The Chancellor of the Exchequer, the Rt Hon George Osborne MP, delivered his eighth Budget to the House of Commons on 16 March 2016, eight months after his Summer Budget saw the Conservatives introduce a raft of measures as a majority government. Delivered in the run-up to the referendum on Britain’s membership of the European Union (EU), the Chancellor’s scope for bold action was limited and he was clear to present the Budget in this context.
The Office for Budget Responsibility (OBR) has revised growth expectations for 2016 to 2 per cent, down from 2.4 per cent in November's Autumn Statement. It went on to forecast that UK GDP would grow by 2.2 per cent in 2017 and then 2.1 per cent in each of the subsequent three years.
The Chancellor relayed this in the context of a slowing global economy. He announced that the OBR expects Britain to grow faster this year than any other advanced economy in the world. However, he relayed that these statistics are predicated on Britain remaining in the EU, while warning that a vote to leave could lead to a period of “disruptive uncertainty”, which may lead the OBR to revise down potential UK productivity growth.
The Chancellor repeatedly characterised this Budget as one in which “we act now so we don’t pay later; we put the next generation first”.
This report provides a brief synopsis of the key announcements, focusing specifically on issues relating to property, planning, energy and the built environment.
Growth, borrowing and reducing the deficit
The budget deficit
The deficit as a share of GDP is projected to fall to 2.9 per cent in 2016-17, 1.9 per cent in 2017-18 and 1 per cent in 2018-19. This compares with the 2015 Summer Budget, which set out that the Government would reduce the deficit by around 1.1 per cent of GDP a year on average.
The debt targets are to be missed, although debt is expected to be £9 billion lower in 2015-16 in cash terms. Forecast debt as a share of GDP has been revised up in each of the next five years to 82.6 per cent in 2016-17, falling each year down to 74.7 per cent in 2020-21.
The Chancellor announced that unemployment has fallen and is at a 10-year low. The employment rate in the northern regions was at its highest on record at 72.2 per cent. In 2015, unemployment fell faster in the North West than in any part of the UK.
Furthermore, the OBR forecasts one million more jobs by 2020.
Inflation of 0.7 per cent is forecast for this year, down from the 1 per cent predicted in October. The Bank of England inflation target remains at 2 per cent.
The Chancellor announced his aim to save another £3.5 billion by 2020, and he argued that the UK is on course for a Budget surplus of £10.4 billion by 2019-20. Spending as a share of GDP is expected to fall to 36.9 per cent by 2020.
Housing, development and infrastructure
Regional development, infrastructure and devolution
Trailed heavily before the Budget, the Chancellor announced a package of measures to support the continued building of the Northern Powerhouse and “rebalancing the country”.
HS3, the high-speed rail link between Manchester and Leeds, was given further backing with £60 million to help take it forward. The Chancellor also announced more than £230 million for road improvements in the north of England, including upgrades to the M62, and a Trans-Pennine tunnel to cut journey times between Sheffield and Manchester.
It was also announced that the Government will commit £80 million to fund the development of Crossrail 2, and asks Transport for London (TfL) to match that contribution.
City deals were announced for Swansea, North Wales, and Edinburgh, and the latter has been awarded £1 billion to promote investment in Scotland’s capital.
To support increased regional powers – the ‘Devolution Revolution’ as the Chancellor termed it – new mayoral devolution deals were agreed with the West of England, East Anglia and Greater Lincolnshire, as well as additional deals with Greater Manchester and Liverpool City Region.
The Chancellor also announced a 2050 Thames Estuary Growth Commission, chaired by Michael Heseltine. The Commission will look to develop an ambitious vision and delivery plan for north Kent, south Essex and east London up to 2050, including exploring how to make the most of planned infrastructure such as the Lower Thames Crossing. It will report in 2017 as part of the Autumn Statement.
The Chancellor continued as he has in previous Budgets by asserting that “we are the builders”, announcing measures to try to boost homeownership and housebuilding, which are in addition to the Lifetime ISA and Help to Buy.
