George Osborne delivered his eighth budget on 16 March 2016.
The chancellor confirmed the government’s priority of putting public finances on a sustainable footing by ensuring a fiscal surplus by 2019–20. However, with growth forecast to fall from 2.2% in 2015 to 2% in 2016, there will be a further £3.5 billion of savings from public spending in 2019–20, in addition to the savings of £21.5 billion announced in the 2015 spending review.
Spending commitments already announced to defence, overseas aid (as a percentage of gross national income), the NHS, schools, the police and science remain unchanged, but there will be a departmental efficiency review.
The plan to invest £100 billion in infrastructure by 2020–21 will be accelerated so that an additional £1.5 billion will be invested in housing, schools and transport over the next three years.
The government will return its entire stake in Lloyds Banking Group to the private sector in 2016–17, and expects to raise up to £25 billion from disposing of its holdings in the Royal Bank of Scotland by the end of 2019–20.
The main points from the 2016 budget are as follows:
Measures aimed at individuals
Income tax – the personal allowance will be raised from £11,000 in 2016–17 to £11,500 in 2017–18 and to £12,500 by the end of the parliament. The higher rate threshold will rise from £43,000 to £45,000 in 2017–18 and to £50,000 by the end of the parliament.
Fuel duty – the main rate of fuel duty will remain at 57.95p per litre for 2016–17.
Alcohol duty – duty on beer, spirits and most ciders will remain the same in 2016–17. Other alcohol duty rates will rise by inflation.
Education – all schools will be expected to become academies by 2020, or to have an academy order in place to convert by 2022. A new national funding formula for schools will be introduced from 2017–18, with an additional £500 million of additional core funding for schools over the course of the spending review.
Soft drinks industry levy – a new soft drinks industry levy will be targeted at producers and importers of soft drinks containing added sugar. This is expected to raise £520 million in the first year, which will be used to improve primary school sport provision, after school activities for secondary schools, and more school breakfast clubs.
Improving health – £1.5 million will be invested in child prosthetics and the tobacco duty escalator will continue, with duty on hand-rolling tobacco increased by an additional 3%.
Apprenticeships – employers will receive a 10% top-up to their monthly levy contributions from April 2017, to be spent on apprenticeship training.
Lifetime learning – in addition to existing commitments to loans for adult education, loans of up to £25,000 will be available for PhD students without a research council living allowance, and the eligibility for loans for master’s courses will be extended.
ISA allowance and new Lifetime ISA – the ISA allowance will rise from £15,240 to £20,000 in April 2017. Any adult under 40 will be able to open a new Lifetime ISA, in which they can save up to £4,000 each year and receive a 25% bonus from the government. Funds can be used to buy a first home with the government bonus at any time from 12 months after the account is opened, or withdrawn with the government bonus from the age of 60 for use in retirement. The limit for property purchased using Lifetime ISA funds will be £450,000. The government will consider whether Lifetime ISA funds plus the government bonus will be able to be withdrawn for other life events. Otherwise, funds can be withdrawn at any time, but with the government bonus surrendered and a 5% charge applied.
Help to Save – a new Help to Save scheme, open to those in receipt of universal credit with minimum weekly household earnings equivalent to 16 hours at the national living wage or those in receipt of working tax credit, will provide a 50% government bonus on up to £50 of monthly savings into a Help to Save account.
Pensions – a pensions dashboard, funded by the pensions industry, will be introduced by 2019, to enable people to view all their retirement savings in one place.
Financial advice – the government will consult on introducing a single definition of financial advice, increase the income tax and national insurance relief for employer-arranged pension advice from £150 to £500, and consult on introducing a pensions advice allowance, enabling those under 55 to use up to £500 from their defined contribution pension for financial advice.
Home ownership – the starter homes land fund prospectus will provide £1.2 billion for local authorities to remediate brownfield land for housing, and capital spending on affordable homes will be brought forward.
Planning – a more zonal and red-line planning approach is to be introduced, to give greater certainty to developers; the planning system will be speeded up; increased transparency in the property market (including increased visibility of options to purchase or lease land) will be consulted on; and planning restrictions for the deployment of mobile infrastructure will be reduced, enabling taller masts to be built.
