Summer budget 2015: what to expect from George Osborne
On Wednesday George Osborne will deliver the first budget by a Conservative government in almost 20 years.
His March budget, under the coalition with the Liberal Democrats, provided some clues as to what he might say when he unveils his measures this afternoon. The Conservative manifesto contained a wide range of promises to present a budget for “hard-working families” – one of the chancellor’s buzzphrases.
The chancellor wants to save £30bn in total as part of his deficit-reduction strategy. There are three elements to this:
Benefit cuts totalling £12bn
Osborne’s pledge to press on with £12bn worth of spending cuts – on top of £21bn in the last parliament – from the £220bn welfare budget will prove a key theme although it is unclear how much detail he will give. There are expectations about how these will funded :
- Benefit payments to be subject to a regional cap – £23,000 per year in London, £20,000 outside of the capital (a cut from £26,000)
The cuts would also have an impact on the BBC, as Osborne intends to require the broadcaster to pick up the bill for free TV licences for people aged over 75, which costs £650m a year.
Departmental spending cuts of £13bn
Osborne is likely to announce anoverall public spending figure but without the detail. About £3bn worth of savings were announced in June. He has already announced the selloff of national assets, such as Royal Mail.
Raise £5bn from tax avoidance clampdown
The government has said it will find £5bn from tackling tax evasion, aggressive tax avoidance and tax planning. Tax experts are waiting to see what exactly this will entail.
Any remarks on individuals regarded as being non-domiciled – known as non-doms – will be closely watched. Labour said during the election campaign that it would abolish this status which is thought to be granted to about 110,000 individuals. That move would raise £300m. Osborne is not expected to match Labour’s promise.
The chancellor will begin his speech with growth and borrowing projections.
In March, growth for 2015 was revised up to 2.5% from 2.4% in the autumn statement, and then forecast to grow 2.3% next year before reaching 2.4% in 2019. Small revisions may be possible, with a cautionary note about the potential impact from the debt crisis in Greece.
In his Mansion House speech in May, Osborne set out his new balanced budget rule, which he described as a “new settlement” that would allow the government to borrow only in exceptional circumstances. He said: “In the budget we will bring forward this strong new fiscal framework to entrench this permanent commitment to that surplus, and the budget responsibility it represents.”
The wide range of other topics likely to be covered include:
Personal tax changes
In the Queen’s speech, the government committed to no increases in VAT, national insurance or income tax during the new parliament. The focus is on some cuts to tax as the manifesto pledged to:
- Increase the level income first tax kicks in to £12,500 (it is due to rise from £10,800 to £11,000 next year)
- Raise the 40p tax threshold to £50,000 (impacting on the 800,000 people who earn between £42,385 and the £50,000 level)
The manifesto stated the government would introduce a tax-free minimum wage – meaning that anyone working 30 hours on the minimum wage would pay no tax. “The tax-free minimum wage will be applied from the first budget after the general election,” the manifesto said.
However, this is already around the level of the existing personal allowance: the minimum wage is due to rise to £6.70 – although the manifesto sets out an aim for it to be to £8 by end of decade.
Osborne has ruled out a cut to the 45p higher rate tax.
From April 2017, a couple will be to pass a house worth up to £1m to their children or grandchildren – up from the current threshold of £650,000 on which individuals incur a 40% tax rate. This will cost £1bn, covered by reducing tax relief on
Credits may be offered to individuals prepared to downsize, freeing up larger properties.
Pensions and savings
Osborne has already announced that the lifetime pensionable allowance is being reduced to £1m from £1.25m as of April 2016. Individuals can save £40,000 a year for their pensions and obtain tax relief. He has announced that the first £1,000 of savings can be squirrelled away tax free.
Employers’ national insurance contributions for under 21s have already been abolished while the Conservative shave already pledged in their manifesto that this would be extended to the under 25s. The aim is to create 3m apprenticeships.
The Conservatives have promised to build 200,000 starter homes – priced at 20% below market price for buyers aged under 40. Plans for tax-free savings for individuals saving up deposits to buy a home were announced in the March budget.
Osborne said earlier this week that he would “act on the higher earners who use taxpayer-funded subsidies to live in council and housing association homes when they could afford the market rent that others on their salaries pay”. In London, the earnings threshold is set at £40,000; elsewhere it is £30,000.
The buy-to-let market could become a focus, as landlords are able to offset the interest on a mortgage against their running costs.
According to economists at Capital Economics, a fuel duty rise is towards the top of the list of potential increases. “Fuel duty has been kept constant in nominal terms since 2011 and the drop in petrol prices would make it easier for Mr Osborne to implement a rise. A 10% rise – adding 6p to a litre of fuel – would raise £2.5bn,” the Capital Economics economists said.
Changing maintenance grants into loans is being considered.
About £13bn has been pledged already to one of the chancellor’s favourite topics. However, the money has not all been allocated for trains in the north of England with much of it allocated for spending on maintaining the road network.
Ruth Lea, economic adviser to Arbuthnot Banking Group, said possible measures could include: “A productivity plan to improve productivity, including the creation of regional business clusters, based on the northern powerhouse scheme. There may also be a rise in capital allowances to spur investment.”
According to David Brookes, tax partner at BDO, an increase to the annual investment allowance for capital expenditure, which is due to shrink from £500,000 to £25,000 at the end of the year, would be supported by most businesses. “It helps companies to acquire new plant and machinery which in turn improves efficiency and productivity, a problem currently holding back the UK’s economic potential,” he said.
A shakeup in trading hours, ending the national ban on large stores opening for more than six hours on Sundays. A consultation is expected to be launched on handing back responsibility for Sunday trading laws to Britain’s towns and cities.
In his last budget before the election, Osborne hit the banking industry with another rise to the bank levy and removed a tax advantage for banks paying out compensation claims to customers. He is now facing calls from the industry to review his tax policies. The manifesto pledged that the government would keep the levy.
The Investec analysts said: “There remains some speculation that Mr Osborne will wave the white flat to the financial services industry after a string of hefty increases in the bank levy over recent years. What form this takes remains to be seen but a review or adjustment to the levy’s structure could go some in smoothing over relations with the financial services sector”.
Terrorism memorial and bank fines
The climate change levy – first introduced 15 years ago – is also closely watched by experts. It applies to energy supplies to industry rather than households. “The chancellor is expected to scrap targets to increase the amount raised by environmental taxes such as the climate change levy. And he will probably review subsidies for renewable energy that significantly increase household bills,” said Ruth Lea, at Arbuthnot.
In the March 2015 budget, Osborne announced a marine reserve would be created around the Pitcairn Islands. The manifesto set out plans for a “blue belt” around the 14 overseas territories.Source: www.theguardian.com