HMT Budget 2016 Web Accessible

HMT Budget 2016 Web Accessible
BUDGET 2016
HC 901
March 2016
BUDGET 2016
Return to an order of the House of Commons
dated 16 March 2016
Copy of the Budget Report – March 2016 as
laid before the House of Commons by the
Chancellor of the Exchequer when opening
the Budget.
David Gauke
Her Majesty’s Treasury
16 March 2016
Ordered by the House of Commons to be
printed 16 March 2016
HC 901
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The Budget report is presented pursuant to section 2 of the Budget Responsibility and National Audit Act 2011
and in accordance with the Charter for Budget Responsibility. The Budget report, combined with the Office for
Budget Responsibility’s Economic and fiscal outlook, constitutes the government’s assessment under section 5 of
the European Communities (Amendment) Act 1993 that will form the basis of the government’s submissions to
the European Commission under 121 TFEU (ex Articles 99/103 TEU) and Article 126 TFEU (ex Article 104/104c TEU)
after the assessment is approved by Parliament.
Contents
Page
Executive Summary
1
Budget Report
Chapter 1
Chapter 2
Budget Report
9
The UK economy and public finances
Support for working people
Backing business and enterprise
Opportunity across the UK
9
29
44
60
Budget policy decisions
83
Annex AFinancing
131
Office for Budget Responsibility: Budget forecast
Annex BOffice for Budget Responsibility’s Economic and fiscal
outlook: selected tabless
135
List of abbreviations
141
List of tables
144
List of figures
144
List of charts
145
Budget 2016
Executive Summary
This is a Budget that puts the next generation first. In uncertain times and against a
deteriorating global economic outlook, this Budget delivers security for working people. It
takes the next bold steps in the government’s long-term economic plan. It reduces the deficit,
achieves a surplus and makes the reforms needed so Britain is fit for the future.
The UK is forecast to grow faster than any other G7 economy this year, with employment at
record highs, but with productivity growth weaker than forecast. So this Budget sets out longterm solutions to long-term problems and invests in the education, builds the infrastructure and
supports the savings of the next generation.
In this Budget, the government will take action to:
•• make additional savings equivalent to 0.5% of total government spending, to ensure the
nation lives within its means
•• back business with a major overhaul of corporation tax reliefs, a lower corporation tax rate
and a big reduction in small business rates
•• boost enterprise with a reduction in Capital Gains Tax and tax for the self-employed
•• accelerate education reforms and improve children’s health with a soft drinks industry levy
•• support working people with a £11,500 personal allowance and a £45,000 higher rate
threshold
•• back savers with a new flexible Lifetime ISA for young people and a higher ISA limit for all
The UK economy and public finances
Britain is forecast by the Organisation for Economic Co-operation and Development (OECD) to
be the fastest growing major advanced economy this year. With employment at a record rate of
74.1%. But the challenges the country faces are growing.
Since the Spending Review and Autumn Statement was published in November 2015, the
outlook for the global economy has worsened and global growth has slowed, with the
International Monetary Fund (IMF) predicting global growth of 3.4% in 2016, 0.2 percentage
points lower than its October forecast. In advanced economies, there are growing concerns
about productivity growth, high debt levels and deflationary risks. Productivity growth since
the financial crisis of 2008 and 2009 has been weaker in all the major advanced economies,
including the UK.
In emerging economies risks have also increased, with falling oil prices hitting commodityexporting economies, Russia and Brazil in recession, and China’s rebalancing leading to lower
growth in a number of countries.
Uncertainty about global growth prospects has been reflected in volatility in financial markets,
with world stock markets seeing $8 trillion wiped off their value at the start of the year. As one
of the most open economies in the world, the UK is not immune to global slowdowns and
shocks. All this means the challenge of delivering a sustained rise in living standards following
Budget 2016
1
the financial crisis is greater here in Britain than the Office for Budget Responsibility (OBR) had
previously forecast.
This is precisely why the UK has been working through its long-term economic plan. Since 2010
the plan has been focussed on reducing the deficit, while delivering the supply side reforms
necessary to improve long-term productivity growth. That has allowed an active monetary policy
to support the economy while ensuring the fiscal position is sustainable in the long term.
As a result, the deficit at 3.8% is forecast to be down by almost two thirds from its peak,
bank capital ratios have doubled and there are over 2 million new jobs since 2010. Had the
government not taken action to reduce the structural deficit from its 2009-10 level, cumulative
borrowing would have been £930 billion higher in 2019-20.
Eight years ago, the UK was one of the worst prepared to face the financial crisis. Today, in the
face of a cocktail of global risks, the UK is one of the best prepared. The UK responds to lower
productivity growth and a more difficult global economy by:
•• maintaining credible public finances and running a surplus in 2019-20
•• cutting taxes for business and enterprise
•• investing in infrastructure and devolving power
•• improving education and healthcare
•• supporting savings
•• cutting taxes for working people
This is a Budget which acts now so that the country doesn’t pay later. It is a Budget that steers
Britain through uncertain times, providing security now and opportunity for the next generation.
Economic and fiscal forecast
The OBR forecasts GDP growth of 2.0% in 2016, 2.2% in 2017 and 2.1% to the end of the
forecast period. It forecasts employment to be 31.5 million in 2016, rising each year to 32.1
million in 2020. CPI is forecast to be below the 2.0% inflation target in 2016, returning
gradually to 2.0% in 2018.
Public sector net borrowing is forecast to fall to 3.8% of GDP in 2015-16 and then to fall each
year for the remainder of the forecast period. The OBR forecasts that the public finances will
deliver a surplus of £10.4 billion in 2019-20 and £11.0 billion in 2020-21. Public sector net debt
is forecast to fall to 74.7% of GDP in 2020-21.
Sound public finances
The government’s first duty to the next generation is to put the public finances on a sustainable
footing. This provides the bedrock of security for working people. This Budget will ensure that
the UK will meet its fiscal target of achieving a surplus in 2019-20. In addition to measures
announced at the Spending Review and Autumn Statement, the government will:
•• conduct a departmental efficiency review, which will help deliver a further £3.5 billion of
savings from public spending in 2019-20, while maintaining the protections set out at the
Spending Review and Autumn Statement
•• ensure that the cost of providing public sector pensions in the future is fairly reflected in
the contributions made by employers, by reducing the public service pension scheme
discount rate
2
Budget 2016
•• continue to spend 0.7% of gross national income on Official Development Assistance (ODA)
adjusted in line with the latest economic forecasts
Support for working people
This Budget provides security for working people and opportunity for the next generation. The
government will:
•• reduce tax on working people further by increasing the personal allowance to £11,500 and
the higher rate threshold to £45,000 in 2017-18
•• freeze fuel duty, saving the average driver £75 every year compared to pre-2010 fuel duty
escalator plans
•• recognise the role pubs play in local communities and support the Scotch whisky industry by
freezing duty on beer, spirits and most ciders
•• drive forward the radical devolution of power to school leaders, expecting all schools to
become academies by 2020, or to have an academy order in place to convert by 2022
•• introduce a new soft drinks industry levy to help tackle childhood obesity, by incentivising
companies to reduce the sugar in the drinks they sell, to fund a doubling of the primary
schools sports premium to £320 million per year from September 2017
•• give the next generation choice and flexibility in their savings, by increasing the ISA limit to
£20,000 and launching a new flexible Lifetime ISA for under 40s in which people can save
up to £4,000 each year and receive an additional 25% bonus from government. Savings,
including the government bonus, can be accessed to buy a first home and in retirement
•• launch a new Help to Save scheme for people on low incomes, providing a 50% government
bonus on up to £50 of monthly savings, benefiting up to 3.5 million people
Backing business and enterprise
This Budget backs business and enterprise to drive up productivity growth and create job
opportunities. This Budget continues to lower taxes, with new support for small business and
entrepreneurs, while also modernising the tax system and taking steps to ensure that taxes are
fair and are paid.
The government will:
•• cut the rate of corporation tax to 17% in 2020, benefiting over one million companies, large
and small
•• cut business rates for all properties in England, with 600,000 small firms paying no rates so
that the business rates burden will fall by £6.7 billion over the next five years
•• cut the higher rate of Capital Gains Tax from 28% to 20% and the basic rate from 18%
to 10% from April 2016 (except for residential property and carried interest), and extend
entrepreneurs’ relief to long term investors in unlisted companies
•• cut National Insurance contributions for 3.4 million self-employed people, by abolishing
Class 2 National Insurance
•• modernise the corporation tax rules on losses, making the system more flexible for
businesses while ensuring that companies making large profits pay tax on these, and further
restricting banks’ use of their historic losses
Budget 2016
3
•• reform Stamp Duty Land Tax on non-residential property transactions, cutting the tax for
many small businesses purchasing property, with over 90% of non-residential transactions
paying the same or less
•• abolish the bureaucratic and burdensome Carbon Reduction Commitment energy efficiency
scheme and replace it, in a revenue neutral way, with an increase in the Climate Change Levy
from 2019
•• support the oil and gas industry by permanently zero-rating Petroleum Revenue Tax, reducing
the Supplementary Charge from 20% to 10% and introducing targeted measures to
encourage investment in exploration, infrastructure and late-life assets
•• give large companies more time to prepare for a new corporation tax payments schedule,
with a broadly neutral impact on the public finances
Opportunity across the UK
To tackle the long term economic challenges in the UK, this Budget announces radical reforms
that will drive future prosperity, investing in the infrastructure that will deliver economic growth
for the next generation. The Budget drives forward the devolution revolution, giving local areas
further control over the decisions that affect their communities.
Headline measures include:
•• strengthening city regions within Scotland and Wales by agreeing a City Deal for Cardiff and
opening negotiations on deals for Swansea and Edinburgh
•• agreeing new mayoral devolution deals with the West of England, East Anglia and Greater
Lincolnshire as well as agreeing additional mayoral devolution deals with Greater Manchester
and Liverpool City Region
•• building the Northern Powerhouse, by giving the go ahead to High Speed 3 between
Leeds and Manchester, aiming to bring down journey times from 50 minutes to around
30 minutes, investing an extra £161 million to accelerate the transformation of the M62,
and £75 million to improve other road links across the North including the A66 and A69
•• securing London’s future infrastructure by giving the green light for Crossrail 2 to proceed.
The government will provide £80 million to develop the project with the aim of bringing
forward a Hybrid Bill this Parliament
Budget decisions
A summary of the fiscal impact of Budget policy decisions is set out in Table 1. Chapter 2
provides further information on the fiscal impact of the Budget.