Land for housing – local authorities are to collaborate with central government on a local government land ambition, releasing land for 160,000 homes, and the Homes and Communities Agency will work in partnership with Network Rail and local authorities to provide land around stations for housing, commercial development and regeneration.
Garden towns, cities and villages – legislation to make it easier for local authorities to work together to create new garden towns will be introduced, and the government will consult on a second wave of compulsory purchase order reforms. Support will be provided for new garden villages and market towns of between 1,500 and 10,000 homes.
Stamp duty land tax – those moving in difficult circumstances who have an overlap or gap in ownership of their main residence will have 36 months (rather than 18 months) to claim a refund from the higher rates applicable to purchase of additional residential properties. The higher rates will apply equally to purchases by individuals and corporate investors, with no exemption for significant investors.
Homelessness – £100 million will be invested to deliver low-cost accommodation for rough sleepers leaving hostel accommodation and domestic abuse victims moving from refuges. £10 million will be invested over two years to prevent and reduce rough sleeping, and funding for the Rough Sleeping Social Impact Bond will be increased from £5 million to £10 million. Action will be taken to return rough sleeping EU migrants to their home countries.
Disability employment reform – new peer and specialist support will be offered to those suffering from mental health conditions and young disabled people, and disability benefits will be better targeted.
Support for parents in employment – the government will consult on extending shared parental leave and pay to working grandparents; consider new ways to support parents returning to work; introduce tax-free childcare in such a way that youngest children will enter the scheme first, with all eligible parents brought in by the end of 2017; and launch a report on the representation of women in senior managerial roles in the financial services industry.
National minimum wage – the national minimum wage, which applies to workers aged between 21 and 24, will be set at £6.95 from October 2016. Those aged 25 and above will from April 2016 be subject to the higher national living wage announced last year.
Termination payments – from April 2018, termination payments to employees above £30,000 will be subject to employer national insurance contributions.
Salary sacrifice – the government is considering limiting the range of benefits that attract income tax and national insurance advantage under a salary sacrifice scheme.
Off-payroll working – public sector bodies engaging off-payroll workers engaged through the worker’s own limited company will be responsible for ensuring the correct tax is paid.
Loans to participators – the rate of tax payable by close companies under the loans to participators rules will be increased from 25% to 32.5% from 6 April 2016, mirroring the higher rate of dividend tax.
Measures aimed at businesses
Corporation tax – in addition to the reduction to 19% by 2019 already announced, there will be a further reduction in corporation tax to 17% by 2020, as set out in the business tax road map.
Business rates – small business rate relief will be permanently doubled from 50% to 100%, with the threshold increased to properties with rateable values of £12,000 and below; properties with rateable values between £12,000 and £15,000 will attract tapered relief. The standard business rates multiplier will be increased to a rateable value of £51,000, reducing business rates for many small businesses. From 2020, the index used for annual increases in business rates will be the consumer price index instead of the higher retail prices index. More frequent business rate revaluations will be introduced, and the process of billing and collection will be reformed by linking local authority business rates systems with HMRC’s digital tax accounts. In the longer term, the possibility of replacing small business rate relief with a business allowance for small businesses, applicable to a business’s total property portfolio, will be considered. The government will consult on 100% business rate retention by local authorities in the summer of 2016.
Tax and national insurance for the self-employed – Class 2 national insurance contributions will be abolished from April 2018 and class 4 national contributions will be reformed. Business support will be provided to self-employed working tax credit claimants, partly from Jobcentre advisors, and mentoring support extended to self-employed universal credit claimants. Two new income tax allowances will be introduced, so that individuals with property income below £1,000 or trading income below £1,000 will no longer need to declare or pay tax on that income.
Capital gains tax – from 6 April 2016, the higher rate of capital gains tax will be reduced from 28% to 20% and the basic rate from 18% to 10%, with an 8% surcharge on the new rates for carried interest and gains on residential property (subject to private residence relief).
Entrepreneurs’ relief – the 10% rate of capital gains tax will be extended to gains on newly issued shared in unlisted companies purchased on or after 17 March 2016 which are held for at least three years, subject to a lifetime limit of £10 million of gains. Entrepreneurs’ relief will be available for disposals made on or after 3 December 2014 on gains on goodwill when a business is transferred to a company controlled by five or fewer persons or by its directors, and on gains made after 18 March 2015 for disposals of privately held assets when there is an accompanying disposal of business assets to a family member, and in certain cases involving joint ventures and partnerships.
