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Budget 2016 Review

Budget 2016 Review

The UK Budget 2016 saw a continuation of the Conservative Government’s commitment to austerity, with a further £3.5bn of efficiencies forecast to be made by 2020. However the Chancellor also outlined measures to boost business growth; here BiP Solutions reporter Julie Shennan examines their implications.

Justifying the Budget cuts, Chancellor George Osborne explained that the Office for Budget Responsibility (OBR) had reduced its 2016/17 forecast for UK GDP growth to 2% (down from the 2.4% growth rate predicted in the Chancellor’s Autumn Statement).

This reduction in growth forecast was explained as a result of ‘global uncertainty’, to which Mr Osborne said the Government would react with ‘sound public finance’, aiming to get the UK into a budget surplus by 2019/20.

The Chancellor outlined plans to:

  • Reform the business tax system;
  • Devolve power to local communities; and
  • Commit to national infrastructure projects.

Taxes

Mr Osborne’s business tax system reforms include:

  • Supporting a £1bn tax break for the oil and gas industry, including abolishing Petroleum Revenue Tax.
  • Cutting business rates for all small businesses that occupy property with a rateable value of £12,000 or less, as of April 2017.
  • Cutting Corporation Tax to 17% in 2020.
  • Scrapping Class 2 National Insurance contributions (NICs) for self-employed people from April 2018, meaning that the self-employed only have to pay Class 4 NICs if their profits are over £8,060 per year.
  • Class 4 NICs will also be reformed so self-employed people can continue to build benefit entitlement.
  • Introducing a tapered rate of relief on properties worth up to £15,000.
  • Reducing Capital Gains Tax from 28% to 20%, and the basic rate from 18% to 10%, as of 6 April 2016.
  • Adding an 8 percentage point surcharge to be paid on residential property and carried interest (the share of profits or gains that is paid to asset managers).
  • Maintaining National Insurance on redundancy payments above £30,000, from April 2018.
  • Changing stamp duty rates for commercial property from 17 March 2016, so that tax bands will be 0% for the portion of the transaction value up to £150,000; 2% between £150,001 and £250,000, and 5% above £250,000.
  • Reduction of stamp duty for buyers of commercial property worth up to £1.05m.
  • Introducing a new 2% stamp duty rate on leases with a net present value over £5m.

Tax Avoidance Crackdown

Mr Osborne also outlined plans to raise £8bn over the next five years by closing the loopholes which allow large companies to legally avoid tax. He plans to do this by:

  • Capping relief on interest payments at 30% of UK earnings (with exceptions for groups with legitimately high interest payments).
  • Legislating against hybrid mismatching tax avoidance.
  • Taxing outbound royalty payments better – increasing multinationals’ UK tax payments.
  • Tackling suppliers storing goods in Britain and selling them online without paying VAT.
  • Ensuring offshore property developers are taxed on their UK profits.

Devolution

Just as Mr Osborne said he was making UK taxes work for UK businesses, he said he would put the power to spend those taxes into the hands of local governments. This means:

  • Devolving local government business rates by the end of the Parliament.
  • Starting the devolution of business rates in London, with the deadline of April 2016.
  • Backing elected mayors in Manchester, Liverpool, Tees Valley, the North East and Sheffield and the West Midlands.
  • Establishing mayors across English counties and southern cities.
  • Transferring new criminal justice system powers to Greater Manchester.
  • Introducing a single powerful East Anglia combined authority, headed up by an elected mayor and almost £1bn of new investment.
  • Agreeing a West of England mayoral authority and pledging almost £1bn to the region.
  • Giving Greater Lincolnshire new powers, new funding and a new mayor.
  • Implementing a new fiscal framework in Scotland.
  • Negotiating a City Deal for Edinburgh.
  • Devolving new powers to the Welsh Assembly.
  • Starting a £1bn City Deal for Cardiff.
  • Negotiating a City Deal for Swansea and a Growth Deal for North Wales, so it’s better connected to the Northern Powerhouse.
  • Planning the devolution of Corporation Tax in Northern Ireland.
  • Enhancing capital allowances to the enterprise zone in Coleraine.