4
Budget 2016
Table 1: Budget 2016 policy decisions1
£ million
Total tax policy decisions
2
Corporation Tax: defer bringing forward payment for large
groups for two years
Total spending policy decisions
TOTAL POLICY DECISIONS
MEMO: TOTAL POLICY DECISIONS
2
1 2
2016-17
2017-18
2018-19
2019-20
2020-21
+645
-960
-470
+330
-2,760
0
-6,000
-3,850
+5,965
+3,600
-360
-590
-450
+7,620
+3,335
+285
-7,550
-4,770 +13,915
+4,175
+285
-1,550
+7,950
+575
-920
Costings reflect the OBR’s latest economic and fiscal determinants.
This excludes the delay to the timing of corporation tax payments by larger groups. As it represents a cash-flow impact, the effect of this measure
over the scorecard period is broadly neutral.
Government spending and revenue
Chart 1 shows public spending by main function. Total Managed Expenditure is expected to be
around £772 billion in 2016-17.
Chart 1: Public sector spending 2016-17
Debt interest £39bn
Other including EU transactions £49bn
Public order and safety £34bn
Social protection £240bn
Housing and environment £34bn
Industry, agriculture
and employment £24bn
Defence £46bn
Education £102bn
Transport £29bn
Personal social services £30bn
Health £145bn
Sources: Office for Budget Responsibility 2016-17 estimates. Illustrative allocations to functions are based on
HMT analysis including capital consumption figures from the Office for National Statistics. Figures may not sum
due to rounding.
Budget 2016
5
Chart 2 shows the different sources of government revenue. Public sector current receipts are
expected to be around £716 billion in 2016-17.
Chart 2: Public sector receipts 2016-17
Other (non-taxes), £51 billion
Other (taxes), £69 billion
Income tax, £182 billion
Council tax, £30 billion
Business rates, £28 billion
VAT, £138 billion
Corporation tax, £43 billion
National Insurance, £126 billion
Excise duties, £48 billion
Source: Office for Budget Responsibility, 2016-17 forecast. Figures may not sum due to rounding.
Other (taxes) includes capital taxes, stamp duties, vehicle excise duties and other smaller tax receipts. Other (non-taxes) includes interest
and dividends, gross operating surplus and other smaller non-tax receipts.
6
Budget 2016
Budget Report
1
Budget Report
The UK economy and public finances
Britain and the global economy
1.1 Britain is forecast to grow faster than any other major advanced economy in 2016.1 GDP in
Q4 2015 was 12.6% higher than it was in Q1 2010.2 But the challenges the country faces are
growing.
1.2 The global economic outlook has deteriorated since the Spending Review and Autumn
Statement 2015. Both the International Monetary Fund (IMF) and the Organisation for Economic
Cooperation and Development (OECD) have revised down their global forecasts for GDP in 2016.
The IMF predicts global growth of 3.4% in 2016, 0.2 percentage points lower than its October
forecast while the OECD forecasts growth of 3.0% in 2016, 0.3 percentage points below its
November forecast.3, 4
1.3 These downgrades, which reflect a pattern of disappointing post-crisis growth in many
countries, are partly driven by concerns over productivity growth. Christine Lagarde, Managing
Director of the IMF, recently noted that weaker productivity growth – the rate the economy
increases output per hour worked – and echoes of the financial crisis of 2008 and 2009, are still
holding back global growth.5 Angel Gurria, Secretary-General of the OECD, said “Productivity
growth – a central ingredient in the pursuit of well-being – has been decelerating in a vast
majority of countries”.6
1.4 All G7 economies have seen lower productivity growth since the financial crisis. The UK was
hit hard by the financial crisis, and productivity fell 2.2% from its pre-crisis peak.7 Since 2012,
output per hour has grown each year and increased by 0.8% in 2015 to exceed its pre‑crisis
peak.
1.5 But as the Office for Budget Responsibility (OBR) says, with a period of weak productivity
growth after the financial crisis continuing to lengthen, they have placed more weight on the
post-financial crisis period as a guide to future prospects.
‘Interim Assessment’, Organisation for Economic Co-operation and Development (OECD), February 2016.
All UK economy data from Office for National Statistics (ONS) unless otherwise stated. Further detail can be found in
‘Budget 2016 Data Sources’.
3
‘World Economic Outlook Update’, International Monetary Fund (IMF), January 2016.
4
‘Interim Assessment’, Organisation for Economic Co-operation and Development (OECD), February 2016.
5
Christine Lagarde, International Monetary Fund (IMF), Article IV press conference, December 2015.
6
Angel Gurria, Organisation for Economic Co-operation and Development (OECD), February 2016.
7
From a pre-financial crisis peak in 2007 to its trough in 2009.
1 2 Budget 2016
9
Chart 1.1: International comparison of GDP growth
3.5
G7 annual growth, %
3.0
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
2014
UK
2015
US
Canada
2016 forecast
Germany
France
2017 forecast
Japan
Italy
Source: Organisation for Economic Co-operation and Development.
Global outlook
1.6 Prospects for key emerging markets have deteriorated recently. For 2016, the IMF forecasts
growth in emerging markets to be 4.3%, compared to 4.7% a year ago.8 These economies face
a number of risks. As China rebalances towards domestic consumption, the emerging markets
whose exports are geared to China’s previous manufacturing and investment-led growth
are suffering. And after a decade of cheap debt, emerging markets are facing tighter credit
conditions. Over $735 billion in capital flowed out of emerging markets last year.9
1.7 These concerns about growth prospects have been reflected in financial market volatility
since the turn of the year. Global stock markets had their worst six-week start to the year for
more than 45 years, with over $8 trillion wiped off world markets.10
1.8 Having fallen by 70% from June 2014 to December 2015, the price of oil fell further to $27
per barrel at the end of January 2016 and has averaged under $33 for the first two months of
2016.11 At the time of the Spending Review and Autumn Statement 2015, markets expected the
price of oil to rise gradually to $50 per barrel in early 2016. While a sustained fall in the oil price
is a net benefit to oil importing economies like the UK, it impacts on particular sectors including
the North Sea oil and gas industry. The speed and intensity of the falls in commodity prices
in the last 18 months have increased financial stress and worsened the economic outlook for
commodity exporters like Brazil, Russia and many countries in the Middle East.
1.9 The combination of lower global growth and cheaper oil has meant inflation has fallen
across advanced economies, with every major central bank revising down its inflation forecast.
As a result, market expectations of the timing of interest-rate rises have been pushed back.
‘World Economic Outlook Update’, IMF, January 2016 and January 2015.
Capital Flows to Emerging Markets, Institute of International Finance, January 2016.
10
MSCI World Index and Bloomberg World Market Capitalisation Index.
11
ICE Brent Crude Oil Front Month Futures.
8
9
10
Budget 2016
1.10 Together, the prospects of weaker growth and inflation have reduced the outlook for
GDP measured at current prices, i.e. nominal GDP. Global nominal GDP growth is estimated by
the IMF to have been half the rate in 2015 that it was in 2007, making it harder to bring down
debt-to-GDP ratios.12
OBR economic forecast
Table 1.1: Summary of the OBR’s central economic forecast1
Percentage change on a year earlier, unless otherwise stated
Forecast
2015
2016
2017
2018
2019
2020
2.2
2.0
2.2
2.1
2.1
2.1
Household consumption2
2.9
2.4
2.2
2.1
2.0
1.9
General government consumption
1.7
0.2
0.6
0.5
0.2
0.7
Fixed investment
4.2
2.9
4.5
4.1
4.0
4.3
4.7
2.6
6.1
5.8
5.5
4.4
General government
2.2
0.2
1.9
-0.3
-0.2
6.5
Private dwellings3
3.4
5.1
2.8
3.0
3.0
2.9
Change in inventories
-0.4
0.2
0.0
0.0
0.0
0.0
Net trade
-0.5
-0.4
-0.1
-0.1
-0.1
-0.1
CPI inflation
0.0
0.7
1.6
2.0
2.1
2.0
31.2
31.6
31.7
31.9
32.0
32.1
5.4
5.0
5.0
5.2
5.3
5.3
GDP growth
Main components of GDP
Business
3
4
4
Employment (millions)
LFS unemployment (% rate)5
1
All figures in this table are rounded to the nearest decimal place. This is not intended to convey a degree of unwarranted accuracy. Components may
not sum to total due to rounding and the statistical discrepancy.
2
Includes households and non-profit institutions serving households.
3
Includes transfer costs of non-produced assets.
4
Contribution to GDP growth, percentage points.
5
Labour Force Survey.
Source: Office for Budget Responsibility, Office for National Statistics.
1.11 The UK is one of the most open trading economies in the world and is not immune to
the weaker global outlook. And as in other major advanced economies, the UK’s productivity
growth has been slower since the financial crisis. Combined, this means that the challenge of
delivering a sustained rise in living standards following the financial crisis of 2008 and 2009 is
greater here in the UK than the OBR previously forecast, with GDP growth, inflation and nominal
GDP growth now forecast to be weaker than at the time of the Spending Review and Autumn
Statement 2015.13
1.12 The OBR forecasts GDP growth to be 2.0% in 2016, rising to 2.2% in 2017 and 2.1%
in 2018.
1.13 The main driver of the reduced GDP forecast is a lower forecast for potential productivity
growth – the amount of output growth per hour worked the economy is capable of producing
sustainably – with the OBR placing more weight on post-crisis weakness in productivity growth.
Productivity is expected to grow by 1.0% in 2016 and 1.7% in 2017, before rising to 2.0% for
the remainder of the forecast period.
‘World Economic Outlook’, IMF, October 2015.
All forecasts refer to the Office for Budget Responsibility (OBR) ‘Economic and fiscal outlook’, March 2016, unless
otherwise stated.
12
13
Budget 2016
11
1.14 Disappointing productivity growth is evident in many other major advanced economies in
recent years, leading other forecasters to revise down their expectations. For example, Table 1.2
from the OBR ‘Economic and fiscal outlook’ March 2016, shows that OBR forecasts for potential
productivity growth between 2010 and 2020 have been revised down by 7.5 percentage points.
This is similar to the Congressional Budget Office (CBO) in the US which has reduced its forecast
for potential productivity growth by 8.9 percentage points. The impact on potential GDP growth
has been smaller in the UK, however, largely because the labour market participation rate has
held up much more than in the US.
