Budget 2016: Changes to the taxes we pay on goods and services
From the introduction of a sugar tax, to increasing Insurance Premium Tax (IPT), and freezing fuel duty for the sixth year running, George Osborne announced an array of changes to the taxes we pay.
Moneywise rounds up what’s been announced:
Sugar levy to be introduced. From April 2018, the government will charge a sugar levy on producers and importers of soft drinks. A consultation on how exactly this will work is to be launched this summer, but ultimately this could push up soft drink prices.
Mr Osborne said some companies “may choose to pass the price onto consumers and that will be their decision.”
Fuel duty to remain frozen. The Government will freeze fuel duty, which we all pay for in petrol and diesel prices - at 57.95p per litre for 2016/17.
It’s the sixth successive year it’s been frozen (since March 2011) and the government says this will see the average driver save around £75 per year compared to pre-2010 fuel duty escalation plans.
Insurance Premium Tax (IPT) to rise. IPT will rise from 9.5% to 10% from 1 October 2016. It’s a tax on insurers but this is typically passed onto consumers. The Government says this 0.5% increase will result in an average £1 annual increase on a combined home and contents policy and an average £2 annual increase on a car insurance policy.
The increase in IPT is to fund investment in flood defence and resilience measures. It last rose on 1 November 2015 where it increased from 6%.
Freezing alcohol duties. The duty on beer, spirits and most ciders will be frozen this year, while the duty rates on most wines and higher strength sparkling cider will increase by RPI from 21 March 2016.
Tobacco duty to rise. As announced at Budget 2014, duty rates on all tobacco products will increase by 2% above RPI inflation. Duty on hand-rolling tobacco will also increase by an additional 3% above this rate, to 5% above RPI. These changes come into effect from 6pm on 16 March 2016.
Replaced as the official measure of inflation by the consumer prices index (CPI) in December 2003. Both the Retail Price Index and CPI are attempts to estimate inflation in the UK, but they come up with different values because there are slight differences in what goods and services they cover, and how they are calculated. Unlike the CPI, the RPI includes a measure of housing costs, such as mortgage interest payments, council tax, house depreciation and buildings insurance, so changes in the interest rates affect the RPI. If interest rates are cut, it will reduce mortgage interest payments, so the RPI will fall but not the CPI. The RPI is sometimes referred to as the “headline” rate of inflation and the CPI as the “underlying” rate.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).