Yesterday, George Osborne delivered his latest Budget. Here’s a summary of the independent data he published about how our economy is doing and his key announcements.
How is our economy doing?
The independent Office for Budget Responsibility (OBR) have revised down forecasts for UK productivity growth in the light of what they describe as “materially weaker” global economic conditions. They now expect our economy to grow by 2% this year, by 2.2% in 2017 and then by 2.1% in each of the three years after that. However, in terms of how we are doing relative to other similar economies (which is how we should judge the success of the government’s policies because no government can wholly protect us from global economic conditions), our economy is expected to grow faster this year than any other major advanced economy.
Since the last forecast in autumn 2015, the UK economy has created 150,000 more jobs than the OBR expected. There are more people in work than at any time in our history and the proportion of people claiming out-of-work benefits is at its lowest level since November 1974.
The OBR forecasts inflation of 0.7% this year and 1.6% next year, in both cases below the government’s target of 2%.
Wages are forecast to grow by more than inflation in each and every year of the forecast.
This good news on growth, jobs, inflation and wages hasn’t happened by accident; it’s down to the tough but necessary decisions we’ve taken over the past six years to get government borrowing down. George Osborne has been prepared to do things that he knew would be unpopular in the short-term but that were right for the long-term prosperity of our country and today we are reaping the benefits.
When he became Chancellor, the government was borrowing an unsustainable £1 in every £4 it spent; next year, it will borrow £1 in every £14. Because the OBR has reduced its growth forecasts, he now needs to make some extra savings if he is to meet his target of eliminating the deficit altogether by the end of this decade. In total, he needs to save a further £3.5 billion a year from departmental budgets by 2019-20 (which sounds like a lot of money but is in fact less than half a percent of what the government spends each year) plus some money from the welfare budget by ensuring Personal Independence Payments (which help with the extra costs faced by those with a disability) only go to those who need them (spending on support for the disabled will still increase even after this change). Making these further savings should ensure that by 2019-20 the government will be running a surplus. That means that when the next global recession comes - as it inevitably will one day - Britain will be much better placed to meet it than we were to meet the global financial crisis in 2008.
Predictably, Labour say now is not the time for more cuts. They say that before every Budget. If the economy is doing well, they say we can afford to spend more. If the economy is struggling, they say we can’t afford not to. If we had taken their advice, by the end of this decade cumulative borrowing would have been £930 billion more than it is now forecast to be. That’s an extra £14,500 of debt for every man, woman and child in this country.
Tackling tax avoidance
As a Conservative, I believe in low taxes. The government shouldn’t take too much of the money people work hard to earn and high taxes on businesses make it harder for them to grow and create jobs (and in the case of large, international businesses less likely that they will locate here).
But I am equally passionate about ensuring that everyone pays their fair share. I was there delighted that the Chancellor announced a further package of measures to tackle tax avoidance that is projected to raise an additional £12 billion over the course of this Parliament.
Reforms to Corporation Tax
In addition to that package of tax avoidance measures, the Chancellor announced reforms to Corporation Tax to tackle large firms that aren’t paying their fair share.
Some multinationals over-borrow in the UK to fund activities abroad and then deduct the interest bills against their UK profits. From April next year, the Chancellor will restrict this practice for the largest companies to 30% of UK earnings.
He’s also introducing new rules to stop the complex structures that allow some multinationals to avoid paying any tax anywhere or deduct the same expenses in more than one country.
He’s strengthening the withholding tax on the royalty payments that allow some firms to shift money to tax havens.
And for firms that make profits of over £5 million he’s restricting the maximum amount of profits that can be offset using past losses.
These reforms will raise £9 billion. And he is using this money to reduce Corporation Tax to 17% by April 2020, one of the lowest rates in the developed world. The message is clear: if you do business in Britain, the Government won’t take too much of your profits - but you will pay your fair share.
Reforms to VAT
There’s been a big rise in overseas suppliers storing goods in Britain and selling them online without paying VAT. That unfairly undercuts British businesses - I’ve had a number of Croydon firms raise this issue with me and I’ve spoken to the Chancellor about it. It was good to hear him announcing action to stop it.
Reforms to business rates
At present, small business rate relief is only available to firms with a rateable value of less than £6,000. The Chancellor is more than doubling that to £15,000 and raising the higher rate threshold from £18,000 to £51,000. As a result, from April next year 600,000 small businesses will no longer pay business rates at all, an annual saving for them of as much as nearly £6,000, and a further 250,000 businesses will see their rates cut.
Reforms to Commercial Stamp Duty
The Chancellor also announced changes to commercial Stamp Duty similar to those he recently made to residential Stamp Duty.
