Budget Viewpoint: A political Budget aimed at blue rinsers not business
CONFIDENCE up. Inflation down. Exports up. Unemployment down. Growth forecasts up. With this backdrop it must have been difficult for George Osborne to draw up his fifth Budget. But what we have ended up with is a Budget for blue rinsers rather than businesses. He obviously thinks that everything is heading in the right direction with the economy and exports so there is no need to do much, despite all the supportive rhetoric around helping businesses.
The £3bn lending to exporters at lower rates should help, but still feels like a drop in the ocean compared to the size of the economy and the government’s target of doubling exports to £1 trillion by 2020.
The increase in the annual investment allowance (AIA) from £250,000 to £500,000 will certainly be welcomed by those businesses wanting to expand to meet growing export demand and it means that they can now get up to £100,000 tax back on investment in plant and machinery. However, this is only a temporary measure and we would have liked to have seen this set permanently at this level.
A plethora of new anti-avoidance measures were rapidly announced as though fired from a machine gun and it will take some time to pick through the pieces to see what they all mean. One thing is for sure, it is unlikely to help tax simplification.
But this year’s Budget was really all about individuals, presumably to pick up heartland voters ahead of the forthcoming election. As widely predicted, the Liberal Democrat-backed increase in the personal allowance to £10,500 will be good for the lower paid and perhaps heralds a future move to take all workers on the minimum wage out of tax all together. The marginal increases in the higher rate band before taxpayers fall into the 40 per cent tax rate are welcomed, but the failure to increase the band in line with inflation means that the fiscal drag effect will cause more workers to fall into the 40 per cent rate as wage inflation rises in a growing economy.
Dramatic changes to the way pensioners can access their pension pots have been announced. From 2015, there will be no limits on the amount that can be drawn down, no punitive tax bills on excessive drawdowns and no forced buying of annuities. There will also be a facility for those nearing retirement to obtain independent advice. On the surface this looks like good news as there is much more flexibility now available for pensioners. However, the cynics would say that the Treasury will stand the most to gain from accelerated tax receipts as pensioners draw down larger amounts from their pension pots at an earlier age and allow the government more access to these savings.
The merger of cash and share Isas into one and increasing the limit to £15,000 per year is a welcome announcement and will remove an anomaly that helps savers understand what their options are.
The question to ask of this year’s Budget, however, is what was left out. Basically, almost everything to back up the rhetoric on encouraging UK businesses to grow and export more was missing. No tax relief for expenditure on new factories, no easing of the burden of employers’ national insurance and no revisions to business rates will disappoint most UK businesses and will do nothing to encourage them.
Richard Rose is a tax partner at BDO.