Table 1.2: Contributions to potential output growth between 2010 and 2020
Potential
Potential
participation unemployment
2
rate
rate2,3
Potential
population2
Potential
output
growth4
0.0
5.8
24.1
0.0
-0.2
6.7
20.6
1.8
-0.2
0.9
-3.5
Potential
productivity1
Potential
average hours
June 2010
21.9
-2.0
-1.8
March 2016
14.4
-1.0
Change
-7.5
0.9
OBR estimates for the UK
OBR calculations based on
CBO estimates for the US
August 2010
24.3
-0.8
-3.0
0.0
9.5
30.8
January 2016
15.4
-0.6
-5.6
0.3
10.6
20.0
Change
-8.9
0.2
-2.6
0.3
1.1
-10.8
1
Output per hour.
2
Corresponding to those aged 16 and over.
3
Percentage point growth between 2010 and 2020.
4
Changes may not sum due to rounding and interaction effects.
Note: Non-farm business employment forecasts are not available for the US, and so we have assumed that non-farm business employment grows at
the same rate as whole economy employment.
Source: Office for Budget Responsibility.
1.15 The OBR predicts the UK’s strong labour market performance to continue. The OBR
revised up its forecast for employment in 2016 from 31.5 million to 31.6 million, and in 2017
employment reaches 31.7 million. The OBR forecast employment to rise by 0.9 million by 2020,
meaning that employment will have risen by 3 million since 2010. Wages and salaries are
forecast to grow faster than inflation, rising by 3.6% in 2016, and thereafter by an average of
4.0% until 2020. The OBR forecasts CPI inflation to be below the 2.0% target in 2016 before
returning to target in 2018.
Britain in a stronger position to face the challenge ahead
1.16 Since 2010, the government’s long-term economic plan has been focussed on ensuring
sound public finances, while delivering the supply-side reforms necessary to improve long-term
productivity. That has allowed active monetary policy to support the economy while ensuring the
fiscal position is sustainable. As a result of the government’s action to date:
•• the public finances have improved. In 2010, the IMF forecast the UK to have the largest
budget deficit in the G20, at 11.4% of GDP.14 As a result of the action that the government
has taken, the OBR forecast that the UK’s deficit as a share of GDP will be reduced by almost
two-thirds to 3.8% of GDP in 2015-16
14
12
‘Fiscal Monitor’, IMF, May 2010.
Budget 2016
•• the financial sector is much more resilient. Since 2010, the government has legislated for the
ring-fencing of large banks’ retail arms from their investment banking arms, insulating these
core functions vital to households and SMEs, and put the Bank of England back in charge
of bank prudential regulation. As the Governor of the Bank of England said, “UK banks are
now significantly more resilient than before the global financial crisis. Capital requirements
for the largest banks have risen ten-fold. Their holdings of liquid assets have increased
four-fold. Their trading assets are down by a third, and inter-bank exposures have shrunk by
two‑thirds”15
•• household finances are more robust. Debt-to-income ratios have fallen from 155% in
Q1 2010 to 142% in Q3 2015. The share of households with very high mortgage debtto-income ratios has been falling and is now back at levels seen in the 1990s.16 Interest
payments as a proportion of income were 4.8% in Q3 2015, the lowest on record and down
from 6.3% in Q1 2010
1.17 The long-term economic plan has delivered considerable economic gains since 2010. The
UK was the fastest growing major advanced economy in 2014, the second fastest in 2015 and
the OECD forecast the UK to be the fastest growing in 2016.
Employment and earnings
Employment
1.18 Government action to reward work and reform benefits has delivered a stronger labour
market in the UK, with an employment rate that has risen faster in the UK than in any other
G7 country since 2010 making progress towards the government’s goal of full employment.17
The data for 2015 showed:
•• a record employment rate of 74.1% in Q4 2015
•• the employment rate of women had risen to 69.1% by the end of 2015, a record high
•• 74% of the increase in employment in 2015 was driven by full-time workers
•• high and medium skill occupations accounted for 92% of the growth in employment in the
year to Q4 2015
•• a strong demand for labour with 767,000 vacancies in Q4 2015, a record high
•• the claimant count fell to a 40 year low in 2015
•• working age inactivity fell by over 600,000 from 2010 to 2015
Mark Carney, Governor of Bank of England, Financial Stability Report Press Conference, December 2015.
Very high mortgage debt-to-income ratio is defined as a ratio greater than 500%. ‘Quarterly Bulletin 2015 Q4’,
Bank of England, December 2015.
17
‘Short-Term Labour Market Statistics’, OECD.
15
16
Budget 2016
13
Chart 1.2: International comparison of employment
4.0
Percentage point change in rate, Q1 2010 to Q3 2015
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
Italy
France
Canada
US
Germany
Japan
UK
Source: Organisation for Economic Co-operation and Development.
Earnings
1.19 This strong employment performance has been accompanied by rising real wages (see
Chart 1.2). Earnings growth picked up in much of 2015, with total annual pay rising 2.5% on
the year in nominal terms, and 2.3% in real terms. This represents the highest annual growth in
nominal and real earnings since 2008.
1.20 Wages had been rising above inflation for 15 consecutive months by the end of 2015.
Living standards, as measured by real household disposable income (RHDI) per capita, are
expected to have risen in 2015 at their fastest rate in 14 years, driven by rising earnings and low
inflation.
1.21 The government has taken unprecedented action to support those on lower pay. From
1 April 2016, low wage workers aged 25 and above will see a pay rise as a result of the
introduction of the National Living Wage (NLW). Initially set at £7.20, it will mean a £900 cash
increase for a full-time worker on the current National Minimum Wage (NMW) – the largest
annual increase in a minimum wage rate across any G7 country since 2009, in cash and real
terms.18 2.9 million workers are expected to benefit directly, and the OBR estimated up to
6 million could see a pay rise as a result of a ripple effect causing pay to rise further up the
earnings distribution.19
HMT calculations using OECD minimum wage statistics, 2016.
‘Economic and fiscal outlook’, OBR, March 2016 and ‘Economic and fiscal outlook’, OBR, July 2015.
18 19
14
Budget 2016
Chart 1.3: Real total pay growth
6
3 month average, % year on year growth
5
4
3
2
1
0
-1
-2
-3
-4
2010
2011
2012
2013
2014
2015
2016
2017
Real total pay growth outturn
2018
2019
2020
2021
OBR forecast
Source: Office for Budget Responsibility, Office for National Statistics.
Long-term solutions to long-term problems
1.22 Given the concerns over slowing growth in advanced economies, policymakers face
a choice over how to respond. The OBR forecasts little spare capacity in the economy – as
measured by the output gap – for the forecast period. This suggests that there is little benefit
to policy increasing overall demand without taking measures to expand supply. Attempting to
spend more than the country can afford would not address the challenges Britain faces.
1.23 In the UK, debt levels remain high. Short-term, discretionary fiscal stimulus would simply
increase public debt without expanding supply.
1.24 Furthermore, the Monetary Policy Committee (MPC) forecasts inflation to return to the
2% target in the medium term. As the Governor of the Bank of England has recently said, “the
G20 needs to use the time purchased by monetary policy to develop a coherent and urgent
approach to supply-side policies”.20
1.25 The long-term solution is structural reform. These policies seek to make economies more
efficient, competitive and productive. Both the IMF and OECD recognise that structural reform
is needed to boost long-term growth.21 Their research shows that the most effective structural
reforms include lowering the rates of distortive taxes, ensuring that product markets are flexible
and competitive, and cutting or simplifying business regulation.22 These policies are critical to
delivering sustainable growth for the next generation.
Mark Carney, Governor of the Bank of England, ‘Redeeming an unforgiving world’, G20 conference speech,
February 2016.
21
‘World Economic Outlook’, IMF, October 2015; ‘Economic Outlook’, OECD, November 2015.
22
‘Economic Growth and the Role of Taxation – Disaggregate Data’, OECD, 2009; ‘The New Normal: A Sector-Level
Perspective on Productivity Trends in Advanced Economies’, IMF, 2015; ‘Raising potential growth after the crisis:
A quantitative assessment of the potential gains from various structural reforms in the OECD area and beyond’,
OECD, 2010.
20
Budget 2016
15
1.26 Since 2010 the government has acted to reform the supply side of the UK economy
including by lowering taxes, cutting regulation, investing in infrastructure, and introducing the
National Living Wage and Apprenticeship levy. The government set out comprehensive reforms
to support productivity growth in ‘Fixing the Foundations: creating a more prosperous nation’.23
In October 2015 the National Infrastructure Commission was established to provide the
government with expert independent advice on the country’s infrastructure needs.
1.27 This Budget announces further measures to drive productivity growth across the UK:
•• reducing distortive taxes by continuing to lower both income tax and business taxes
•• improving education by accelerating fairer schools funding and committing to full
academisation of schools in England
•• promoting enterprise through business rate cuts for small businesses, cutting Capital Gains
Tax and extending entrepreneurs’ relief to external investors in unlisted trading companies
•• delivering long-term infrastructure improvements, by giving the green light to major projects
recommended by the National Infrastructure Commission including Crossrail 2, and High
Speed 3 between Leeds and Manchester
•• improving economic decision-making by devolving power to cities and regions, including
new devolution deals for the East and West of England
Economic rebalancing
1.28 The financial crisis of 2008 and 2009 revealed an unstable and unbalanced model of
economic growth in the UK. Since 2010 the government has taken steps to support more
balanced growth across sectors and regions and to promote savings and investment.
Sector rebalancing
1.29 The UK is making progress in shifting towards high-value added sectors in both
manufacturing and services. The manufacturing, construction and service sectors are now all
larger than at the beginning of 2010. By the end of 2015, 62.6% of all employment growth
since 2010 has been in high skilled occupations. Within manufacturing, aerospace production
has grown by almost 30% and car production has increased by over 60% since the start of
2010. Between 2010 and 2014, 16,000 new jobs in car production have been created and in
2015 car manufacturing exports reached a record high.
1.30 Within services, output has been strong across different high-value added sectors.
Scientific research and development has grown by 24.4% and architecture and engineering
activities have grown by 42.5% since 2010. Rebalancing within the services sector has been
particularly strong.
23
16
‘Fixing the foundations: creating a more prosperous nation’, HM Treasury, July 2015.
