Sugar levy sweetens speech aimed at "the next generation"
YORKSHIRE will benefit from the majority of £150m funding for flood defence projects that have today been given the go-ahead as Chancellor George Osborne warned “the storm clouds are gathering again” in the global economy.
With the economic outlook uncertain for the next few years – GDP forecasts have been cut to 2.0% this year, 2.2% next year then 2.1% in 2018, 2019 and 2020 – Mr Osborne shaped this as a Budget “for the next generation”.
A sugar levy was introduced, causing an immediate negative reaction from affected firms with shares in soft drink groups including Nichols and Britvic falling, while funding was found for school sport and extended school days.
Tax loopholes for multinationals came into focus, with the Chancellor promising to “level the playing field which has been tilted against our small firms”. Small businesses will also benefit from increasing the threshold for business rates from £6,000 to £15,000, while corporation tax will continue to fall, reaching 17% in 2020.
As expected, the Chancellor continued his devolution announcements, led by handing some criminal justice powers to Greater Manchester, while areas around the country received more powers locally – but still nothing for West Yorkshire.
However Mr Osborne did confirm the green light for HS3 and some additional funding for HS2 projects.
Ian Stewart, chief economist at Deloitte, said: “The economic backdrop to the Budget has turned out to be even tougher than envisioned. As expected, the Office of Budget Responsibility cut its forecasts for growth sharply for 2016 and 2017.
“More significantly, the OBR has given up its assumption that UK productivity growth was returning to pre-crisis levels and now thinks that the permanent damage wrought by the financial crisis has sliced 0.2% off the UK’s long term growth rate. The official view is that the UK will grow by an average 2.1% a year over the next five years, just two thirds the rate seen in the ten years before the financial crisis.
“A tougher global backdrop and weaker UK growth have knocked the deficit reduction programme off course. Over the next four years borrowing will be 50% higher than planned in November. Events have driven a coach and horses through two of the government’s three fiscal rules, with the welfare spending cap breached and the debt to GDP ratio rising this year.
“The OBR now thinks the probability of eliminating the deficit in 2019-20, and hitting the government’s third and most important target, is ’only slightly above 50%’.
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“To get there, without squeezing the economy harder now, Mr Osborne has back-loaded the fiscal pain. The burden of spending cuts announced today falls squarely in the last year of this Parliament, with a fiscal squeeze of £8 billion in 2019-20.
“Mr Osborne is hoping that, in the run up to the next General Election, the UK will be better placed to cope with the squeeze needed to wipe out the deficit. Hitting the Government’s most important and most cherished fiscal target will need hard slog and luck.”
The Chancellor opened his Budget with some stark warnings: that financial markets are “turbulent”, western productivity growth is “low” and the outlook for the global economy is “weak”.
“It makes for a dangerous cocktail of risks,” he warned, adding it was one that Britain is “well-prepared to handle, if we act now so we don’t pay later”.
He said his eighth Budget was one to “choose to put stability first and lead the world with long term solutions to long term problems” and to “make Britain fit for the future”.
With economic forecasts looking gloomy as the economy grows more slowly than expected and borrowing remaining high, the Chancellor had already signalled that there would be £3.5bn of extra spending cuts by 2020.
But he said that Britain’s economy is set to “grow faster than any other major advanced economy in the world”.
Osborne referred to his Budget being one that “puts the next generation first” several times over – with measures relating to education reform, a sugar tax and for those without pensions.
But he also called his Budget one that “backs small business”. Measures included:
– A reduction in the rate of corporation tax from 20% to 17% by 2020.
– A tax free allowance worth £1,000 a year for trading and property income, without the need to fill forms – aimed at those with micro businesses trading online and those renting their properties. Osborne called it a tax break for the digital age, from which 500,000 people will benefit.
– Increased rate relief for small businesses to £15,000 from £6,000 from April next year. This means 6,000 small businesses will pay no rates and 250,000 have their rates cuts from April 2017
– Commercial stamp duty was also reduced for small businesses with a zero threshold for commercial properties with a value of up to £150,000 and 2% on the next £150,000.
Meanwhile in measures for enterprise and the self-employed, Class 2 national Insurance contributions will be abolished from 2018 and capital gains tax will be cut from 28% to 20% and from 18% to 10% for basic tax payers.
He called it “a rocket boost on the back of enterprise and productive investment.”
The headline investment in the UK’s infrastructure had already been trailed with Mr Osborne committing £300m for transport projects, with than £230m earmarked for road improvements in the north of England, including creating four lanes on M62.
There was also government funding the start of work on the Crossrail 2 rail line and new High Speed 3 link across the north of England, as well as plans to develop the case for a tunnel between Manchester and Sheffield. Almost half of the transport money committed was announced in the Autumn Statement.
Osborne said this and other measures proved the Government was “making the Northern Powerhouse a reality and rebalancing our country.”
In response opposition leader Jeremey Corbyn said the Chancellor had “a recovery built on sand on a Budget built on failure” adding that it “failed to tackle inequality in this country.”
