Budget 2016: At a glance
Budget speech in 5 quotes:
“We will not burden our children and grandchildren. This is a Budget for the next generation.”
“From April next year, 600,000 small businesses will pay no business rates at all.”
“I am today providing extra funding so that by 2020 every primary and secondary school in England will be, or be in the process of becoming, an academy.”
“I am not prepared to look back at my time here in this Parliament, doing this job and say to my children’s generation: I’m sorry. We knew there was a problem with sugary drinks. We knew it caused disease. But we ducked the difficult decisions and we did nothing.”
“My pension reforms have always been about giving people more freedom and more choice. So faced with the truth that young people aren’t saving enough, I am today providing a different answer to the same problem.”
- The growth forecast from the Office for Budget Responsibility for 2016 has been cut to 2%, down from the 2.4% announced last November’s Autumn Statement. Growth forecasts have also be nudged down for the next five years.
- GDP is forecast to grow by 2.2% in 2017 and 2.1% in 2018. Again this is a reduction to November’s forecasts which were 2.4% and 2.5% respectively.
- Inflation is forecast to be 0.7% in 2016.
- Although the Chancellor said the UK was growing faster than any other Western economy he also said Britain’s economy was “materially weaker” and not “immune to slowdown”.
Pensions and saving:
- Younger generations are being encouraged to save with a new lifetime Isa that will be introduced in April 2017. Savers aged between 18 and 40 will be able to save up to £4,000 a year and get a 25% bonus each year from the government worth up to £1,000. The resulting tax-free pot can be used to purchase a first property or be set aside for retirement.
- The overall Isa limit will also be increased from £15,240 a year to £20,000 in April 2017.
- Low earners are also being encouraged to save with the Help to Save scheme. It will offer a 50% bonus to those that can save £50 a month for four years. It will only be available to recipients of the universal credit or working tax credits.
- The government’s Money Advice Service is to be scrapped.
- The point at which people start paying higher rate tax will rise from £42,500 to people out of the 40% tax band.
- The personal allowance – the amount you can earn without paying tax – will increase to £11,500 from April 2017. The increase will lift 1.3million of the lowest paid workers out of tax.
- Capital gains tax will be reduced from 28-20% for higher rate tax-payers and from 18%-10% for those that pay basic rate.
- Insurance premium tax will increase by 0.5%, with proceeds being used to fund improved flood defences.
Transport and driving:
- Fuel duty will be frozen, for the sixth consecutive year.
- The HS3 rail link between Manchester and Leeds got the go-ahead as did Crossrail 2 which will link south west and north east London as well as serving stations in Hertfordshire and Surrey.
- £230m has been budgeted for improvements to roads in the North, including the M62.
- From 2018 the tolls for crossing the Severn River – linking England and Wales – will be halved.
Drinking and Smoking:
- Relief all round for drinkers with duties on beer, cider and spirits frozen.
- Smokers will however see excise duties on tobacco increase by 2% over inflation.
A new sugar tax will be introduced in 2018 to help curb childhood obesity and other sugar-related health problems. The £520m it raises each year will be used to double funding for sports in primary schools.
Office for Budget Responsibility
Formed in May 2010, the OBR makes an independent assessment of the public finances and the economy, the public sector balance sheet and the long-term sustainability of the public finances. The OBR has four man priorities: to produce two forecasts a year for the economy and public finances, to judge the progress the government has made towards meetings its fiscal targets, to assess the long-term sustainability of the public finances and to scrutinise the Treasury’s costing of Budget measures.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
The total money value of all the finished goods and services produced in an economy in one year. It includes all consumer and government consumption, government spending and borrowing, investments and exports (minus imports) and is taken as a guide to a nation’s economic health and financial well being. However, some economists feel GDP is inaccurate because it fails to measure the changes in a nation's standard of living, unpaid labour, savings and inflationary price changes (such as housing booms and stockmarket increases).
Capital gains tax
If you buy an asset – shares, a second home, arts and antiques – and then sell it at a later date and make a profit, that profit could be subject to CGT. You don’t pay CGT on selling your main home (which is why MPs “flipped” theirs so regularly) or any securities sheltered in an ISA. Individuals get an annual CGT allowance (£10,600 in 2010/2011) but if you have substantial assets it’s worth paying an accountant to sort it for you.
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).