Budget 2016
Chart 1.4: Rebalancing within the services sector
150
Level indexed to 100 at Q1 2010
140
130
120
110
100
90
80
70
60
2000
2002
2004
2006
2008
2010
2012
2014
Total service sector output
Financial and insurance output
Professional, scientific and administrative output
Source: Office for National Statistics.
1.31 Investment in productive assets, from plant and machinery to software and patents, is vital
for a thriving economy. During the financial crisis investment was hit hard in the UK, falling by
24%. Since then it has picked up, and investment grew faster than in any other major advanced
economy in 2015 and is forecast by the OECD to continue to increase at the fastest rate in
2016 and 2017.24 Business investment has continued to pick up as the economy has recovered,
increasing by 25.8% since Q1 2010, more than twice as fast as household consumption. In
2015, business investment increased by 4.7% and it is now 4.2% higher than its pre-crisis peak.
Regional rebalancing
1.32 Regional economic disparities have long been a problem, with London and the South
East having higher growth than the UK average for decades. The government is determined to
rebalance the economy by building the Northern Powerhouse and the government’s devolution
revolution is creating powerful elected mayors, allowing local governments to reduce and retain
business rates, and giving local leaders across the country new powers and rewards for driving
local growth.
1.33 Since 2010, unemployment in the North of England has fallen by a third and the median
earnings of full-time employees grew faster in all regions of the North than they did in London.25
In 2015, employment grew faster in the North than the South and by the end of 2015, the
employment rate in the North was at its highest on record, at 72.2%.
‘Economic Outlook No 98’, OECD, November 2015.
The North is defined as the North East, North West, and the Yorkshire and the Humber regions. The South is defined
as London, the South East and South West regions.
24
25
Budget 2016
17
1.34 Between 2010 and 2015, labour markets in the regions have performed strongly.
Unemployment fell and employment rose in every region, with two-thirds of the increase
in employment from outside London and the South East. Labour markets in the regions
strengthened in 2015, with every region reaching a record number of people in work.26
1.35 In 2015 there were over half a million more businesses outside London and the South
East compared to 2010, including nearly 160,000 more businesses in the North and over
95,000 more businesses in the Midlands.27, 28 The South West has had the fastest rate of
business growth outside of London.
External rebalancing
1.36 The outlook for world trade continues to be revised down, reflecting both cyclical and
structural factors. This weighs on the outlook for UK trade, as the external demand for UK
exports is expected to be weaker. In 2015, the sum of UK exports and imports amounted to 57%
of GDP, twice the US level. As an open economy, the UK is not immune to developments in the
global economy. The OBR have revised down their outlook for UK export markets compared to
their November forecast as the inevitable result of lower global growth.
1.37 The UK’s current account deficit has narrowed, falling to -3.7% in Q3 2015, but it remains
high. This has been driven by a deterioration in the UK’s net investment income. This likely
reflects the relatively strong performance of the UK economy compared to its trading partners,
which has meant that the income earned on the UK’s overseas assets has been relatively weaker.
The current account deficit is forecast to narrow gradually over the forecast period.
The UK and the EU
1.38 On 23 June, the British people will be asked whether they think the UK should remain
a member of the EU or leave, in the first referendum on the UK’s membership of the EU since
1975. The government position is to recommend that Britain remains in a reformed EU.
Between 3 months to December 2014 and 3 months to December 2015.
The Midlands is defined as the East Midlands and the West Midlands regions.
28
‘Business Population Estimate for the UK and Regions’, BIS, October 2015.
26
27
18
Budget 2016
Economic opportunities and risks linked to the UK’s membership of the
European Union
Membership of the EU has increased the UK’s openness to trade and investment, reinforcing
the dynamism of the economy. The Treasury has highlighted openness as a key driver of
productivity, wages and living standards.29 The UK’s full access to the single market, through
its EU membership, clearly increases the openness of the British economy, creating jobs and
supporting livelihoods.
At the February 2016 European Council, the Prime Minister secured a new settlement for
the UK in a reformed EU. The agreement covered four key areas: economic governance;
competitiveness; sovereignty; and welfare and free movement. Together, the new settlement
and the UK’s existing opt-outs from the single currency and common border-free area give the
UK a special status in the EU.30
Voting to leave the EU would create a profound economic shock and years of economic
uncertainty.31 Such a vote would be the start of a series of lengthy, interlocking negotiations
with the EU and with other international partners. The associated uncertainty would have a
material effect on jobs, the economy and the public finances. Some of the concerns related
to such an outcome are already becoming apparent in financial markets. In their discussion of
external analysis of the impact of an exit from the EU the OBR conclude that “Leaving aside
the debate over the long-term impact of ‘Brexit’, there appears to be a greater consensus that
a vote to leave would result in a period of potentially disruptive uncertainty while the precise
details of the UK’s new relationship with the EU were negotiated”.32
The UK’s current full access to the single market cannot be matched by any existing
alternative. UK firms and consumers enjoy tariff-free trade and reductions in non-tariff barriers
across the EU. The UK is also inside the customs union, eliminating the need for customs
compliance for trade between EU member states. None of the alternative arrangements
with the EU would provide the same level of access, particularly for services, which accounts
for 79% of the UK economy. A new relationship which gives the UK the access to the single
market that it needs would involve contributing financially to the EU, accepting the free
movement of people and adopting EU rules without having any say over them.
In their discussion of current risks and uncertainties the OBR highlight that “whatever the
long-term pros and cons of the UK’s membership of the European Union, a vote to leave
in the forthcoming referendum could usher in an extended period of uncertainty regarding
the precise terms of the UK’s future relationship with the EU. This could have negative
implications for activity via business and consumer confidence and might result in greater
volatility in financial and other asset markets”.33 The OBR note that, reflecting their statutory
remit to prepare forecasts based on current government policy, it is not for them to judge at
this stage what the impact of leaving the EU might be on the economy and public finances.
Remaining in a reformed EU will make the UK stronger, safer and better off. It will allow
a reformed EU to continue supporting UK productivity. And it will offer certainty for UK
businesses and consumers and those foreign firms investing in the UK. As Christine Lagarde,
the Managing Director of the IMF has made clear, a vote to leave the EU would create
uncertainty in the UK: “no economic player likes uncertainty. They don’t invest, they don’t
hire, they don’t make decisions in times of uncertainty.”34
‘Fixing the foundations: creating a more prosperous nation’, HM Treasury, July 2015.
‘The best of both worlds: the United Kingdom’s special status in a reformed European Union’, HM Government,
February 2016.
31 ‘The process for withdrawing from the European Union’, HM Government, February 2016.
32 ‘Economic and fiscal outlook’, OBR, March 2016.
33 ‘Economic and fiscal outlook’, OBR, March 2016.
34 Christine Lagarde, International Monetary Fund (IMF) Managing Director, CNN interview, 24 February 2016.
29 30 Budget 2016
19
1.39 The Treasury will set out a comprehensive assessment of the costs and benefits of
membership of a reformed EU in the coming months.
Monetary policy and credit easing
1.40 The steps taken by the government to fix the public finances and put banks and
household finances on a surer footing have allowed monetary policy to play an active role in
supporting the recovery.
1.41 The MPC has full operational independence to set policy to meet the inflation target.
Budget 2016 reaffirms the inflation target of 2.0% for the 12-month increase in the
CPI, which applies at all times. This target is symmetric, meaning deviations below the target
are treated the same way as deviations above the target. Symmetric targets help to ensure that
inflation expectations remain anchored and that monetary policy can play its role fully. The
government also confirms the Asset Purchase Facility (APF) will remain in place for
the financial year 2016-17.
1.42 Inflation was 0.3% in January, well below the 2.0% target. In February, as required by
the MPC remit, the Governor of the Bank of England wrote to the Chancellor a fifth open letter
setting out that the current low level of inflation predominantly reflects the effect of external
inflationary pressure, citing falling food, energy and other goods prices as explaining ‘the vast
majority of the deviation of inflation from the target’.35
1.43 Some measures of banks’ funding costs, in particular the price that banks pay in wholesale
markets to fund lending to the wider economy, have increased in recent months. However, they
remain much lower than at the time of the launch of the Funding for Lending Scheme (FLS) in
2012. The FLS will continue to support lending to small and medium-sized enterprises (SMEs)
until 2018. Annual growth in the stock of lending to SMEs continues to improve, and reached
1.4% in January. This is up from a low of -4.5% in August 2012.36 Net lending to SMEs by
participants in the FLS extension was also positive for the fourth quarter in a row, at £0.6bn in
Q4 2015.37
1.44 The government fundamentally restructured the UK’s system of financial regulation in
2013. As part of this, the government created the Financial Policy Committee (FPC) as the UK’s
macroprudential authority, within the independent Bank of England. This macroprudential role
did not feature in the regulatory architecture before the government took action. The FPC is
responsible for identifying, monitoring and addressing risks to the system as a whole. In 2014
and 2015, the FPC undertook stress tests of the UK banking system. The FPC concluded that
the UK’s banking system has become more resilient and has the capacity to maintain its core
functions, including lending capacity, in these stress scenarios.38
Open letter from the Governor of the Bank of England to the Chancellor of the Exchequer, February 2016.
‘Monetary financial institutions loans to non-financial businesses, by business size’, Bank of England, February 2016.
37
‘Funding for Lending Scheme usage and lending data publication – Q4 2015’, Bank of England, March 2016.
38
‘Financial Stability Report’, Bank of England, December 2015.
35
36
20
Budget 2016
The government’s fiscal plan
1.45 Significant progress has been made since 2010 in fixing the public finances. In 200910, the government borrowed around £1 in every £4 it spent. In 2015-16 the government is
forecast to borrow around £1 in every £10 it spends and this is expected to reduce to around £1
in every £14 in 2016-17.39
1.46 The deficit as a share of GDP is forecast to be cut by almost two thirds from its 2009-10
post-war peak and will reach 3.8% of GDP in 2015-16.40 The government has addressed the
rapid rise in public sector net debt (PSND) which more than doubled as a share of GDP between
2007-08 and 2011-12. Net debt as a share of GDP is forecast to fall over this Parliament,
reaching 77.2% of GDP by the end of 2019-20.41
1.47 The public finances would be in a much worse position had the government not
undertaken the fiscal consolidation that has occurred since 2010. Analysis in Chart 1.5 shows
that the government would have borrowed an additional £930 billion over the period 201011 to 2019-20 compared to the outturn and the OBR forecast.42 This is calculated as the path
of public sector net borrowing if cyclically adjusted public sector net borrowing (the structural
deficit) had been fixed as a share of GDP since 2009-10 at its 2009-10 level. The chart shows the
cyclical improvement in the economy since 2009-10 which would have reduced public sector net
borrowing from its post war peak of 10.3% of GDP. However, the persistence of the structural
deficit means that borrowing would have been higher in every year from 2010-11.