National Infrastructure

To back this ‘devolution revolution’, the Chancellor laid plans to boost national infrastructure by:

      • Approving development of High Speed 3 between Manchester and Leeds.
      • Commissioning Crossrail 2.
      • Finding new money to create a 4-lane M62.
      • Developing the case for a new tunnelled road from Manchester to Sheffield.
      • Upgrading the A66 and A69.
      • Accepting the Infrastructure Commission’s recommendations on energy and on London transport.
      • Setting out measures to speed up the planning system, zone housing development and prepare the country for the arrival of 5G technology.
      • Increasing the standard rate of Insurance Premium Tax by half a percentage point, and committing the £700m extra revenue raised to flood defence spending.
      • Backing flood defence schemes for York, Leeds, Calder Valley, Carlisle and across Cumbria.
      • Backing community development grants projects from Truro to Hull.
      • Extending the Cathedral Repairs Fund with an extra £20m.

Concluding his Budget 2016, George Osborne said it put ‘the next generation first’. With business rate relief, infrastructure investment and plans to strengthen devolution it is also a budget which supports businesses of all sizes, across all sectors, in the immediate months and years ahead.

Budget 2016: Preview

The number10 on the door of the Prime Minister's official residence in Downing Street, London. 10 Downing Street vies with the White House as being the most important political building anywhere in the world in the modern era.

On Wednesday 16 March 2016, Chancellor George Osborne will deliver his fourth fiscal summary in the last 12 months – but what can businesses expect to see in the Budget 2016? Here BiP Solutions reporter Donald MacInnes overviews the hopes of industry leaders.

The Chancellor

In advance of tomorrow’s budget, the Chancellor has signalled tough times ahead stating that Britain must ‘act now to make sure we don’t pay later’.

In his November 2015 Spending Review and Autumn Statement, the Chancellor announced that Whitehall spending would be reduced by 19% in order to cut the deficit and secure a £10.1bn surplus by 2019/20. However, the Chancellor has recently said that spending must now be cut by another £4bn within this parliament to achieve this surplus.

In reaction to this some of the UK’s biggest business groups and think tanks have released their budget recommendations.

Leading industry representatives are looking to the Chancellor to spare UK companies any more financial burdens and instead aid them to grow their businesses.

Confederation of British Industry (CBI)

According to recent analysis from the Confederation of British Industry, a combination of inaction on business rates accompanied by recent Government policy changes, including the National Living Wage and the Apprenticeship Levy, will cost businesses around £9bn every year to 2020/21. The CBI has called on the Chancellor to strive for increased investment in businesses to harness and fuel innovation.

Rain Newton-Smith, CBI Director of Economics, said: “Businesses will want to see concrete action to reform the UK’s business rates system, support investment through the capital allowance system and equip our world-class innovators with the tools they need to compete globally.”

A key recommendation of the CBI is to reform the current business rates system, switching the uprating of the tax rate (‘multiplier’) from RPI to CPI and furthermore removing the smallest businesses from the tax entirely.

The CBI has also recommended an increase in the scope of capital allowances and the UK remaining competitive on interest deductions for Corporation Tax. Furthermore, the CBI wants to see an increase in the level of access to research and development (R&D) incentives, allowing companies to innovate better.

The British Chambers of Commerce (BCC)

The British Chambers of Commerce has also recommended that businesses be spared any hardships in the form of costs, taxes or obligations. The BCC has made three primary recommendations for Budget 2016 which directly involve businesses.

Due to the burden placed on businesses from pensions auto-enrolment, the National Living Wage, the Apprenticeship Levy, higher dividend taxes and other measures, the BCC has recommended that businesses should not have to endure any new taxes for the remainder of this parliament.

The BCC is also pushing for business rates reform, urging the Chancellor to prioritise resetting the valuation, collection and setting of the rates. The BCC has furthermore recommended greater support from HMRC for SMEs and is pushing to make compliance easier for businesses.

Engineering Employers’ Federation(EFF)

The call for business rates reform is being made by companies all over the UK, including those in manufacturing.

The manufacturing industry is pushing for plant and machinery to be withdrawn from rateable calculations. The EEF – The Manufacturers’ Organisation says that to do so would provide a boost for sectors such as steel, releasing figures which claim that 42% of companies surveyed said they would be likely to invest if plant and machinery were removed from the calculation of business rates.

Companies with a turnover below £5m and those with a turnover over £50m would be the ones most likely to increase investment, the figures suggest.

EEF Chief Economist Lee Hopley said: “Our evidence shows that removing plant and machinery from the calculation of business rates could help tip the balance for some companies, notably small manufacturers looking to scale up, and large manufacturers facing international competition.”

The Chancellor George Osborne is expected at the dispatch box around 12:30 pm on 16 March, immediately after Prime Minister’s Questions.

For updates and industry reaction to the Budget 2016, keep following the BiP Solutions news and blog section.