Experts comment on impact of tax, savings, infrastructure and trade policies
Responding to the Chancellor’s final Budget of this Parliament, Simon Walker, Director General of the Institute of Directors, said:
“This was a solid and responsible budget. Few Chancellors would be able to resist the temptation to binge on a £22bn windfall from the sale of bank shares this close to an election. By using it to pay down our national debt George Osborne has shown commendable discipline.
“Whilst some may have expected more rabbits from the hat, today’s employment figures and the revised OBR growth forecasts prove there’s definitely something of the Duracell bunny to Britain’s economic recovery. This is a testament to this Government’s support for enterprise but, more importantly, it is evidence of the tenacity and resilience of UK businesses.
The IoD’s policy experts respond to specific measures in the Budget below -
James Sproule, Chief Economist:
“We welcome the continuing focus on deficit reduction. The UK’s debt position remains perilous and there is much work yet to be done if we are to run surpluses after 2018.
“The immediate economic news in the run up to the budget was encouraging, with employment rising to record levels. The recovery from the recession has taken longer than anticipated and while the OBR’s forecasts for future growth contribute to a feeling of positivity, they are hardly set in stone. However, the degree to which government and businesses are beginning to pay down their debt is an encouraging trend, which will need to continue to get the country’s finances on a sustainable footing.”
Stephen Herring, Head of Taxation:
“We welcome the Chancellor’s announcement that the downward drift of the higher rate tax threshold is to be halted in 2016/17, by increasing both the personal allowance and the basic rate tax band. The IoD has recommended triple-locking the higher rate threshold to the highest of the consumer prices index, earnings growth or 2.5%, on a similar basis to the single-tier state pension. This will make sure more and more taxpayers are not dragged into paying higher rate tax in the future.
“However, we were disappointed that the Chancellor did not announce that the Annual Investment Allowance (’AIA’) would continue at a level no less than its existing level of £500,000 for the next Parliament. This would have given businesses the certainty needed to plan their investments in plant and machinery.
“The Diverted Profits Tax also appears to be being rushed through with insufficient consultation. Hopefully there is still time for the Government and Opposition to agree that a few months of additional consultation would improve the targeting of this significant new tax. A hastily-implemented tax would most likely need to be revised later.
“The Chancellor should have frozen business rates this year, and ideally until the delayed property revaluation. Many shops, factories and warehouses are facing business rate increases when they would have seen the charge cut if the revaluation had taken place earlier as planned.”
Malcolm Small, Senior Financial Services Policy Adviser:
“The increase in the Bank Levy will make headlines, but we need to be wary of the downsides. This levy risks decreasing bank profits, potentially meaning less money to lend to growing businesses. Lower profits will also reduce the value of bank shares making the sale of government-owned bank shares that much harder.”
“The creation of a secondary market in annuities looks like a great idea to help those who were effectively forced to buy an annuity in the last few years, or whose circumstances have changed. However, there is a huge amount of work to do to establish whether such a market is economically viable. We welcome the fact that the Government is consulting on this proposal rather than just pressing ahead.
“The reduction in the Lifetime Allowance is very much less welcome news. £1 million sounds like a lot of money, but would buy an annual income of just £30,000 at 4% withdrawal, after taking the Pension Commencement Lump Sum of 25%. This is effectively a penalty for the prudent and will catch many of those still in Defined Benefit schemes.”
“The exemption of the first £1,000 of interest is welcome, although it’s actual effect at current interest rates will be miniscule. The idea of a Help to Buy ISA is superficially attractive, but we see potential for this to be difficult to operate for the financial services industry, very difficult to police and potentially market-distorting in the maximum value of house purchase proposed.”
Infrastructure and energy
Dan Lewis, Senior Infrastructure Policy Adviser commented on North Sea Oil and Gas production, regional investment, and broadband roll-out:
“The UK can’t afford to be without the North Sea Oil and Gas Industry. So cutting the Supplementary Charge from 30 to 20% and reducing Petroleum Revenue tax from 50 to 35% is the right thing to do. However, given the great uncertainty in the global energy market, and with the possibility of further oil price falls, a future government may have to look at cutting these taxes again.
“The South-West has often been overlooked for infrastructure, so we welcome investment in rail and roads, as well as the cuts in the tolls on Severn River Crossing for buses and small businesses.“
“A fast and reliable internet connection is vital for all businesses, so we are pleased the Chancellor is raising the Universal Service Obligation to 5 megabits per second broadband, and rolling out ultrafast 100 Mbps to nearly all UK premises. This will create a real opportunity to develop a dynamic rural economy.”
Trade and exports
Allie Renison, Head of EU and Trade Policy:
“Increasing UKTI’s funding is a welcome step, given that cuts to its budget in recent years have limited the Government’s ability to meet its target of doubling exports to £1 trillion by 2020. However, focussing the extra funds on China raises questions about the wisdom of prioritising one geographical market over another.
“The Chinese economy is changing, and consumer preferences are shifting with it. We have not yet seen the expected boom in demand for services materialise, at least not in the financial and associated business services sector.
“It is also vital that the funding increase focuses on value-for-money schemes that have a proven track record of business take-up. For example, bringing trade missions to the UK is of more practical benefit to smaller businesses than simply upping the number overseas.
“More funding is also needed to improve assessment of foreign markets’ readiness for British products and services, as well as developing business-to-business communication. Much more emphasis is needed on specific sector supply chains, to help identify where gaps exist, both in terms of research and practical support.
“The IoD continues to call for the introduction of export tax credits or tax relief on export sales, which would act as a real incentive to mobilise first-time exporters. The Government should be talking to the EU now to ensure such initiatives would not run into difficulties around state aid.“