Chart 1.5: Public sector net borrowing (PSNB) with and without fiscal consolidation
12
% GDP
10
8
6
4
2
0
-2
2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20
PSNB Outturn
PSNB OBR forecast
PSNB without fiscal consolidation
Outturn series (2009-10 to 2014-15) is published ONS data. Forecast series (2015-16 to 2019-20) is from OBR March 2016
Economic and Fiscal Outlook. PSNB without fiscal consolidation series (2009-10 to 2019-20) is HMT analysis which calculates
the path of PSNB if cyclically-adjusted PSNB had been fixed as a share of GDP since 2009-10 at its 2009-10 level. GDP reflects
ONS outturn data and OBR forecasts. Indirect effects of fiscal consolidation are not calculated.
Source: Office for National Statistics, Office for Budget Responsibility, HM Treasury analysis.
‘Public Sector Finances’, ONS, January 2016; ‘Economic and fiscal outlook’, OBR, March 2016.
‘Public Sector Finances’, ONS, January 2016; ‘Economic and fiscal outlook’, OBR, March 2016.
41
‘Public Sector Finances’, ONS, January 2016; ‘Economic and fiscal outlook’, OBR, March 2016.
42
‘Public Sector Finances’, ONS, January 2016; ‘Economic and fiscal outlook’, OBR, March 2016 and HM Treasury
calculations.
39
40
Budget 2016
21
1.48 However more work needs to be done – the deficit and debt levels are still too high. The
government remains committed to continuing the job of returning the public finances to surplus
by 2019-20 and running a surplus thereafter in normal times so Britain bears down on its debt
and is better placed to withstand future economic shocks. In a low inflationary environment,
with the risk of economic shocks, the only reliable way to bring debt down as a share of GDP is
to run a surplus.
1.49 This Budget sets out the action the government is taking to meet the fiscal mandate,
achieving an overall surplus of £10.4 billion on the headline measure of public sector net
borrowing in 2019-20 and a surplus of £11.0 billion in 2020-21.
1.50 Table 1.3 sets out the OBR forecast of the key fiscal aggregates at March Budget 2016.
Table 1.3: Comparison of key fiscal aggregates between Budget 2016 and Autumn Statement 2015
Outturn
Forecast
2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21
Public sector net borrowing (£ billion)
Budget 2016
Autumn Statement 2015
1
Change compared to Autumn Statement
2015
91.9
72.2
55.5
94.7
73.5
49.9
-2.8
-1.3
5.5
5.0
3.8
2.9
5.2
3.9
-0.2
38.8
21.4
-10.4
-11.0
24.8
4.6
-10.1
-14.7
14.0
16.8
-0.3
3.7
1.9
1.0
-0.5
-0.5
2.5
1.2
0.2
-0.5
-0.6
0.0
0.3
0.7
0.8
0.0
0.1
83.3
83.7
82.6
81.3
79.9
77.2
74.7
83.1
82.5
81.7
79.9
77.3
74.3
71.3
0.2
1.3
0.9
1.4
2.6
2.9
3.4
Public sector net borrowing (% GDP)
Budget 2016
Autumn Statement 2015
1
Change compared to Autumn Statement
2015
Public sector net debt (% GDP)2
Budget 2016
Autumn Statement 2015
1
Change compared to Autumn Statement
2015
1
Outturn figures for Autumn Statement are given as estimated at Autumn Statement.
2
Debt at end March. GDP centred on end March.
Source: Office for Budget Responsibility and Office for National Statistics.
1.51 At the Summer Budget 2015 and Spending Review and Autumn Statement 2015, the
government set out detailed measures to secure a surplus in 2019-20. As a result of the revision
in the OBR’s fiscal forecast, the government is taking action to ensure a surplus is still achieved
in 2019-20. Table 2.1 shows £14 billion of new measures by 2019-20.
1.52 The government is maintaining a balanced pace of deficit reduction, with public sector net
borrowing forecast to fall as a share of GDP at the same average annual rate over 2015-16 to
2019-20 as was achieved over 2010-11 to 2014-15.43
Fixing the public finances and achieving a surplus
Public spending
1.53 The government will build on the measures set out at Spending Review 2015 to deliver a
surplus and ensure the sustainability of the public finances. Over the last five years government
expenditure was reduced from the unsustainable level of 45% of GDP in 2010-11.44 Spending
43
44
22
‘Public Sector Finances’, ONS, January 2016, ‘Economic and fiscal outlook’, OBR, March 2016.
‘Public Sector Finances’, ONS, January 2016.
Budget 2016
Review 2015 set out savings of £21.5 billion, of which £9.5 billion was reinvested in the
government’s priorities. This Budget sets out that the government is adjusting those plans and
will find a further £3.5 billion of savings from public spending in 2019-20, in line
with continuing action to ensure maximum efficiency from every pound of public
spending. This is equivalent to less than 0.5% of total spending, in 2019-20.
1.54 Total Managed Expenditure (TME) as a share of GDP will be 37.0% in 2019-20 and
36.9% in 2020-21.45 After the public finances move into surplus in 2019-20, total departmental
resource spending will grow in line with inflation from 2019-20 to 2020-21. Departmental
spending will fall in real terms by an average of 0.9% per annum from 2015-16 to 2019-20,
compared to 1.7% from 2010-11 to 2015-16.46
1.55 The government has already shown that savings can be delivered from spending while
protecting core services and that a well-run state can do more for less – crime has fallen by more
than a quarter since 2010, there are more young people going to study full time at university
than ever before and record numbers of children are now taught in good or outstanding
schools.47
Delivering further efficiency savings
1.56 The Chief Secretary to the Treasury, with the support of the Paymaster General,
will lead an efficiency review, which will report in 2018. This will review the efficiency of
all departmental spending to inform future expenditure decisions.
1.57 The government’s spending priorities remain unchanged. As set out in Spending Review
2015, the defence and overseas aid commitments, the real-terms protections for the NHS in
England, schools funding in England, the police and science will be maintained. The NHS has an
ambitious programme of work underway to deliver £22 billion of efficiency savings and this is
unchanged.
Sound financial management
1.58 The government’s policy is to review the discount rate used to set employer contributions
to the unfunded public service pension schemes every 5 years. The discount rate is based on
the OBR’s long term projections of GDP growth. Budget 2016 sets out that the recent
assessment has resulted in a reduction in the discount rate which will increase the
contributions employers pay to the schemes from 2019-20 onward. This will ensure that
the costs of providing pension benefits in the future are fairly reflected in the contributions paid
by employers, and that the pension promises made today are on a sustainable basis to ensure
fairness to future tax payers.
1.59 As set out in the Spending Review, the government will continue to meet the
commitment to spend 0.7% of Gross National Income (GNI) on Official Development Assistance
(ODA) in every year of the Parliament. In line with the commitment, the ODA budget
will be adjusted to reflect the latest economic forecasts, taking existing plans into
account. The ODA budget will therefore be reduced by £650 million in 2019-20.
1.60 At Spending Round 2013, the government announced a control total to limit payments
under PFI and PF2 contracts in nominal terms in each future Parliament. The control total is
set at £70 billion and the Treasury is on track to meet this target, with forecast cumulative
‘Economic and fiscal outlook’, OBR, March 2016.
HM Treasury analysis based on OBR Budget 2016 forecasts.
47
Crime Survey for England and Wales, ONS, April 2014. https://www.gov.uk/government/news/record-number-ofpupils-in-good-or-outstanding-schools; https://www.ucas.com/corporate/data-and-analysis/ucas-undergraduatereleases/ucas-undergraduate-end-cycle-data-resources.’
45
46
Budget 2016
23
spending from 2015-16 to 2019-20 for payments on all PFI and PF2 contracts funded by central
government standing at £51.7 billion.48
Capital investment
1.61 The Spending Review prioritised long term investment over day-to-day spending. This
Budget accelerates its commitment to invest £100 billion in infrastructure by 2020-21. The
government is now accelerating its investment plans in priority areas to deliver around £1.5
billion investment in areas such as housing, schools and transport over the next three
years that would otherwise have taken place at the end of the decade. This will include
bringing forward funding for the Highways Maintenance Challenge Fund and the Pothole Action
Fund, and enabling the delivery of thirteen thousand shared ownership homes two years early.
As set out in Spending Review 2015, capital budgets will be £12 billion higher than planned at
Summer Budget 2015.
Overview of the OBR central fiscal forecast
1.62 As a result of the measures the government is taking, the OBR forecast a surplus of £10.4
billion will be achieved in 2019-20. Table 1.4 sets out the OBR forecasts for key fiscal aggregates.
Table 1.4: Overview of the OBR’s central fiscal forecast
% GDP, unless otherwise stated
Outturn
Forecast
2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21
Deficit
Public sector net borrowing
5.0
3.8
2.9
1.9
1.0
-0.5
-0.5
91.9
72.2
55.5
38.8
21.4
-10.4
-11.0
4.3
3.6
2.7
1.9
1.0
-0.5
-0.5
-3.4
-2.2
-1.1
-0.1
0.9
2.2
2.1
5.0
3.9
2.9
2.0
1.1
-0.3
-0.4
Public sector net debt2
83.3
83.7
82.6
81.3
79.9
77.2
74.7
Treaty debt
87.4
88.9
88.3
87.1
85.6
83.0
80.3
-0.7
-0.3
-0.1
0.1
0.0
0.0
0.0
-
-
0.0
-0.4
-0.2
-0.6
-0.2
Public sector net borrowing (£ billion)
Cyclically-adjusted net borrowing
Primary balance
Treaty deficit
1
Debt
3
Memo: Output gap
Memo: Total policy decisions4
1
General government net borrowing on a Maastricht basis.
2
Debt at end March; GDP centred on end March.
3
General government gross debt on a Maastricht basis.
4
Equivalent to the ‘Total policy decisions’ line in Table 2.1.
Source: Office for National Statistics, Office for Budget Responsibility and HM Treasury calculations.
