osborne introduced a heavily devolved Budget, with infrastructure funding for Manchester, Wales and London — from the Northern Powerhouse and HS3 to Crossrail 2, something which the Chancellor felt sure would be welcomed by his absent colleague (and Prime Ministerial rival) the Mayor of London.
Scotland, of course, could not be missed, and the Chancellor ensured he scored a direct hit. Aid to the oil industry and the effective abolition of Petroleum Revenue Tax backdated to January was followed by a loud declaration that Scotland was better together, supported by the broad shoulders of the UK. The opposition green benches demurred.
As promised, he delivered on income tax thresholds, raising the 40% rate to £45,000 by April 2017 — and with an implied challenge to the Scottish Government not to reduce that rate when it becomes within their powers to do so.
By now playing for laughs, the Chancellor pointed out that a former Lib Dem Treasury minister had warned of risk of abolishing the pensions tax free lump sum. “We found no consensus for that, so we decided to keep the lump sum and abolish the Lib Dems….”
There were numerous small business changes, and big business bashing, and a quiet admission that growth would be tiny over the next five years — though better than other countries, the Chancellor claimed.
Politics, politics…. In truth the Chancellor had begun his speech with a highly political message to put stability first — and that stability depended on staying within the European Union. While inevitably he had to claim to be balancing the books, George Osborne was speaking with one eye on the EU referendum, and perhaps the other on the long term possibility of moving next door in Downing St.
Call that a Budget? It was more like a European election rally, or an early bid for the keys to No 10, or George’s Easter Bunny. Come to think of it, that’s exactly what it was….
Rob Ballantyne is an Associate Partner at Charlotte Street Partners
Where were we? The economy expanded by 2.4% in 2015 and was forecast to repeat that growth rate this year.
What’s changed? There has been a downgrade to 2% by the OBR. This has triggered a reduction in forecasted wages and tax receipts, knocking the chancellor’s deficit reduction plan off course. Looking further forward, growth in 2017 has been revised down to 2.2% from 2.5%, and then 2.1% recurring.
What we knew? There was going to be a study on the feasibility of a Trans-Pennine road tunnel, a Manchester to Leeds high-speed rail line HS3 and Crossrail 2 (a north, south underground link for London).
Was there anything else? Yes the Chancellor announced that alongside the Budget, the report on Network Rail by HS1 boss Nicola Shaw will be published. The report recommends selling off rail lines and big stations. As well as giving more power to new regional subsidiaries.
The Northern Powerhouse
The Chancellor announced road upgrades in an effort to boost the Northern Powerhouse
Where were we? Duty freezes over the last six years have prevented tax rises of 17p per litre (compared to Labour’s plans). The exchequer would be more than £20bn better off this year if the duty rises had gone ahead.
Was there anything new? No, contrary to many predictions the Chancellor has announced that the freeze will remain.
What we knew? Osborne has adopted the OECD’s policy of information sharing and disclosure by multinationals of their tax position to support a crackdown on avoidance.
What’s new? The chancellor came down hard on tax avoidance with plans to raise £12bn through a raft of anti-avoidance measures. This includes a crackdown on the use of personal service companies by employers to reduce their income tax and national insurance.
North Sea Oil
Last year: The Treasury helped Scotland’s oil industry with £1.3bn of tax relief on investment spending.
What’s new? The chancellor announced more help for the beleaguered industry, halving the supplementary oil and gas charge to 10% and effectively scrapping the petroleum revenue tax.
What we knew: The chancellor will announce the results of the review of the business rates system in the budget. It is hated by high street traders because they pay far more than online retailers. But it has brought in £28bn this year.
Is there anything new? The Chancellor revealed that he is doubling small business rate relief permanently from £6,000-£15,000. He also announced that he’s raising the threshold from the higher rate. In practice this means 600,000 small business will pay no business rates at all from April next year. With the bellicose phrase, ‘Britain is blazing a trail, let the rest of the world catch up’, Osborne also announced that from April 2020, corporation tax will fall to 17%.
Where were we? The chancellor shelved plans for an overhaul of pension savings, but will still impose a cut on the lifetime limit on pension savings from £1.25m to £1m from April this year.
Is there anything new? There has been no change to the tax free lump sum of 25%‘. However, Osborne did announce that public sector pensions will be made sustainable but this will not affect any individual’s current pension.
Where were we? Starting rate for savings 10% (0% from 2015 to 2016) Up to £5,000; Basic rate 20% (Up to £31,785); Higher rate 40% (31,786 to £150,000); Additional rate 45% (Over £150,001).
What’s changed? (In future variable by Scottish parliament): The threshold for paying a 40p tax rate will rise to £45,000
A new ‘pasty tax’?
Where were we? The Chancellor was under pressure to extend so called ‘sin’ taxes to sugar.
Has it happened? Surprisingly, yes. A new sugar levy has been implemented in an attempt to tackle child obesity. It will be assessed on the sugar content of drinks they produce. It is hoped it will raise £520m. There has also been a 2% increase on cigarette tax. Alcohol tax meanwhile remains frozen.
A new lifetime ISA designed to help those struggling to save for a home and for their retirement will be available to anyone under 40 — with the Government contributing £1 for every £4 saved. The wider limit for ISA savings is going up from £15,000 to £20,000 a year for all.
What we knew? Insurance premium tax — payable on general insurance policies such as home and car cover — is a stealth tax and many consumers are unaware of its cost. Last year, the Treasury increased insurance premium tax by over 50% adding around £100 to the insurance bills of many households.
What happened? Insurance tax has been raised by 0.5% to fund flood defences.