Previously, if a small firm bought a property for just under £250,000 they would face a stamp duty bill of just under £2,500 but if the property was just over the £250,000 threshold the tax bill would be three times as high. This obviously had a hugely distorting effect on the market. From now on, commercial Stamp Duty will have a zero rate on purchases up to £150,000, a 2 per cent rate on the next £100,000 and a 5 per cent rate above that. Over 90 per cent of businesses will see their tax bill cut or stay the same.
Reforms to Capital Gains Tax
At 28%, our rate of Capital Gains Tax is now one of the highest in the developed world, when we want our taxes to be among the lowest. The Chancellor is therefore cutting it to 20% and the lower rate paid by basic rate taxpayers from 18% to 10%.
The single most effective thing we can do to boost the long-term productivity of our economy and build a fairer society is to improve our education system.
The Chancellor announced extra funding so that by the end of this Parliament every primary and secondary school in England will be, or will be in the process of becoming, an academy free from local council control.
He also announced a new Sugar Levy on the soft drinks industry to tackle childhood obesity. There will be two bands: one for total sugar content above 5 grams per 100 millilitres and one for the most sugary drinks with more than 8 grams per 100 millilitres. The OBR predicts that this will raise £520 million and the Chancellor is going to use this money to double the funding for sport in primary schools and fund longer school days for those secondary schools who want to offer their pupils a wider range of activities.
Help with fuel costs
The Chancellor froze fuel duty for the sixth year in a row, a saving of £75 a year to the average driver.
Help for the self-employed
From 2018, Class 2 National Insurance Contributions will be abolished, a tax cut of over £130 for the 3 million people in this country who are self-employed.
Help for working people
When George Osborne became Chancellor, the personal allowance - the amount you can earn before you start to pay income tax - was less than £6,500. People working for the minimum wage were having a significant chunk of what they earned taken in tax by the government. The Coalition Government increased it to £10,600. In our manifesto, we promised to increase it further to £12,500. The Chancellor had already announced that this April it will increase to £11,000 and yesterday he announced that in April 2017 it will rise to £11,500. That’s a tax cut for 31 million people. A typical basic rate taxpayer will be paying over £1,000 less income tax a year than they were under Labour.
We also promised to increase the higher rate threshold - the amount over which you start to pay 40 pence income tax for every pound you earn. Yesterday, the Chancellor announced that in April 2017 this threshold will increase to £45,000, lifting half a million people who are not rich out of the higher rate band.
Help for the next generation to save
Far too many people in their 20s and 30s have no pension and few savings. Many are struggling to save for a deposit for a home and can’t afford to save for their retirement as well. The Chancellor is therefore introducing a completely new, flexible way for them to save. It’s called the Lifetime ISA. From April 2017, anyone under the age of 40 can save up to £4,000 a year and the government will give them 25% of what they save every year until they turn 50. They can use these savings either to buy a first home or for their retirement, but unlike a pension they won’t have to pay tax when they take the money out in retirement. Those who have already taken out Help to Buy ISAs will be able to roll them into the new Lifetime ISA.
Help for the homeless
We want to help hard-working people, but as Conservatives we’re not prepared to let people be left behind. I was therefore particularly pleased to hear the Chancellor announce £115 million to support those who are homeless.
This was a Budget for the next generation and for small businesses. We’re going to finish the job of getting the government’s finances on a sound footing so that the next generation inherit less debt from my generation. We’re going to improve our education system. We’re going to help younger people save for their first home and their retirement. And we’re going to cut taxes for small businesses paid for by making sure large, multinational business pay their fair share. I think it was a good package, but I’d love to hear you feedback - email me at email@example.com.
I've had lots of positive feedback on many of the Budget measures, but lots of negative feedback about one measure, namely the plan to reform support for the disabled.
I lobbied the Chancellor as people asked me to and, as you may have heard, the Government has now announced that it will not be going ahead with the changes. Not only that, it has also made it clear that it has no plans to make any other savings in the welfare budget during the course of this Parliament.
Despite the fact that the Government is not going ahead with the changes, I want to take the time to explain what we were looking at because we were not, as some people have been led to believe, proposing to cut support for the most vulnerable people in our society.
An independent review recommended that the Government “should review how aids and appliances are taken into account” when assessing how much PIP people should receive. Recent legal judgements have broadened the scope of what is considered an aid or appliance to include items that most people already have in their homes and, as a result, the number of people who are eligible for PIP solely due to their use of aids and appliances has tripled in the last 18 months. Analysis by medical professionals shows that some of these people are unlikely to need ongoing financial support. The Government was therefore planning to change how eligibility for PIP is assessed to ensure that it only goes to those who need it. Given the level of public concern about the proposed changes, however, the Government was clearly right to drop them.