Performance against the government’s fiscal targets
1.63 The Charter for Budget Responsibility was approved by the House of Commons on
14 October 2015.49 It defines the government’s fiscal mandate as a surplus on the headline
measure of Public Sector Net Borrowing (PSNB) by 2019-20, maintaining a surplus in normal
times thereafter. This is supplemented by a target for debt as a share of GDP to be falling in each
year until 2019-20. The simplicity and clarity of the metrics ensure that governments will be held
to account for their fiscal policy when the economy is performing well.
48
49
24
‘Private Finance Initiative and Private Finance 2 projects: 2015 summary data’, HM Treasury, March 2016.
‘Charter for Budget Responsibility: autumn 2015 update’, HM Treasury, October 2015.
Budget 2016
1.64 Under the updated Charter, the surplus rule will be suspended if the economy is hit by
a significant negative shock (defined as 4 quarter-on-4 quarter GDP growth below 1%). This
provides flexibility to allow the automatic stabilisers to operate freely when needed. Following
a shock, the government of the day will be required to set a plan to return to surplus, including
appropriate fiscal targets. The framework does not prescribe what the targets should be,
allowing the government of the day to respond to the circumstances. However, the targets will
be voted on by the House of Commons and assessed by the OBR.
1.65 The OBR’s March 2016 ‘Economic and fiscal outlook’ provides an assessment of the
government’s performance against its fiscal targets. It confirms the government is on track to
meet its fiscal mandate, achieving a surplus of £10.4 billion on the measure of public sector net
borrowing in the target year of 2019-20 and to maintain a surplus in the following year, 202021.50 The OBR’s judgement is that the government’s policies are more likely than not to achieve
the mandate in 2019-20.51
Chart 1.6: Public sector net borrowing (PSNB)
12
% GDP
10
8
6
4
2
0
-2
2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21
PSNB outturn
PSNB OBR forecast
Source: Office for National Statistics and Office for Budget Responsibility.
1.66 The fiscal mandate is supplemented by a target for public sector net debt to be falling as
a share of GDP in each year to 2019-20. Chart 1.7 shows PSND as a percentage of GDP. Public
sector net debt is forecast to fall from 2016-17 to the end of the Parliament, reaching 77.2%
of GDP by the end of 2019-20.52 The OBR forecasts that the level of cash debt at the end of
2015-16 will be £1591 billion, down from £1599 billion in its November forecast. Debt as a
share of GDP is forecast to rise to 83.7% of GDP at the end of 2015-16 because the economy is
smaller in nominal terms in 2015-16 than forecast in November, largely due to lower inflation.
The government has also delayed the sale of the remaining shares in Lloyds Banking Group as a
result of market conditions.53
‘Economic and fiscal outlook’, OBR, March 2016.
‘Economic and fiscal outlook’, OBR, March 2016.
52
‘Economic and fiscal outlook’, OBR, March 2016.
53
‘Economic and fiscal outlook’, OBR, March 2016.
50
51
Budget 2016
25
Chart 1.7: Public sector net debt (PSND)
90
% GDP
85
80
75
70
65
60
2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21
PSND outturn
PSND OBR forecast
Source: Office for National Statistics and Office for Budget Responsibility.
1.67 The government remains committed to bringing the UK’s Treaty deficit in line with the 3%
target set out in the Stability and Growth Pact. The OBR’s forecast indicates that this target will
be met in 2016-17.
Welfare Cap
1.68 The government introduced the Welfare Cap at Budget 2014 to strengthen control of
welfare spending, support fiscal consolidation and improve Parliamentary accountability for the
level of welfare spending. The cap applies to welfare spending in Annually Managed Expenditure
(AME) with the exception of the state pension and the automatic stabilisers. It is assessed at
Autumn Statements.
1.69 Summer Budget 2015 and Autumn Statement 2015 announced reforms to ensure that
the welfare system is both fair and sustainable. The Welfare Reform and Work Bill legislates for
the majority of these reforms. As announced by the Secretary of State for Work and Pensions,
the Department for Work and Pensions (DWP) will continue to deliver Personal Independence
Payments (PIP) in line with their original intention of supporting claimants with the greatest need
in helping them meet the extra costs of their disability or long-term health condition. Spending
in 2015-16 on PIP and its predecessor, the Disability Living Allowance, is expected to be over
£3 billion higher in real terms than in 2009-10.54 Spending on these benefits is forecast to be
higher in real terms in 2019-20 than in 2009-10.
1.70 The government’s intention is for the cap to be met by the end of the Parliament when
the OBR conducts its next assessment at Autumn Statement 2016.
‘DWP Benefit Expenditure and caseload tables for Autumn Statement 2015, ‘Economic and fiscal outlook’ OBR,
March 2016 and HMT calculations’.
54
26
Budget 2016
1.71 The Charter for Budget Responsibility requires the Treasury to set out the level of the
welfare cap in the Budget Report. This is in Table 1.5. OBR forecasts of the level of welfare
spending are set out in the ‘Economic and fiscal outlook’, March 2016.
Table 1.5: The welfare cap
£ billion
2016-17 2017-18 2018-19 2019-20 2020-21
Welfare cap set at Summer Budget 2015
Forecast Margin (2%)
115.2
114.6
114.0
113.5
114.9
2.3
2.3
2.3
2.3
2.3
Source: HM Treasury
Financial sector and other state-owned asset sales
1.72 The government is committed to returning the financial sector assets acquired in 2008-09
to the private sector. As there is no longer a policy need for the government to hold these assets,
it will seek to dispose of them, reducing PSND while maximising value for taxpayers.
1.73 Since 2010, the government has recovered over £75 billion, including further progress in
2015-16 in getting taxpayers’ money back.55 This included:
•• £2.1 billion from an initial sale of Royal Bank of Scotland (RBS) shares in August 201556
•• approximately £7.5 billion through the continuation of the Lloyds Banking Group trading
plan57
•• receipt of the final payment of £740 million from the Landsbanki estate in Iceland58 and
•• a further £5.1 billion in payments received from our holdings in UK Asset Resolution
(UKAR).59
1.74 Decisions on disposals will be made taking into account market conditions and value for
money.
1.75 The government is committed to launching a retail sale of Lloyds Banking Group
shares and to fully returning its stake to the private sector in 2016-17. UK taxpayers’
money was used to bail out the banks, so it is right to give the public the opportunity to invest
in Lloyds Banking Group. The government will shortly receive the final payment from RBS of £1.2
billion for the retirement of the Dividend Access Share (DAS), and it continues to seek further
opportunities to dispose of its holding in RBS.60 From both the DAS and share disposals, the
government expects to raise up to £25 billion from RBS by the end of 2019-20.
1.76 Following the recent successful sale of £13 billion of former Northern Rock mortgages, the
Treasury, UK Financial Investments (UKFI) and UKAR have been exploring further sales of UKAR
mortgages: in particular, a programme of sales designed to raise sufficient proceeds for Bradford
& Bingley (B&B) to repay the £15.65 billion debt to the Financial Services Compensation
Scheme (FSCS) and, in turn, the corresponding loan from the Treasury.61 It is expected that this
programme of sales will have concluded in full before the end of 2017-18.
‘Economic and fiscal outlook’, OBR, March 2016.
‘Government begins sale of its shares in the Royal Bank of Scotland’, HM Treasury, 4 August 2015, available on
www.gov.uk
57
‘Chancellor extends Lloyds trading plan’, HM Treasury, 4 December 2015, available on www.gov.uk.
58
‘UK authorities receive final payment from Icesave’, HM Treasury, 15 January 2016, available on www.gov.uk.
59
‘Economic and fiscal outlook’, OBR, March 2016.
60
‘Economic and fiscal outlook’, OBR, March 2016.
61
HMT, UKFI and UKAR have received ‘highly confident’ letters from a consortium of the main Financial Services
Compensation Scheme (FSCS) member banks, setting out the in-principle terms on which they would expect
to provide debt funding to support a major sales programme of B&B mortgages. Discussions with the banking
consortium will continue. Any sales will be subject to market conditions and ensuring value for money.
55
56
Budget 2016
27
1.77 The government is making progress towards achieving a further £5 billion of corporate
and financial asset sales by March 2020. The process to transfer the Green Investment Bank to
private ownership has begun and the government will shortly consult on options to move the
operations of the Land Registry to the private sector. In addition, the government is continuing
to pursue the sale of the pre-2012 income contingent repayment student loan book, with a first
sale in 2016-17.
Debt and reserves management
1.78 The Official Reserves, which include the government’s foreign currency assets, were
$134 billion in February 2016, almost 90% larger than in June 2010.62 This reflects a total of
£42 billion of additional financing provided for the reserves since 2010 and changes in the
market prices of the assets held. The government will provide £6 billion of sterling financing for
the Official Reserves in 2016-17.
1.79 The government’s financing plans for 2016-17 are summarised in Annex A. They are set
out in full in the ‘Debt management report 2016-17’, published alongside the Budget.
62 28
‘UK official holdings of international reserves’, HM Treasury, 3 March 2016, available on www.gov.uk.
Budget 2016
Support for working people
1.80 The Budget puts the next generation first, providing security and opportunity from
childhood to working age and through to retirement. This means building an economy based
on lower taxes, so that people can take home more of what they earn. It also means investing in
education to equip the next generation for the future, tackling childhood obesity and investing
in school sports. It means building the housing Britain needs and it means providing the next
generation with better incentives to save, and more choice and flexibility as they do so. It means
delivering on the government’s aim to reach full employment, increasing wages so that more
people are in work and earning more.
1.81 The Budget continues to reform public services in a way that is fair. The policies of this
government mean that the richest are paying an increasing share of taxes, with those lower
down the income distribution continuing to pay less. Distributional analysis published today
confirms that half of public spending continues to go to the poorest 40% of households, and
that the richest 20% will pay over half of taxes in 2019-20.63 In addition, the richest 1% paid
over 28% of all income tax revenue in 2013-14 – a higher proportion than in any year of the
last two decades.64
Lower tax society: cutting tax for working people
1.82 The government is determined to support those in work by continuing to cut taxes
and has committed to raise the personal allowance to £12,500, and the higher rate
threshold to £50,000 by the end of this parliament.
1.83 The personal allowance will be 70% higher in April of this year than in 2010-11.65
At Budget 2016, the government takes another significant step towards this
commitment, by increasing the personal allowance from £11,000 in 2016-17 to
£11,500 in 2017-18. This continues to ensure that no-one working 30 hours per week on
the National Minimum Wage (NMW) will pay income tax in 2017-18, and will bring the total
number of taxpayers taken out of income tax since the start of this parliament to 1.3 million.66
As a result, a typical basic rate taxpayer will pay over £1,000 less income tax in 2017-18 than
in 2010-11.67
1.84 The government also wants to ensure that the tax system encourages individuals to
progress. At Summer Budget 2015 the government announced that the higher rate threshold
would rise from £42,385 in 2015-16, to £43,000 in April this year.
