This may be the least important budget in many years. With all eyes on May 7th’s election, the Chancellor’s speech was full of rhetoric, as was the opposition’s response. We expected no less.
With Parliament set to be dissolved later this month as full-time electioneering begins, this was an opportunity for the Government to defend and promote their record in office, proffer a few pre-election sweeties (though less than anticipated), and get a few early digs in to those on the opposite benches.
The actual substance of the Budget was often a little lost amidst all the Parliamentary bluster. Perhaps the biggest news for businesses came earlier in the week with the announcement of a massive review of the Business Rates regime. This is long overdue and will report in time for changes to be announced by Budget 2016.
Some of the key things I took away were:
- A personal savings allowance will be launched meaning there will be no tax on the first £1,000 of savings interest earned. This will mean the vast majority of people pay no tax at all on their savings. This is a very interesting move which should help encourage more people to save. The UK public suffered in part throughout the crisis because of a lack of savings, and those that have saved have long been suffering from low interest rates – this was the Chancellor handing something back. The move will particularly help savers who are less proactive with their money management – people who use ISAs to manage their savings will already be paying no tax.
- Another increase in the Income Tax Personal Allowance threshold, this time to £10,800 in April next year and £11,000 in 2017. This was a Lib Dem 2010 election manifesto pledge that has really resonated with the public. The threshold has been continually increased throughout this Parliament. It’s a politically neat way for the Government to help lower income households and help employers at the same time. In short it makes work pay more – good news for small businesses. There had been rumours of a big announcement on National Insurance, with many fast growing businesses hoping for a serious cut, but there was little news on that front. I’ve long argued that National Insurance relief could be a great way to encourage small firms in particular target industries to grow more quickly.
- It came as little surprise that tax evasion was a big focus, the scandals at HSBC and others have been hitting the headlines, and headlines tend to create action in politics. The Government wants to look strong on this issue as it will get mentioned frequently in election season. The ‘Google Tax’ was made a little clearer and will come into effect next month. Otherwise known as Diverted Profits Tax, the new rules will try to ensure multi-national corporations pay tax on profits earned here in the UK. Expect some unimpressed multi-nationals to voice their displeasure in the coming days. For smaller businesses this is good news, they ought to be competing on a fair footing with larger companies.
- Plans to create a ‘Northern Powerhouse’ were kept in motion by a series of announcements, most notably that Greater Manchester will be allowed to retain any growth in Business Rates earning – a big devolutionary step – the same rule will apply to Cambridge. The Chancellor also announced a comprehensive transport strategy for the North. There should be plenty of excitement in cities from Leeds to Liverpool about the economic prospects for the North. The Government is working hard to decrease our economic dependence on London – this should be welcomed.
- An increase in the Bank Levy will go down well outside of the City, but like a lead balloon in the Square Mile and Canary Wharf. The move is a clear indication that banks remain an easy target for politicians to win over some of the populist vote – expect plenty of bank bashing throughout the election period.
Overall it was a Budget that was constrained from the beginning by Parliamentary process. The need to pass ensuing legislation very quickly will have prevented the Chancellor from announcing measures that couldn’t be agreed by both Coalition Partners and by others – it was notable that a fair few Labour policies have been utilised.
With the UK economy growing well relative to other developed nations, and employment rates at an all-time high, there was a little more plausibility behind the Chancellor’s triumphant tone than has been the case with some of his previous Budget speeches, and his ‘comeback country’ soundbite could resonate well with voters. There is a national feeling of optimism right now and the Chancellor’s comments will feed into that.
Election season will now begin in earnest – it looks set to be a close fought battle.