The Chancellor seemed to be at great pains to make it clear that he was selling this as a “Budget for the Next Generation”. To the cynic that might be seen as a gentle way of saying “there is nothing for you here so don’t even ask”, however by the end of his speech I was left wondering whether he had written the “next generation” slogan for a different budget – one that in the end was not presented.
Consider that the background to this Budget included some rather worrying downgrades to the UK economic growth forecast by the OBR, and debt reduction targets set by the Chancellor that he has missed by a country mile. In short, things are far from rosy in the British economic garden.
And yet: where was all the bad news? Where were the tax hikes, the increased duties? There were some of course, the much anticipated “sugar tax” will be introduced from 2018, though Mr Osborne stressed this would be a tax on the companies that they “may choose to pass on to the consumer” – his way of distancing himself from that bad news.
There were also further large cuts announced to public sector budgets – albeit with no indication of what those might be.
So although the under 40’s are to be incentivised to save in a ‘Lifetime ISA’, it was two tax reductions that caught the eye; Corporation Tax will be just 17% by 2020 and capital gains tax will fall from 28% to 20% (18% to 10% for a basic rate taxpayer) – but not if you’re selling a second home or investment residential property.
It seems strange that he did not try to generate rather more mileage from what are very substantial tax reductions but instead chose to brand it as a “Budget for the Next Generation”.
So to me, this Budget seemed rather schizophrenic – headline tax reductions set against a worsening economic background.
It is possible that the reason for this is that there was, in a previous draft, rather more bad news. It is well publicised, for example, that there were to be substantial changes to pensions, in particular that the higher rate tax relief on contributions might be withdrawn, but that these plans were ditched last week; (or possibly just delayed?)
My suspicion is that the Chancellor was under pressure to ensure that Budget 2016 did not contain “bad news” for the masses who are shortly to vote in the EU Referendum. If that suspicion is proved correct, I fear that any relief felt at what was a rather benign Budget may be short lived and that the Autumn Statement may have more than a touch of cold, hard winter about it.
A Budget of surprising twists for Enterprise
By Robert Leggett – Corporate Tax Partner
The Chancellor managed to keep surprising me in what is now starting to feel like his quarterly Budget statement.
I should have expected the reduction in Corporation tax to 17% from 2020; a good thing for profitable companies.
I certainly didn’t foresee the drop in Capital Gains Tax from 28% to 20% (18% to 10% for basic rate taxpayers). Of course; the Labour Government set CGT at just 18%, based on research that this was the level that optimised receipts. The new rates won’t apply to residential property or carried interest transactions. There will also be a new CGT relief to encourage share subscriptions into unquoted companies for three years plus.
A key announcement for East Anglia will be our devolution settlement, with an elected mayor and a £1bn Budget. The Ipswich crossing also got a mention.
On income tax, the Chancellor continued to increase personal allowances, and started delivering his promise to raise the higher rate threshold; raising it to £45,000 next year. He is also introducing a £1,000 tax free allowance for both trading income and rental income. A new tax advantaged savings scheme for the under 40s is also interesting news.
He surprised me by freezing fuel duty again (despite the low oil prices), and again with good news on business rates, with the limit for small business rates relief rising from £6,000 to £15,000 and becoming “permanent”.
The question might be, where is the money coming from? Fundamentally, more spending cuts. However, there will be more anti-avoidance measures on disguised remuneration, public sector workers using personal service companies, termination payments and loans to participators amongst others. We are also promised a roadmap to a fundamental reform of the business tax system, which is expected to raise significant amounts of money, not least through restriction to the offsetting of losses.
There was nothing in the speech about the “Making Tax Digital” project. The first small businesses and landlords are expected to be uploading records online to HMRC on a quarterly basis from 2018, and so it is hoped that the Government will urgently deal with some of the uncertainties here.
And of course, he also made very clear that his economic forecasts are all predicated on the UK staying within the EU. What Brexit would do for the tax system is another subject entirely…