1.85 This Budget goes further. The government will increase the higher rate threshold
by £2,000 to £45,000 in 2017-18. This will be the biggest above inflation cash increase to
this threshold since it was introduced by Lord Lawson in 1989.68 This delivers the government’s
ambition to reverse the trend whereby an increasing number of individuals are faced with paying
the higher rate. In 2017-18, there will be 585,000 fewer higher rate taxpayers than at the start
of the parliament.69
Impact on Households: distributional analysis to accompany Budget 2016, available at gov.uk.
HMRC Personal Income Statistics, 2013-14.
65
HM Treasury analysis based on personal tax parameters, ONS CPI series, HMRC analysis based on Survey of Personal
Incomes (SPI) 2013-14 data and Budget 2016 OBR forecasts.
66
HM Treasury analysis based on personal tax parameters, ONS CPI series, HMRC analysis based on Survey of Personal
Incomes (SPI) 2013-14 data and Budget 2016 OBR forecasts.
67
HM Treasury analysis based on personal tax parameters, ONS CPI series, HMRC analysis based on Survey of Personal
Incomes (SPI) 2013-14 data and Budget 2016 OBR forecasts.
68
HM Treasury analysis based on personal tax parameters, ONS CPI series, HMRC analysis based on Survey of Personal
Incomes (SPI) 2013-14 data and Budget 2016 OBR forecasts.
69
HM Treasury analysis based on personal tax parameters, ONS CPI series, HMRC analysis based on Survey of Personal
Incomes (SPI) 2013-14 data and Budget 2016 OBR forecasts.
63
64
Budget 2016
29
£14000
14%
£12000
12%
£10000
10%
£8000
8%
£6000
6%
£4000
4%
£2000
2%
Effective tax rate
Personal allowance
Chart 1.8: Personal allowance increases since 2010
0%
£0
2010-11
2011-12
2012-13
2013-14
2014-15
Personal allowance
2015-16
2016-17
2017-18
Average effective tax rate
Source: HMT analysis of personal tax parameters.
1
This is based on an individual with earnings of £20,000 in each year.
2
The average effective tax rate is for income tax only.
Freezing fuel duty
1.86 Budget 2016 announces that, for the 6th successive year, the government will
freeze the main rate of fuel duty at 57.95 pence per litre for 2016-17. This marks the
longest fuel duty freeze in over 40 years.70 Since Budget 2011, fuel duty has been kept at this
level, delivering year-on-year real cuts for motorists. The average driver will save around
£75 every year in duty compared to pre-2010 fuel duty escalator plans.71 Pump prices are
now 18 pence per litre lower than they would have been if the government had maintained
pre-2010 fuel duty escalator plans,72 and the typical motorist now spends £450 a year less on
motor fuel than they did in 2011 when the freeze began.73
‘Petrol and diesel prices’ (Standard Note SN/SG/4712, p23), House of Commons Library, 28 Jan 2014.
HM Treasury/HMRC calculations, based on DfT and ONS data on distance travelled per car, OBR RPI data and
manufacturer’s specifications for a Ford Focus 1.6 diesel car.
72
HM Treasury/HMRC calculations based on RPI.
73
HM Treasury/HMRC calculations, based on DfT and ONS data on distance travelled per car, DECC data on pump
prices and manufacturer’s specifications for a Ford Focus 1.6 diesel car.
70
71
30
Budget 2016
Chart 1.9: Fuel duty rates in 2015 prices
Fuel duty in pence per litre (2015 prices)
75
70
65
60
Ja
nAp 10
r-1
Ju 0
lO 10
ct
-1
Ja 0
nAp 11
r-1
Ju 1
lO 11
ct
-1
Ja 1
nAp 12
r-1
Ju 2
lO 12
ct
-1
Ja 2
nAp 13
r-1
Ju 3
l-1
O 3
ct
-1
Ja 3
nAp 14
r-1
Ju 4
l-1
O 4
ct
-1
Ja 4
nAp 15
r-1
Ju 5
lO 15
ct
Ja 15
n16
55
Actual
Fuel duty rate under pre-2010 plans
RPI uprating
Source: HM Treasury
Rates uprated to April 2015 prices using RPI.
Freezing alcohol duties
1.87 Pubs play an important role in their local communities. The British Beer and Pub
Association report that beer duty rate changes since Budget 2013 have helped support both
pubs and over 19,000 jobs.74 To continue this support, the duty rates on beer will be
frozen in cash terms this year.
1.88 The Scotch whisky industry is a great British success story. Exports are worth around
£4 billion a year making up around a fifth of UK food and drink exports.75 To continue to
support the Scotch whisky industry, the duty rate on spirits will be frozen this year.
The duty rates on most ciders will also be frozen this year in recognition of the important
role cider makers play in rural communities. Other alcohol duty rates will rise by inflation. Beer
and wine duties will continue to be broadly similar.
British Beer and Pub Association Budget Submission, 2016.
HMRC analysis based on UK Trade Statistics data and DEFRA’s Food Statistics Pocketbook 2015.
74 75 Budget 2016
31
Investing in the next generation
Education
1.89 This Budget accelerates the government’s schools reforms and takes steps to create a gold
standard education throughout England. The government will:
•• drive forward the radical devolution of power to school leaders, expecting all
schools to become academies by 2020, or to have an academy order in place to
convert by 2022. The academies programme is transforming education for thousands
of pupils, helping to turn around struggling schools while offering our best schools the
freedom to excel even further
•• accelerate the move to fairer funding for schools. The arbitrary and unfair system
for allocating school funding will be replaced by the first National Funding
Formula for schools from 2017-18. Subject to consultation, the government’s aim
is for 90% of schools who gain additional funding to receive the full amount they are
due by 2020. To enable this the government will provide around £500 million
of additional core funding to schools over the course of this Spending Review,
on top of the commitment to maintain per pupil funding in cash terms.
The government will retain a minimum funding guarantee
•• ask Professor Sir Adrian Smith to review the case for how to improve the study of
maths from 16 to 18, to ensure the future workforce is skilled and competitive, including
looking at the case and feasibility for more or all students continuing to study maths to 18,
in the longer-term. The review will report during 2016
•• invest £20 million a year of new funding in a Northern Powerhouse Schools
Strategy. This new funding will ensure rapid action is taken to tackle the unacceptable
divides that have seen educational progress in some parts of the North lag behind the rest
of the country. In support of this, Sir Nick Weller will lead a report into transforming
education across the Northern Powerhouse
Soft drinks industry levy to pay for school sport
1.90 Childhood obesity is a national problem. The UK currently has one of the highest overall
obesity rates amongst developed countries.76 In England 1 in 10 children are obese when they
start primary school, and this rises to 2 in 10 by the time they leave.77
1.91 The evidence shows that 80% of children who are obese between the ages of 10 and 14
will go on to become obese adults,78 and this has widespread costs to society, including through
lost productivity and the direct costs of treating obesity-related illness. The estimated cost to the
UK economy today from obesity is approximately £27 billion,79 with the NHS currently spending
over £5 billion on obesity-related costs.80
1.92 Sugar consumption is a major factor in childhood obesity, and sugar-sweetened soft drinks
are now the single biggest source of dietary sugar for children and teenagers.81 A single 330ml
can of cola can contain more than a child’s daily recommended intake of added sugar.82 Public
‘Healthy Weight, Healthy Lives: A toolkit for developing local strategies’, Dr Kerry Swanton for the National Heart
Forum/Cross Government Obesity Unit/Faculty of Public Health, 2008.
77 Public Health England (PHE), figures based on 2014/15 data.
78 ‘Foresight’, Government Office for Science, 2007.
79 ‘The Economic burden of Obesity’, National Obesity Observatory, PHE, October 2010.
80 ‘Sugar Reduction: the Evidence for Action’, PHE, October 2015.
81 ‘Sugar Reduction: the Evidence for Action’, PHE, October 2015.
82 Press Release, PHE, January 2016.
76 32
Budget 2016
health experts have identified sugar-sweetened soft drinks of this kind as a major factor in the
prevalence of childhood obesity.83
1.93 Budget 2016 announces a new soft drinks industry levy targeted at producers
and importers of soft drinks that contain added sugar. The levy will be designed to
encourage companies to reformulate by reducing the amount of added sugar in the drinks they
sell, moving consumers towards lower sugar alternatives, and reducing portion sizes.
1.94 Under this levy, if producers change their behaviour, they will pay less tax. The
levy is expected to raise £520 million in the first year. The OBR expect that this number will fall
over time as the total consumption of soft drinks in scope of the levy drops, in part as a result of
producers changing their behaviour and helping consumers to make healthier choices.84
1.95 In England, revenue from the soft drinks industry levy over the scorecard period
will be used to:
•• double the primary school PE and sport premium from £160 million per year to
£320 million per year from September 2017 to help schools support healthier, more
active lifestyles. This funding will enable primary schools to make further improvements to
the quality and breadth of PE and sport they offer, such as by introducing new activities and
after school clubs and making greater use of coaches
•• provide up to £285 million a year to give 25% of secondary schools increased
opportunity to extend their school day to offer a wider range of activities for pupils,
including more sport
•• provide £10 million funding a year to expand breakfast clubs in up to 1,600 schools
starting from September 2017, to ensure more children have a nutritious breakfast as a
healthy start to their school day
1.96 The Barnett formula will be applied to spending on these new initiatives in the normal way.
Improving health
1.97 The government is committed to investing in the next generation’s health, and will:
•• invest £1.5 million in child prosthetics, giving hundreds of children with limb deficiency
access to sports prosthetics, and creating a fund to incentivise the development of new
breakthrough innovative prosthetic products for the NHS
•• tackle the health impacts of smoking, by continuing the tobacco duty escalator, ensuring
tobacco duties rise by more than inflation each year in this Parliament. Hand-rolling tobacco
is currently taxed at a lower rate than cigarettes. The government will therefore increase
the duty on hand-rolling tobacco by an additional 3% above the escalator from
6pm on Budget day
Apprenticeships
1.98 The government is committed to increasing the quality and quantity of apprenticeships,
and will deliver 3 million apprenticeship starts by 2020. As announced at the Autumn
Statement 2015, an apprenticeship levy will be introduced in April 2017, and employers that are
committed to training will be able to get out more than they put in.