Corporation tax loss relief – from 1 April 2017, business will be able to use carried forward losses against profits from other income streams or from other companies within a group. However, the amount of profit that can be offset through losses carried forward will be restricted to 50% in the case of profits over £5 million. The amount of profit that banks can offset with pre-2015 losses will be reduced from 50% to 25% from 1 April 2016.
Stamp duty land tax – for non-residential property transactions, stamp duty land tax on freehold and lease premium transactions will be reformed to a slice system, with rates of 0% for the portion of the purchase price between £0 and £150,000, 2% for the portion between £150,001 and £250,000 and 5% above £250,000. A new 2% rate will be introduced for leasehold rent transactions where the net present value is over £5 million. The effect will be a tax cut for purchases of lower value properties and a tax increase for more expensive properties. The changes take effect on 17 March 2016, with transitional rules applying where contracts have already been exchanged.
Tax collection – self-employed people and landlords will be able to make pay-as-you-go tax payments from 2018 if they wish, and options to simplify tax rules for business, landlords and the self-employed will be explored. HMRC will provide a seven-days-a-week service by 2017, with improved telephone services and a dedicated line and online forum for new business.
Simplification – the VAT registration threshold will be increased to £83,000 from 1 April 2016. There will be a review of the impact of moving employee national insurance contributions to an annual, cumulative and aggregated basis and employer contributions to a payroll basis. Options to simplify the computation of corporation tax will be considered.
Energy taxes – the carbon reduction commitment energy efficiency scheme (CRC) will be abolished from 2019. The climate change levy (CCL) will be increased to compensate, with rebalanced rates for different fuel types. The existing climate change agreement (CCA) eligibility criteria will be kept in place until at least 2023. Carbon price support rates (CPS) will be maintained at £18 t/CO2, with the cap uprated in line with inflation in 2020–21.
Motoring taxes – the 100% first year allowance for businesses purchasing low-emission cars will be extended for a further three years to 2021; from April 2018, the main rate threshold for capital allowances for business cars will be reduced to 110 grams/kilometre of CO2 and the first year allowance threshold to 50 grams/kilometre of CO2; and company car tax will continue to be based on CO2 emissions, with a consultation on reforming the lower bands to refocus incentives on the cleanest cars.
Oil and gas – the government will assist the oil and gas industry by reducing the rate of petroleum revenue tax from 35% to 0%; reducing the supplementary charge from 20% to 10%; funding a second round of seismic surveys; extending the investment and cluster area allowances to include tariff income; and enabling companies to access tax relief when retaining decommissioning liabilities after a sale.
Financial services – in order to boost competition in retail financial services, the government will pursue more appropriate capital requirements for small banks; promote the authorisation of new banks; and improve the current account switch service. Further measures to support Fintech will be announced shortly. A £1 billion package to support SMEs will be provided through the British Business Bank. New finance platforms to match borrowers and alternative lenders will be designated, and more will be done to help exporters access trade finance.
Flood defence – the standard rate of insurance premium tax will be increased from 9.5% to 10%, to fund flood defence and resilience measures.
Claims management companies – there will be a new regime regulating claims management companies, ensuring personal accountability for their managers, with regulation transferred to the Financial Conduct Authority.
Multinational companies – a comprehensive package to tackle tax avoidance by multinational companies is set out in the business tax road map. This includes capping the amount of relief for interest to 30% of taxable earnings in the UK or based on the net interest-to-earnings ratio for the worldwide group, with a threshold limit of £2 million net UK interest expense. Changes to the rules on withholding tax will counter the use of inter-group royalty payments to shift profits to lower-tax jurisdictions. The rules on hybrid mismatch arrangements will be extended to cover hybrid mismatches arising from permanent establishments. Legislation will be introduced to prevent the use of offshore structures to avoid tax on profits generated from developing UK property.
Tax avoidance and evasion – measures include action against disguised remuneration schemes, such as loans made through offshore employee benefit trusts; action to tackle VAT evasion by overseas sellers; increased targeting of non-compliance and tax evasion in the waste sector; a crackdown on smuggling; and a consultation on measures to address the hidden economy.
