Brexit uncertainty casts a shadow over proposals
March 17, 2016: Chancellor George Osborne presented his eighth budget on Monday. With the uncertainty over Brexit looming large, Osborne in his budget speech revised the growth forecast for the UK bringing it down to 2.2% from 2.4% for 2016.
He added that the job market has been better than expectations. Britain’s employment rate stood at 74.1%. However, this has come at the expense of wage growth. The average weekly earnings grew 2.1% year on year.
“Chancellor Osborne’s 2016 budget statement has acknowledged the weaker economic environment with growth forecasts being cut for the next five years. Consequently, the economy is now projected (by the Office for Budget Responsibility) to be 1.4% smaller in real terms by 2020 than expected just a few months ago,” says James Knightley from ING Financial Markets. In order to meet his goal of balancing the books, he announced that government spending will be cut by £3.5bn, with government spending as a proportion of GDP falling to 36.9% by 2020.
He introduced a slew of measures to provide support to the economy. There will be a £500 increase in the tax free allowance (the amount of income earned before income tax is charged). Capital gains also reduced while there are efforts to stimulate savings for pensions and home purchase through a new Lifetime ISA product whereby the government will provide a £1 boost for every £4 someone aged under 40 saves in it.
Bruce Davis, cofounder and Joint MD of Abundance, a leading P2P investment platform soon to offer one of the very first ‘Innovative Finance ISAs’, said, “The Lifetime ISA initiative is a welcome boost for millennials who have long been short changed by the financial services industry. But there are plenty of investors under 40 who would be better off in a pension with higher rate tax relief and many younger employees auto-enrolled into a pension by their employer will face some tricky decisions to choose between employer contributions or easier access via a LISA.”
James Knightley says, “As for corporates, we are seeing the tax burden shifted further away from smaller businesses onto the broader shoulders of multinationals… Reforms to business rates and stamp duty on commercial property along with lower corporation tax (down to 17%) are the main themes, but the Chancellor also announced restrictions on interest deductibility and efforts to up the tax take from large internet retailers.”
The oil and gas industry is being boosted by lower taxes while the introduction of a new sugar tax on drinks will raise around £500mn a year that will be used to fund school sports.