This was the Chancellor’s last Budget Statement before the general election on 7 May 2015. The last Budget before an election is always likely to be a political budget with the possibility of pre-election giveaways.
However the Chancellor was consistent before the Budget in dampening down expectations. When the speech came – it was entertaining with plenty of digs against the Opposition but with very few major proposals. The message is still ‘steady as she goes’. What will the electorate think? By the 7 May 2015 the hype will have subsided and the implications of any proposals will be much clearer.
Were there any pre-election bribes? No – this was largely a fiscally neutral Budget.
Growth and fixing the deficit
There are two key issues for the Chancellor – the need for growth and the need to balance the UK’s finances:
The Office for Budget Responsibility’s forecast for expected growth for 2014/15 has been revised upwards from 2.4% to 2.5%. The structural balance within the UK’s economy may be improving slightly. Growth is slightly less dependent on rising house prices and consumer spending with manufacturing and exporting taking a bigger share.
This was largely a fiscally neutral budget. The UK’s finances are slowly moving towards a balanced budget over the next parliament. However, on current forecasts the UK will be running a reducing budget deficit for each of the next five years and while the nation’s debt will continue to increase. This will remain a huge challenge for the next government after the election.
The Chancellor has always focussed on the needs of British businesses but did not do much for them in this Budget. The headline announcement was a proposed review of business rates. Even this wasn’t that exciting as the government has said that any review should be fiscally neutral.
The ability of farmers to average their tax over two years, which some thought was due to be abolished has been extended: farmers will now be able to average their income over a five-year period. The government seem in thrall to the NFU?
The banks are in for it again. In the 2014 Autumn Statement the Chancellor restricted corporation tax relief on the banks’ losses. This should yield nearly £4bn over five years. He will increase the bank levy from its current rate of 0.156% to 0.21%. This will yield nearly £1bn a year over the same period. In addition, the banks will not be able to offset compensation (for mis-selling of PPI and the like) against corporation tax, netting a further £1bn.
The Government is proposing more measures to tackle tax evasion and avoidance. They will attack specific contrived tax avoidance schemes and clamp-down on travel and subsistence arrangements for intermediaries. The total revenue from these sources is estimated to be about £3bn. However revenue from past measures has often fallen well short of estimates. They have often been too optimistic. Will these estimates be any more accurate?
The Government confirmed that its new diverted profits tax (the Google tax), announced in the 2014 Autumn Statement, will become law in the Finance Act that will be passed on 23 March 2015. It will come into force on 1 April 2015 as originally proposed.
The individual personal allowance is going to increase to £10,600 from 6th April 2015 to £11,000 by 2017/18.
Further changes have been announced to the ISA rules to make them more attractive, including a Help to Buy ISA.
The most significant measure in the Budget for ordinary tax payer is the exemption from tax of the first £1,000 of savings income. This will mean that more than 95% of the population will not pay income tax on their savings income.
The lifetime allowance for pensions will be reduced from £1.25m to £1m from 2016/17.
The death of tax returns?
There will be a further move towards a digital tax system: the creation of individual online HMRC accounts. These will show how much tax has been paid and how much is owed. The account will be pre-populated with employment, savings and pension income.
This should be simple for individual taxpayers with straightforward affairs. However the self-employed, those with rental income and multiple sources of income will still have to do a lot of checking and inputting of information.
Pre-population of your tax account by HMRC sounds a good idea in principle, but much will depend on the detail and the accuracy of the information provided and the reliability of the software. HMRC don’t have a great record in these areas based on my experience. The taxpayer and/or his/her tax agent will still need to check the online account is accurate and correct. There will be a lot of inputting of additional information for some.
It was an unexciting budget, but better that than one full of electioneering bribes. How many of the Chancellor’s proposals will reach the Statute books and when? Should the Chancellor have been more open about the massive public expenditure cuts that are necessary to meet his deficit reduction targets?
Was there anything in the Budget that stood out for you – and you could do with a bit more explanation in terms of what it will mean in practice? Drop a comment below and I’d be happy to help where I can.