Hunt’s budget – deeper devolution, tax tinkering and cheaper childcare

Chancellor Jeremy Hunt has delivered his first Budget and has dubbed it a back-work-budget with a range of incentives to get economically inactive people back into work through an increase in free childcare places, but in perhaps his biggest surprise, an abolition of the lifetime allowance, which capped pension contributions.

He delivered the Budget against a backdrop of a claim from the Office of Budget responsibility saying a technical recession will be avoided, and that inflation will drop to 2.9% by the end of the year. 

Hunt maintained the planned increase in Capital Gains Tax from on profits over £250,000 from 19% to 25% in April, but said businesses can offset 100% of their UK investments against profits as a way of cutting their tax bill. 

He also announced an “enhanced credit” for small and medium-sized businesses on research and development spend 40% and can claim credit worth £27 for every £100 spent.

In a message that seemed to signal the end of the road for Local Enterprise Partnerships, Hunt announced trailblazer “deeper devolution deals” for the West Midlands and Greater Manchester along the lines of a departmental settlement, positioning local authorities as the drivers of economic strategy.

He also signalled a move towards fiscal devolution with a promise of local authorities retaining 100% of business rates.

Hunt also announced a £1m “Manchester prize” for research into Artificial Intelligence, named after the world’s first programmable computer, Baby, built at the University of Manchester by Alan Turing. 

John McCaffrey, tax partner at Alexander & Co in Manchester said: 

“There was no particularly surprising tax changes, except for the abolition of the pension lifetime allowance. Corporation tax was expected to go up, but he’s trying to couple that with the tax reliefs against investments.

“There are lots and lots of targeted reliefs in the Budget and many of theses will be quite attractive. 70% of all taxes are raised through PAYE and a huge amount of noise throughout the speech was around getting people into work. This will, in turn, help tax revenues and he’s pinning growth in the economy on this.

“He’s not upsetting the applecart with big policy changes. It’s not a particularly radical budget unless the supply side reforms. 

“A lot of noise, not a lot of change.”