Budget 2016: everything you need to know

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Yesterday George Osborne, the Chancellor of the Exchequer, delivered a Budget that delivered tax cuts for businesses and individuals, even as OBR forecasts for the next five years were revised down.

Here are the key points that are relevant to you.

State of economy

Osborne said that the UK was “On course for a budget surplus.” Despite the OBR’s new forecasts, which revised growth forecasts down for the next five years. OBR director Robert Chote was quoted today as saying that the weaker economic outlook had blown a £56bn hole in public finances, and that the giveaways over the 2017-18 and 2018-19 period would be followed by ‘take-aways’ averaging £13bn.

The biggest slowdown in the OBR’s figures is in productivity growth. Growth forecasts were revised down by around 0.3%. UK GDP is set to grow by 2% this year, 2.2% in 2017, and 2.1% up to 2020-2021.

“Lower productivity growth means lower forecasts for labour income and company profits, and thus also for consumer spending and business investment,” the OBR report states. “In aggregate, this reduces tax receipts significantly.

Public spending

The government is looking to make £3.5bn of efficiency savings by 2020. The government is going to miss its debt targets, debt as a percentage of GDP has been revised up across the next five years. Borrowing forecasts have been revised up across the next three fiscal years, adding a total of £36.4bn to government borrowing over that period. Deficit is still expected to fall to 2.9% in 2016-17, 1.9% in 2017-18 and 1% in 2018-19.

Personal tax

As expected, Osborne raised the lower threshold for income tax to £11,500 and the higher threshold to £45,000 – a larger increase than expected. These new thresholds will come into effect in April next year.

More surprising was the cut in Capital Gains Tax. The basic rate CGT was cut from 18% to 10%, with the higher rate cut from 28% to 20%.

Osborne also announced that Class two National Insurance contributions will be abolished, with will give self-employed workers a tax cut of more than £130 when it comes into force in 2018.

It wasn’t all cuts, however. Insurance premium tax was increased from 9.5% to 10%. This increase will be used to fund improvements in flood defences.

Business tax

Some good news for small businesses: the annual threshold for 100% small business rate relief increased from £6,000 to £12,000. The higher rate threshold will rise from £18,000 to £51,000. The headline rate of Corporation Tax is also being cut to 17%. Business rates increases will now also be based on the Consumer Price Index, rather than the Retail Price Index, which effectively means that increases will be lower than previously

Osborne also pledged to raise £12bn using “anti-tax avoidance and evasion measures” but did not elaborate on what those measures were. He did announce that debt interest payments used by larger firms to cut Corporation Tax bills will be capped at 30% of earnings.

He also snuck in a rise in tax on loans to participate, up from 25% to 32.5%, which follows on from the Dividend Tax and will inevitably hit small businesses harder. Use of ‘personal service companies’ by public sector employees to reduce tax liabilities will also end.

Osborne pledged to clamp down on internet competition from overseas suppliers who selling online without paying VAT, and promised tax-free allowances of £1,000 a year for ‘micro-entrepreneurs’ – individuals selling products or renting property online through sites such as AirBnB.

Commercial stamp duty rate were changed literally over night. Purchases up to £150,000 now have a 0% rate, 2% up to £250,000, and 5% above that. High value leases with a net present value above £5m have a new 2% rate.

Indirect tax

Oborne pledged to give £12m raised from VAT on women’s sanitary produces to charities such as Breast Cancer Care. Fuel duty was frozen for the sixth year in a row, saving £75 a year to average driver. Tobacco duty will continue to rise 2% above inflation. Beer duty and spirit duty is frozen, while wine and other alcoholic products will rise with inflation.

The Chancellor also announced a Sugar levy on soft drinks, excluding natural fruit juices and milk-based drinks. The levy will be set in two bands: one for drinks containing sugar above five grams per 100 millilitres, and another for drinks containing more than eight grams per 100 millilitres. This will come into force in two years’ time. Osborne pledged to spend £520m raised from this levy on funding for primary school sport in England.

Pensions and savings

The biggest announcements were around ISAs: the annual ISA limit will increase from £15,240 to £20,000. A new ‘lifetime ISA’ for the under 40s will be introduced from April next year, with the government putting in £1 for every £4 saved. The Chancellor said that this is an alternative to a pension fund for the young, who find pensions “confusing.”

A new state-backed savings scheme for low-paid workers is also being introduced, which will be worth up to £1,200 over four years.


Osborne announced more devolution of powers to the Scottish and Welsh Assemblies. New combined Local Authorities will be introduced across England – for example, a combined East Anglia Authority – each with an elected mayor. Business rates were devolved to the Greater London Authority.

The government also pledged to spend money converting all schools into academies, promised measures to speed up the planning system, and announced nationwide infrastructure investments, including a new high speed rail line in the north of England and upgrades to the M62, A66 and A69. A second Crossrail line will also be built in London.

Opposition response

Opposition leader Jeremy Corbyn described the Budget as “The culmination of six years of [George Osborne’s] failures. He said that the Chancellor’s measures put more pressure on the poor, women and the disabled, and disproportionately benefitted the rich and big businesses. “It’s a budget for hedge fund managers more than for small businesses,” he said. The opposition leader wanted to see more done to solve problems in the NHS and education, citing a 35% drop in the adult skills budget over the government’s lifetime.

Mark Rowland is a journalist and former editor of Accounting Technician and 20 magazine.

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