Whilst early announcements included plans to move all schools to academies and the scrapping of the Money Advice Service, a lot of scaremongering didn’t materialise.  Our economy is strong, resilient and set to grow faster than any other major advanced economy this year, but with the global economy suffering from low productivity and weak markets, investment in the long term economic plan is paramount according to the Chancellor.  

This budget has given many more positive announcements for businesses than those in recent times as George Osborne urges us to invest in business over property.  Whilst the OBR remains non-political, Mr Osborne has clearly set his camp in the ‘remain’ camp to stay in the EU.

Economy

“A force for stability”

Despite the strong economy and being on course for budget surplus with the deficit down by 2/3rds, UK productivity growth has been revised down.

Britain has it’s highest employment rate at 74.1%, with the lowest proportion of people claiming unemployment benefit since 1974.  In the last four months 150,000 more jobs were created than the OBR predicted with one million more to be created over this parliament

All forecasts are based on Britain remaining in the EU:

• GDP: 2% - 2015, 2% - 2016 (2.4% predicted), 2.2% - 2017, 2.1% - 2018,19 & 20
• Lower inflation: 2016 - 1.7%, 2017 - 1.6%
• Debt to GDP ratio: 2016 - 82.6%, 2017 - 81.3%, 2018 - 79.9%, 2019 - 77.2%, 2020 - 74.7%
• Deficit (11.1% in 2010): 2016 - 3.8%, 2017 - 2.9%, 2018 - 1.9%, 2019 - 1.0%
• Cash borrowing this year will be £72.2bn, half of the amount borrowed in 2010 and lower than forecast in Autumn Statement:

Borrowing: 2017 - £55.5bn, 2018 - £38.8bn, 2019 - £21.4bn

Surplus: 2020 - £10.4bn, 2021 - £11.5bn

Welfare & Infrastructure

“Redouble our efforts to make Britain fit for the future”

Investment in infrastructure is key to the long term economic plan, again putting businesses at the forefront of the Chancellor’s plans, along with progress in the devolution revolution.

• HS3 and Crossrail 2 have the green light with other rail improvements, upgrades to M62, A66 and A69 and other transport networks in the Northern Powerhouse
• More flood defence funding announced, using a 0.5% increase in Insurance Premium tax (to 10%)
• All schools to be Academies by 2020 (primary and secondary) as well as other educational reforms, including maths taught to the age of 18
• Steel industry protected and renewable technologies backed by £730m.  The Oil and Gas industry benefits from the Supplementary Charge being halved and the Petroleum Revenue Tax being abolished
• Carbon Reduction Commitment abolished but Climate Change Levy increased from 2019
• Disability budget to rise by over £1bn, £115m to support homeless persons
• Public sector employer pension contributions to rise

Savings & Pensions

“Tax affects behaviour”

Various schemes are already in place to help people save and buy, these have been extended with announcements today to encourage investment in your own future.

• The ISA allowance will rise from £15,240 to £20,000 in April 2017
• A new Lifetime ISA will be introduced from April 2017. This will allow any adult under 40 to save up to £4,000 p.a & receive a 25% bonus contribution from the government. These funds can be used to buy a first time home or used as a retirement savings (from aged 60)
• Help to Save: for those receiving Universal Credit and earning at a minimum level this scheme will pay a 50% bonus on savings up to £50/month after two years
• The pensions industry will introduce a ‘Pensions dashboard’ by 2019 to encourage clarity and understanding

Personal Taxes

“This is a Budget for the next generation”

Changes to personal taxes encourage the old ‘high wage, low welfare’ society that didn’t get a mention in this year’s Budget.  The NHS didn’t receive much attention either, instead the focus was on supporting business and encouraging health through other measures.

• The tax-free personal allowance will rise to £11,500 in April 2017 (£11,000 in April 2016)
• The higher rate tax threshold will increase to £45,000 from April 2017 (£43,000 in April 2016)
• Capital gains tax has been lowered from April 2016: the basic rate reduces from 18% to 10% and higher rate from 28% to 20%. The changes don’t apply to residential property and this combined with the changes to Entrepreneur’s Relief aim to encourage investment in companies over property
• A Sugar Levy will be introduced in two years.  Money raised from this will support funding of sport in primary schools
• Beer & Cider duty and Spirit duty frozen
• Fuel duty frozen
• Class 2 NIC to be abolished from April 2018 for self-employed, with plans to reform Class 4
• The changes to Stamp Duty on second homes and buy-to-let properties has been extended to bigger investors, with changes in timing for some as well
• The National Minimum Wage for 20-24yr olds increases to £6.95 from October 2016, the rest of the age brackets increase too
• Tax/NIC on termination payments will be restricted from April 2018 and various salary sacrifice schemes will be reviewed
• Tolls on Severn River Crossings to be halved, eventually

Business Taxes

“A Budget which gets rid of loopholes for multinationals and gets rid of tax for small businesses”

A lot of plans were announced to simplify business tax and make access to HMRC simpler.  Corporation tax was termed “one of the most distortive and unproductive taxes there is”, with announcements on loopholes closing and more frequent payment dates for bigger businesses, but flexibility for smaller businesses to offset losses.

These tax evasion reforms will raise £12bn.

• The rate of Corporation tax will be reduced to 17% by April 2020
• The tax on outstanding loans to participators (inc director’s loans) increased from 25% to 32.5%
• ‘Micro-entrepreneurs’ will receive allowances for small additional incomes: £1,000 for trading (i.e. through eBay) and £1,000 for rental income (i.e. Airbnb or driveway rental)
• Business Rate Relief will rise from April 2017 and the Small BRR will rise from £6k to £15k (tapered between £12k and £15k)
• Business rates will be linked to CPI in 2020, not RPI, with other changes to make rates more relevant
• Commercial Stamp Duty will be reformed to mirror the residential changes from midnight tonight

IR35

The only mention of IR35 was to clamp down on contractors working in the public sector. From April 2017 the public sector body or agency will become responsible for determining whether IR35 should be applied and be responsible for the tax.

They also go on to confirm they will consult on simpler tests and online tools to help decide whether these rules apply.

We will look into these rules in more detail and produce a separate blog on this topic shortly.

Pre announced rules confirmed

Clamouring for pre-announced changes to be delayed or repealed were to no avail, though thankfully pre-Budget there were more rumours around IR35, though not as severe as those before the Autumn Statement.  

The restriction of travel and subsistence expenses for contractors operating through Umbrella Companies (subject to SDC) or operating via a PSC and Inside IR35. Read our blog for a more detailed breakdown.

Dividend tax credits are to be scrapped with new tax rates on dividends and a £5,000 dividend allowance. Read our blog for a more detailed breakdown.

A comprehensive budget with lots of small changes and announcements but ultimately a strong, positive message despite a slowing global economy. Mr Osborne thinks Britain will be in a good position to handle these risks whilst providing a solid future for the next generation.

However, we should keep in mind of the Chancellor’s final warning:

“Storm clouds are gathering again” - winter is coming.