George Osborne stood up today just after 12.30 to deliver his 8th Budget as Chancellor.
With the EU referendum looming large and increasing nervousness that much of the developed world is facing an economic downturn, many experts predicted a relatively quiet Budget.
Was this the case? Read on to find out.
Mr Osborne started bullishly, suggesting he would report on a very positive economic outlook for the UK, which was growing at a faster rate than other developed economies, and is on course for a budget surplus.
However, he quickly turned to the “headwinds” the UK economy is facing and that he was addressing issues now to prevent problems later.
The Chancellor reported that the Office for Budgetary Responsibility (OBR) has downgraded predictions for worldwide growth, with a knock of effect to the UK.
The OBR now predicts that Gross Domestic Product (GDP) will grow by 2% in 2016, 2.2% in 2017, and by 2.1% for the following three years.
With an eye to the EU Referendum, Mr Osborne stated that these projections are based on the UK staying in the EU and went on to say that “Britain would be safer and better off by staying in the EU.”
Turning to the national debt, the Chancellor admitted to missing his target of starting to cut the national debt this financial year, something which will not start to happen until 2017/18.
Mr Osborne reported that employment had now reached record levels and that the number of people claiming unemployment benefits are at the lowest level since the 1970s.
He also announced that the OBR is predicting another one million jobs will be created in this parliament.
It was announced that public spending would be cut by £3.5 billion per year by 2018/19.
George Osborne announced a number of measures to reduce tax avoidance. This included action to ensure that people working for the public sector, through Personal Services Companies, pay the correct level of tax and changes to redundancy payments over £30,000 which will, in future, attract employer National Insurance contributions.
Further reforms to Corporation Tax were announced, which will make it harder for larger companies to avoid tax.
Mr Osborne then announced that Corporation Tax, which was set at 28% in 2010 and will now reduce to 17% by April 2020. This comes in addition to the cut to 19% in 2017, although no changes to the controversial dividend tax were announced.
It was also announced that small business rates relief will rise from £6,000 to £15,000 with the changes meaning that from next year 600,000 small businesses will pay no rates whatsoever.
Following changes made in the last Budget, no further alterations to Stamp Duty for the purchase of residential property were announced.
However, Stamp Duty paid on the purchase of commercial property will be changed immediately and moved to a ‘slice’ based system, to mirror the changes to residential Stamp Duty. The new system will benefit smaller businesses buying property, saving money in 90% of cases. The rates will be:
- 0% up to £150,000
- 2% on next £100,000
- 5% above £250,000
Insurance Premium Tax
The tax on insurance premiums will rise by 0.5% with the money raised spent on improving flood defences.
Mr Osborne announced that the Government will levy a sugar tax, in two-years’ time, on the soft drinks industry.
It is estimated that the levy will raise over £500 million, which will be used to double the amount of money available to school sports and help 25% of schools stay open later.
The fuel duty “increase pencilled in” will be abolished and the Chancellor announced that fuel duty will remain frozen.
However, tobacco duty will continue to rise above inflation and a consultation on a minimum price for tobacco will take place.
It was also announced that beer, cider and whiskey duty will be frozen; other alcohol duties will rise in line with inflation.
From 2018 Class 2 National Insurance contributions will be abolished.
Capital Gains Tax
The Chancellor announced that from the 6th April 2016, the headline rate of Capital Gains Tax (CGT) will be cut from 28% to 20%, for basic rate taxpayers it will fall from 18% to 10%.
However, the old rates in place for residential buy to let investors.
In a surprise move it was announced that the Individual Savings Account (ISA) limit to increase to £20,000 from £15,240 from April 2017.
Despite the fears of many pension experts, no wholesale changes to existing pensions were announced. Indeed, the Chancellor confirmed that tax-free lump sums from pensions would not be abolished.
However, there was one major announcement.
To help younger people save for a home, as well as retirement, Mr Osborne announced the introduction of a new Lifetime ISA from April 2017.
The new Lifetime ISA will allow savers to contribute up to £4,000 each year and for every £4 saved, the Government will give an extra £1. The money can be used to help purchase a property, up to £450,000 in value, or in retirement after the owner’s 60th birthday, when it will be available tax-free.
Withdrawals before that date will lose the bonus and attract a 5% charge.
The Chancellor announced that the Personal Allowance, the amount you can earn before you start to pay tax, will rise to £11,500 from 2017/18.
The higher rate threshold will also increase, meaning that no one earning less than £45,000 will pay tax at a rate of 40%.
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