The Starter Home Land Fund is aimed at enabling and encouraging Council-owned brownfield land to be made suitable for development by inviting Local Authorities to access £1.2 billion of funding.
The Homes and Communities Agency will work with Network Rail and Local Authorities to unlock land around stations for housing, commercial development and regeneration. The Budget notes that sites will be announced shortly.
The Budget also sets out to encourage a more streamlined planning system to help to deliver the Government’s commitment of 400,000 affordable housing starts by 2020-21, while ‘continuing to protect the Green Belt’. Proposed measures to achieve this include a move to a more zonal and ‘red line’ planning approach to give early certainty and reduce the number of stages developers must go through to get planning permission.
A policy for new garden towns, cities and villages is also set out in the Budget. These are to be developed with the potential to deliver over 100,000 homes. The Government has pledged to provide technical and financial support to areas that want to establish towns and villages between 1,500 and 10,000 homes.
A 0.5 per cent increase in the Insurance Premium Tax (IPT) is intended to fund the proposed £700 million investment in flood defence and related infrastructure.
Smart and low carbon energy
The energy measures announced in the Budget aim to position the UK as a world leader in flexibility and smart technology, and will allocate at least £50 million for innovation in energy storage.
Carbon Reduction Commitment (CRC)
As part of the Government’s drive to simplify and reform business energy taxes, the CRC is to be abolished from the end of the 2018-19 compliance year. The main rates of the Climate Change Levy (CCL) will be increased from 1 April 2019 to cover the cost of this abolition.
Oil and gas
The Chancellor’s statement indicated that the Government will effectively abolish Petroleum Revenue Tax by permanently reducing the rate from 35 per cent to 0 per cent.
The Government will allocate at least £30 million of funding for research and development in advanced nuclear manufacturing. It is also launching the first stage of a competition to identify a small modular nuclear reactor (SMR) to be built in the UK.
Taxation, incentives and other measures
Business rates and commercial stamp duty
Business rates reform moved forward as the Chancellor more than doubled the annual threshold for small business tax relief permanently from £6,000 to a maximum of £15,000, arguing that this would see 600,000 small businesses pay no business rates at all. The switch from Retail Price Index (RPI) to Consumer Price Index (CPI) has been welcomed by the industry. The Chancellor will also look to introduce more frequent revaluations, at least every three years.
Stamp duty for commercial properties is to be reformed with effect from midnight, while the Greater London Authority will move towards full retention of its business rates from next April. Commercial stamp duty will be set at 0 per cent on purchases up to £150,000; 2 per cent on the next £100,000 and a 5 per cent top rate above £250,000. There will be a new 2 per cent rate for high-value leases with a net present value above £5 million.
The Chancellor announced a further reduction in the rate of corporation tax, which will fall to 17 per cent by April 2020.
He also pledged to get rid of corporation tax loopholes and tax minimisation schemes being exploited by multinationals, stating that this would raise £9 billion.
Pensions and saving
To support his claim that this Budget was one “for the next generation”, the Chancellor announced that the annual ISA limit will rise from £15,000 to £20,000 for everyone.
This was coupled with a new “Lifetime” ISA for the under-40s, with the Government putting in £1 for every £4 saved.
There was also a new state-backed savings scheme for low-paid workers, worth up to £1,200 over four years.
Sugar levy on the soft drinks industry
As part of new health measures, a new sugar tax on the soft drinks industry was announced and forecasted to raise £520 million, which will be spent on primary school sport. It will come into force in in two years to allow companies to tweak their products.
Alcohol, tobacco, gambling and fuel duties
Fuel duty is to be frozen for the sixth year in a row.
Duty on beer, cider and spirits will also be frozen, while excise duties on tobacco are set to rise by 2 per cent above inflation.
The Chancellor increased the higher rate threshold to £45,000, up from £42,385, while the tax free personal allowance will rise to £11,500 in April 2017.
From April 2016, Capital Gains Tax will be cut from 28 per cent to 20 per cent, and from 18 per cent to 10 per cent for basic-rate taxpayers (except for residential property and carried interest).