George Osborne stated that, despite the improved fiscal forecast, there would be, “No unfunded spending. No irresponsible extra borrowing”. In other words, the Budget’s “giveaways” would offset its “takeaways”. The increase in the bank levy is the big revenue raiser, bringing the Exchequer around £4.5bn over the course of the next Parliament. A number of smaller measures aimed at tax avoidance and evasion will collectively raise another £4bn. This revenue will fund the expensive headline policies of an increased personal tax allowance, more generous savings tax relief, and the ISA subsidy for first time buyers.
On Capital Ownership
Policy Exchange has recently put forward ideas to create a capital-owning democracy, which included a proposal to make the ISA system more flexible and generous so that a greater amount of people’s saving income could be received tax free. The Chancellor announced the creation of a Personal Savings Allowance that reflects this principle, and from April 2016 basic rate taxpayers will not pay tax on the first £1,000 of their annual savings income. Perhaps even more radical is the move to allow people to withdraw and replace money from their cash ISA without it affecting their subscription limit. The measures in this Budget follow the pensions and ISA liberalisations of 2014, and mean that the breadth, flexibility and generosity of savings products will be vastly different at the end of this Parliament than they were at the beginning.
The Budget saw the announcement of a new “Help to Buy ISA” which will see government topping up savings towards a first home of up to £200 a month by 25%. The scheme will cost £2.2bn over the next Parliament with the numbers implying at least 1.4m first buyers will benefit through the scheme in 2019/20.
Measures in the Budget to support housing supply included the 20 Housing Zones outside London announcement, with the potential to deliver 34,000 homes. It will also continue to work with 8 further potential Housing Zones. In total these have potential to deliver up to 45,000 new homes. The government also committed to releasing public sector land for 150,000 homes between 2015 and 2020 (30,000 homes a year), on top of the public sector land for 100,000 homes already released.
The Budget included a number of announcements related to energy:
Firstly, a number of measures to prop up the North Sea oil and gas industry were announced. The Budget package, worth £1.3bn, comprises a cut in the Petroleum Revenue Tax from 50% to 35%, a retrospective cut in the Supplementary Charge from 30% to 20%, a £20m government investment in seismic surveys, and the introduction of a single tax allowance across all stages of the industry. Whilst the changes will be welcome news to the industry, it remains to be seen whether the Treasury’s response was sufficiently rapid to mitigate a loss in investment in the industry.
Secondly, the Chancellor announced the government’s intention to enter negotiations on a new Tidal Lagoon in Swansea Bay, for a new CfD contract akin to the contract for Hinkley Point. The project requires a strike price of c.£168/MWh – more than three times the current wholesale price, and significantly more expensive than other renewables or nuclear.
Thirdly, the Budget included a number of measures on road transport. Fuel duty will be frozen for another year, saving motorists £22bn per annum compared to 2011. Ultra Low Emission Vehicles also received a boost, with company car tax rising more slowly for ULEVs than other vehicles.