Imbalances in the tax system – imbalances to be addressed include changes to remote gambling duty; new rules on carried interest, which will be taxed as a capital gain only in relation to investment activity with horizons longer than three years; and an individual lifetime limit of £100,000 on the capital gains tax exemption through employee shareholder status.
Infrastructure and devolution
Roads – a second Roads Investment Strategy will set out improvements to motorways and major roads from 2020 to 2025. Various measures will establish the UK as a global centre of excellence for connected and autonomous vehicles. £151 million will be available for local transport projects, and £50 million will be available under the pothole action fund.
Rail – the recommendations of the Shaw Report on greater devolution to the routes of Network Rail, including a newly designated northern route, are welcomed.
Flood defences – an extra £700 million will be spent on flood defences by 2020–21.
Smart and low carbon energy – £50 million will be invested in innovation in energy storage, demand-side response and other smart technologies; at least 9 GW of additional interconnection capacity will be delivered; the costs of decarbonisation will be reduced; and £30 million is allocated to a small modular nuclear reactor R&D programme.
The digital economy – measures include a new broadband investment fund, 5G strategy, Institute for Coding competition, and freely available authoritative address register. 750MHz of public sector spectrum will be made available by 2022.
Creative industries – a new tax relief to encourage museums and galleries to develop temporary or touring exhibitions will be introduced, and the eligibility criteria for the VAT refund scheme will be broadened.
Cathedrals and churches – £20 million will be provided for cathedral repairs and there will be a review examining how churches and cathedrals can become more financially sustainable.
Competitive markets and regulators – new rules will require local authorities to be transparent about the cost of in-house services, and the government will consult on reducing regulatory barriers so that new providers can provide legal advice. E-Serve will be separated from Ofgem.
Northern Ireland – top-up payments to non-taxable benefits will be exempt from tax.
Scotland – a city deal for Edinburgh and south-east Scotland is planned, as well as a science and innovation audit for Edinburgh and the Lowlands.
Wales – tolls on the Severn Bridges will be halved from 2018 and the case for free-flow tolling will be examined. A £1.2 billion city deal for the Cardiff Capital Region has been agreed, including support for the electrification of the Valley lines. A deal for the Swansea Bay City Region will be negotiated, and work will start on a growth deal for North Wales. There will be a science and innovation audit for south-east Wales and south-west England.
Northern Powerhouse – £300 million will be made available to develop High Speed 3 between Leeds and Manchester, accelerate the upgrade of the M62 to a four-lane smart motorway, develop other east–west road connections and other road projects, and improve major rail stations. There will be further devolution to Greater Manchester and Liverpool. £20 million a year will be invested in northern schools. There will be investment in science, flood defences and the arts.
Midlands Engine for Growth – measures include a Midlands Engine Investment Fund of £250 million with the British Business Bank; a mayoral devolution deal with Greater Lincolnshire; investment in transport via Midlands Connect; new enterprise zones; and funding for science and the arts.
East of England – a mayoral devolution deal has been agreed with East Anglia, including new transport powers and £900 million over 30 years.
South West – a mayoral devolution deal is planned for the West of England, subject to local authority agreement, with new powers over transport, planning, skills and employment. £19 million will be provided for housing schemes in areas impacted by holiday homes. Transport projects include further funds for the railway line at Dawlish, £3 million for improvements to railway stations (including Exeter St Davids, Weston-super-Mare and Cheltenham Spa), and a study on a new junction 18A on the M4 to link with the Avon ring road. There will be a new MarineHub enterprise zone for Cornwall. Grants include £16 million to Dyson to support research into battery technology in Malmesbury, £14.5 million for ultra-fast broadband, and £620,000 for the National Brunel Project in Bristol.
London – the government has approved Crossrail 2 and provided £80 million to fund its development. Other development and infrastructure projects include Old Oak Common and Brent Cross, where there will be a new Thameslink station. There will be support for expansion of the Royal College of Art at Battersea and the British Library at St Pancras.
South East – projects include a new Thames Estuary 2050 Growth Commission and a study to develop proposals for unlocking growth, housing and jobs in the Cambridge–Milton Keynes–Oxford corridor.