There is much talk about rabbits, hats and the colour grey and it was probably best summed up by PwC’s senior economic adviser Andrew Sentance when he tweeted, “No big surprises from the Budget. The positive economic outlook and improving public finances provide plenty of bells and whistles to appeal to voters.”
There is general support for many of the measures chancellor George Osborne announced – particularly help for the oil and gas industry, the further boost for the Northern Powerhouse and the various innovative and new savings proposals.
The constant tinkering with the tax regime for banks in the UK is unhelpful, and in the long-term unsustainable
The plans to scrap end-of-year paper tax returns and use real-time digital tax accounts instead also received a warm welcome but a three-fold increase in the bank levy in four years got a frostier reception.
As Anna Anthony, head of EMEIA tax for financial services at EY, pointed out, the move is anti-competitive to the UK banks. “It will hit UK headquartered banks hardest as it’s a tax on their entire global balance sheets, whereas foreign banks in the UK are only taxed on their UK liabilities.
“The constant tinkering with the tax regime for banks in the UK is unhelpful, and in the long-term unsustainable – the industry will definitely be looking for a commitment to a more certain tax environment in the future.”
Business representative bodies welcomed the fact that Osborne had opted to reduce the national debt. As he himself said in his Budget Speech, “Britain is back paying its way in the world today… Britain is on the right track. We must not turn back”.
ICAEW was pleased that he seemed to be listening. ICAEW head of business Stephen Ibbotson said that ICAEW had urged the chancellor to use any budget surplus to pay down the deficit rather than indulge in giveaways. “He has done the responsible thing. As he talks about fixing the roof while the economic sun is shining though, he can’t ignore the foundations.
“The UK deficit is significantly more than the numbers the chancellor quoted when you bring in future liabilities including pensions, nuclear decommissioning and so on. In 2012-13 the accounting deficit of £179bn was £94bn more that the current deficit.
“The first projected budget surplus in eighteen years provides a unique opportunity to tackle these wider challenges in public finances and shore up the footings of the UK economy.”
The Institute of Directors said that he had shown “commendable discipline”. “Few chancellors,” it said, “would be able to resist the temptation to binge on a £22bn windfall from the sale of bank shares this close to an election…
“This was a solid and responsible Budget,” it concludes. “While some may have expected more rabbits from the hat, today’s employment figures and the revised OBR growth forecasts prove there’s definitely something of the Duracell bunny to Britain’s economic recovery.
“This is a testament to this government’s support for enterprise but, more importantly, it is evidence of the tenacity and resilience of UK businesses.”
The CBI agreed. CBI director-general John Cridland thought the Budget set the tone of stability and consistency, providing a clear plan for fiscal health and growth.
“The brighter fiscal picture has allowed the Chancellor to recalibrate his deficit reduction plans. In the next parliament this fiscal breathing space should be used to achieve intelligent reductions in public spending, together with much-needed infrastructure and innovation.”
Interestingly, EY head of tax policy Chris Sanger used the same “rabbits out of the hat” terminology as the IoD but to opposite effect. He thought the Budget content was clearly focused on the short-term election plan and that Osborne had overdone the number of rabbits.
“In his last Budget the chancellor resisted pulling too many rabbits out of his hat. This was more of a Paul Daniels Budget (You’ll like this, but not a lot) than a Dynamo one.
“The oil industry will welcome the help with the cut in the supplementary charge and the petroleum revenue tax, as well as the investment allowance. The banks again find themselves in the unhappy position of funding much of this otherwise revenue neutral Budget.
“On the personal tax side, the chancellor had a few goodies for potential voters, covering ISAs and his usual favourite of personal allowance. He still left alignment of the jobs tax limit with personal allowances as a job for future inhabitants of Number 11.”
Even more rabbits
The rabbits crop up again in BDO’s overview. The firm’s head of tax, Richard Rose says that, despite promising not to pull a rabbit from the hat, the chancellor actually ensured there were “plenty of Budget bunnies” to be seen.
“This was a Budget for everyone designed to appeal to as many voters as possible – low earners, high earners or businesses. With Britain growing ahead of its major international competitors and an election coming up so soon, it’s clear that the chancellor felt confident enough to splash out on a raft of mini-giveaways.
“But, as ever, George Osborne gives with one hand and takes with the other, planning to raise even more revenue from tax avoidance and a raid on the banks featuring at the top of the list.”
Shades of grey
In a change in terminology, KPMG head of tax policy Chris Morgan thinks that the Budget is “grey” overall “but with some notable shades”.
Ahead of the Budget, he said, business had been chiefly calling for stability and certainty and the chancellor largely delivered on these while also listening to special cases.
As well as the special measures for the oil industry, other sectors had benefited from targeted relief including the creative sector, farmers, orchestras, horse-racing, pubs and the drinks industry. SMEs would welcome both the review of business rates and the announcement that the investment allowance, temporarily set at £500,000, will not reduce to the old amount of £25,000 although the new amount has not yet been set.
Business, he added, would be pleased that the Budget was “business as usual” with no surprises
Grant Thornton was keen on grey too. Its head of tax, Jonathan Riley, felt that the Budget was primarily focused on neutralising claims from the main opposition parties that the Conservatives aimed to take public spending back to levels last seen in the 1930s.
“Osborne’s focus was on at least denting, if not demolishing, this claim,” he said “and at the same time knocking opposition taunts of helping the rich, not balancing recovery among the many.
From a business perspective, he said, the Budget was “regrettably neutral”. “Yes, announcements from the Autumn Statement around national insurance contributions for the younger workforce and apprentices were confirmed.
“And decisions around maintaining the annual investment allowance at its higher level of £500,000 per annum were delayed until the Autumn Statement later this year. There were also tweaks to assistance from UKTI on exports. And the long awaited review of Business Rates is to be welcomed as well. But overall, many measures that could really liberate growth amongst the mid-market were put off.”
Deloitte also sees the Budget as fiscally neutral. However, he points out that this “masks significant tax increases on banks which finance reductions for individuals and the oil and gas sector”.
“Clearly the coalition government has an eye on the general election in producing this package. The chancellor’s announcements today will be followed tomorrow by announcements from the chief secretary on new civil and criminal offences and measures to improve standards.”
Tina Riches, national tax partner at Smith & Williamson, says that the winners from this Budget will be lower to middle income earners, especially given the prospect of rises in the income tax threshold, the increase in the marriage allowance, the upping of the 40% tax threshold and the new flexibility surrounding ISAs and with Help to Buy ISAs.
She points out that retaining the annual allowance of £40k for pensions is helpful to the self-employed and business owners, and others with irregular income, as well as those who have taken career breaks and need to make up for periods when they were unable to make pension contributions, plus civil servants.
“However, the cut in the lifetime allowance to £1m will bring many more thousands of people into this net than any previous reductions.
“Some people in their 40s will have to consider the tax implication of funding their pension as they will be far more likely to hit the lifetime allowance. Many doctors, senior nurses and senior teachers will be affected, as at £1m the lifetime allowance will catch public sector employees on around £75k.”
Kevin Nicholson, PwC’s head of tax, thought there was lots of good news although it was “fairly thinly spread”.
“The chancellor makes much of backing enterprise, and business will be pleased by the rhetoric, but financial services were excluded, despite this being one of our globally competitive industries,” he said. “This seems to be missing a trick.”