Last week, Chancellor George Osborne, delivered his post-election budget. As is all to often the case, here in Scotland the good news was drowned out by the opportunistic rhetoric of the whining separatists, so I thought I might take a look at some of the basic facts behind the headlines.
Much of the focus in the statement was on the economic outlook and management of the public finances and the Chancellor made it clear that the UK will continue to be one of the fastest growing advanced economies in the world.
Key announcements included the news that the Office of Budget Responsibility has further reviewed its forecasts for economic growth in the UK to 2.4% this year and 2.5% next year. In addition, as a result of the decision to slow down planned cuts to public expenditure, the deficit will be higher each year than was forecast in the March budget, pushing out by an extra year the timescale for returning to a surplus from 2018-19 to 2019-20.
During the lifetime of this Parliament, there will be a consolidation of £37 billion of public spending. This includes cutting welfare payments by £12 billion and raising £5 billion from further measures to tackle tax avoidance. Departmental spending cuts will be set out in detail in the Comprehensive Spending Review in the Autumn.
Many businesses would be well advised to look at the detail of the budget very carefully. There were a number of complex measures which will affect business and getting an understanding will be key. The introduction of the new £7.20 national living wage coming in April 2016 will affect most businesses and will not be welcomed by some of the smaller ones who will have to administer it. It is a significant increase on £6.70 previously announced to start in October this year.
The reduction in corporation tax from 20 % in 2015 to 19% in 2017 is not of immediate benefit, but something businesses can look forward to. They will welcome the change in the Annual Investment Allowance (AIA), giving businesses tax relief on capital expenditure, which has been set at £200,000 for the foreseeable future.
For most working men and women, the most significant change in taxation in recent years has been the huge increase in the basic Income Tax threshold, and with this budget, the policy has been extended still further as income tax personal allowance rise from £10,600 in 2015/16 to £11,000 in 2016/17. After falling during part of the last Parliament, the higher rate tax threshold will increase from £42,385 in 2015/16 to £43,000 in 2016/17.
The dividend tax credit will be replaced by a new £5,000 tax-free dividend allowance for all taxpayers from April 2016. Tax rates on dividend income will be increased for income above the allowance will be 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers. It seems that those with significant dividend income will pay more tax.
It’s good news for those who rent out a room in their own home, as rent a room relief goes up to £7,500 from £4,250.
The earlier proposals for a new inheritance tax allowance for the family home will be effective from April 2017. Married couples and civil partners can currently pass any unused amount of their £325,000 allowance on to one another. Under new rules, each individual will be offered a family home allowance to be phased in from 2017/18. This family home allowance will be added to the existing £325,000 Inheritance Tax threshold, meaning the total tax-free allowance for a surviving spouse or civil partner will be up to £1 million in 2020/21. The allowance will be gradually withdrawn for estates worth more than £2 million. The Employment Allowance which gives relief from employers NIC for the first £2,000 each year is to increase to £3,000 from April 2016. However, single person companies will no longer qualify for this allowance.
Large companies which have taxable profits over £20m, will feel the benefit of this cut more quickly as they will also be paying their corporation tax earlier under an extension of the quarterly instalment rules, which will require the first payment to be made 3 months earlier than currently for accounting periods starting on or after 1 April 2017. All in all, it could not be clearer that the economy of the United Kingdom has come a very long way since the crisis of 2008, with the top-heavy, public-sector driven leviathan now consigned to history and replaced by a dynamic economy in which private sector expansion is creating jobs faster than we can fill them.
This budget, the first of the new Parliament, has begun to consolidate that growth and spread the benefits.