1.99 From April 2017, employers will receive a 10% top-up to their monthly
levy contributions in England and this will be available for them to spend on
83 Duncan Selbie; Press Release, PHE, July 2015.
‘Economic and fiscal outlook’, Office for Budget Responsibility (OBR), March 2016.
84 Budget 2016
33
apprenticeship training through their digital account. The government will set out further
details on the operating model in April and draft funding rates will be published in June.
Lifetime learning, from basic skills to PhDs
1.100 The digital revolution is transforming the world of work. As working lives lengthen and
jobs change, adults will need more opportunities to retrain and up-skill. This Budget announces
that, for the first time, direct government support will be available to adults wishing to
study at any qualification level, from basic skills right the way up to PhD. During this
parliament, loans will be introduced for level 3 to level 6 training in further education, part-time
second degrees in STEM, and postgraduate taught master’s courses.
1.101 From 2018-19, loans of up to £25,000 will be available to any English student
without a Research Council living allowance who can win a place for doctoral study
at a UK university. They will be added to any outstanding master’s loan and repaid on the
same terms, but with the intention of setting a repayment rate of 9% for doctoral loans and a
combined 9% repayment rate if people take out a doctoral and master’s loan. The government
will launch a technical consultation on the detail. Those who take out only a master’s loan
will still repay at 6%, as announced at Autumn Statement 2015. The government will also
extend the eligibility of master’s loans to include three-year part-time courses with
no full-time equivalent.
1.102 To promote retraining and prepare people for the future labour market, the
government will review the gaps in support for lifetime learning, including for
flexible and part-time study. The government will bring together information about
the wages of graduates of different courses and the financial support available
across further and higher education to ensure that people can make informed decisions
about the right courses for them.
1.103 The government will continue to free up student number controls for
alternative providers predominantly offering degree level courses for the 2017-18
academic year. The best providers can also grow their student places further through the
performance pool.
Supporting people to save for the long term and buy their own home
1.104 The government has taken significant steps to support savers. It has nearly tripled the
amount of cash that people can save in ISAs and made them more flexible, abolished tax on
savings for 17 million people through the introduction of the Personal Savings Allowance,85
and given people the freedom to take their pension savings in a way that best suits their needs
without being bound by the straitjacket of having to buy an annuity. To further help savers at
a time of unprecedentedly low interest rates, the ISA allowance will rise from £15,240 to
£20,000 in April 2017.
1.105 Since their launch, the Help to Buy: equity loan and mortgage guarantee schemes have
helped over 150,000 people to buy a home.86 More than 350,000 first time buyers have opened
a Help to Buy: ISA with someone signing up every 30 seconds.87 Over 45,000 people have
bought their home under Right to Buy since the scheme was reinvigorated in 2012.88
HMRC calculations using data from the Survey of Personal Incomes.
HM Treasury Help to Buy: mortgage guarantee scheme quarterly statistics and DCLG Help to Buy (equity loan
scheme) and Help to Buy NewBuy statistics: Data to 31 December 2015.
87
Data collected by the Tax Incentivised Savings Association (TISA) from the Help to Buy: ISA providers.
88
‘Annual Right to Buy sales for England’, DCLG, 2015.
85
86
34
Budget 2016
1.106 The government consultation ‘Strengthening the incentive to save’ looked at the way
pensions are taxed.89 The consultation found that while the current system gives everyone an
incentive to save into a pension, and people like the 25% tax free lump sum, it is also inflexible
and poorly understood. Young people in particular are not saving enough, often because they
feel they have to choose between saving for their first home and saving for retirement.90 Budget
2016 therefore addresses both of these concerns, continuing to prioritise transparency, choice
and flexibility for savers.
A brand new flexible saving opportunity for the next generation
1.107 Building on the success of the Help to Buy: ISA, Budget 2016 gives the next generation a
brand new opportunity to save in one place for a home and for retirement, and introduces new
support for those who find it hardest to save.
The Lifetime ISA
1.108 The government wants to help young people save flexibly for the long term and ensure
they do not have to choose between saving for retirement and saving for their first home. The
Budget announces that from 6 April 2017 any adult under 40 will be able to open a
new Lifetime ISA. They can save up to £4,000 each year and will receive a 25% bonus
from the government on every pound they put in.
1.109 Contributions can continue to be made with the bonus paid up to the age of 50.
Funds can be used to buy a first home with the government bonus at any time from
12 months after opening the account, and can be withdrawn from the Lifetime ISA
with the government bonus from age 60 for use in retirement.
1.110 The government will set the limit for property purchased using Lifetime ISA
funds at £450,000. This limit will apply nationally. People can continue to open a Help to
Buy: ISA until November 2019, as planned. They can also choose to open a Lifetime ISA, but will
only be able to use the government bonus from one of their accounts to buy their first home.
During the 2017-18 tax year, those who already have a Help to Buy: ISA will be able to transfer
the savings they have built up into the Lifetime ISA and still save an additional £4,000.
1.111 Whilst this is a product aimed at encouraging saving for the long term, the government
understands that circumstances change so wants to ensure that people can access their own
money if they need it whilst also keeping an incentive to leave funds invested for the long term.
The government will consider whether Lifetime ISA funds plus the government bonus
can be withdrawn in full for other specific life events in addition to buying a first
home.
1.112 The government proposes that savers can make withdrawals at any time for other
purposes, but with the bonus element of the fund plus any interest or growth on it returned
to the government, and a small 5% charge applied. The government will also explore with the
industry whether there should be the flexibility to borrow funds against the Lifetime ISA without
incurring a charge if the borrowed funds are fully repaid. In the US some retirement plans allow
50% to be borrowed up to a maximum of $50,000. Further details on the Lifetime ISA are set
out in the document published alongside Budget.
‘Strengthening the incentive to save: a consultation on pensions tax relief’, HM Treasury, July 2015.
‘Strengthening the incentive to save: summary of responses to the consultation on pensions tax relief’, HM Treasury,
March 2016.
89
90
Budget 2016
35
Figure 1: The Lifetime ISA
Saver opens a Lifetime ISA, makes contributions
and gets a government bonus at the end of
each tax year
Each year
Max £4,000
yearly
contribution
Saver can withdraw
savings in retirement
Growing fund
25% bonus
25% bonus
Saver may use
savings to buy their
first home
Savings
including taxfree interest
and
investment
growth
saving
saving
The savings,
including the
bonus, can
be used on a
first home
worth up to
£450,000
All remaining
savings,
including the
bonus, can be
withdrawn
tax-free when
saver turns 60
Help to Save
1.113 To help the people who find it hardest to save, the government will introduce a new
Help to Save scheme for those on low incomes who wish to regularly set aside some of
their income. The scheme will be open to 3.5 million adults in receipt of Universal Credit with
minimum weekly household earnings equivalent to 16 hours at the National Living Wage, or
those in receipt of Working Tax Credit.91 It will work by providing a 50% government bonus
on up to £50 of monthly savings into a Help to Save account. The bonus will be paid
after two years with an option to save for a further two years, meaning that people can save up
to £2,400 and benefit from government bonuses worth up to £1,200. People will be able to use
the funds in any way they wish.
Understanding pension savings
1.114 As people work longer and change jobs more often, pension savings can become
confusing. The average person will move employers 11 times over their working life, meaning
they could end up with 11 or more private pensions by the time they retire.92 Research shows
that over a third of people approaching retirement find it difficult to keep track of their pension
pots.93 To help the next generation to clearly view their pensions savings, the government will
ensure the industry designs, funds and launches a pensions dashboard by 2019. This
will mean an individual can view all their retirement savings in one place.
Financial advice
1.115 The government welcomes the recommendations of the Financial Advice Market
Review (FAMR),94 which aims to support the provision of affordable and accessible advice for
everyone, at all stages of their lives. FAMR was a joint review between the Financial Conduct
Authority and Her Majesty’s Treasury, and its recommendations were published on 14 March.
The government commits to implement all of the recommendations for which it is
responsible, and will:
HMRC and DWP forecasts of welfare claimants using data from Family Resources Survey and HMRC tax credit
administration data.
92
‘Making automatic enrolment work’, DWP, October 2010.
93
‘Half of over-50s don’t know value of their pension’, Which?, March 2016.
94
‘Financial Advice Market Review: Final report’, HM Treasury/ FCA, March 2016.
91
36
Budget 2016
•• consult on introducing a single clear definition of financial advice to remove
regulatory uncertainty and ensure that firms can offer consumers the help they need
•• increase the existing £150 Income Tax and National Insurance relief for employerarranged pension advice to £500
•• consult on introducing a Pensions Advice Allowance. This will allow people before
the age of 55 to withdraw up to £500 tax free from their defined contribution
pension to redeem against the cost of financial advice. The exact age at which people
can do this will be determined through consultation. This means that a basic rate taxpayer
could save £100 on the cost of financial advice
1.116 The government will also restructure the delivery of public financial guidance to
make it more effective.95
Home ownership
1.117 The government supports home ownership and first time buyers. In addition to helping
young people to buy their own home through the Lifetime ISA and Help to Buy, the Budget sets
out further measures to deliver more housing.
1.118 The Autumn Statement 2015 set out the government’s commitment to delivering
400,000 affordable housing starts by 2020-21, including 200,000 Starter Homes and
135,000 Help to Buy Shared Ownership properties. This constitutes the most ambitious
affordable housing programme since the 1970s. To deliver on these plans the Budget
announces:
•• the launch of the Starter Homes Land Fund prospectus, inviting Local Authorities
to access £1.2 billion of funding to remediate brownfield land to be used for housing, to
deliver at least 30,000 Starter Homes
•• the delivery of 13,000 affordable homes two years early by bringing forward
£250 million of capital spending to 2017-18 and 2018-19
1.119 Consumers spend £270 million each year on failed housing transactions.96 The
government will shortly publish a call for evidence on how to make the process better value for
money and more consumer-friendly.
A more streamlined planning system
1.120 The government has undertaken a series of reforms to streamline and simplify the
planning system. Annual housing starts are now at an 8-year high and planning permission
was granted for more than 250,000 homes last year alone.97 Further reform is needed to deliver
the government’s commitment to deliver 400,000 affordable housing starts by 2020-21, while
continuing to protect the Green Belt. Budget 2016 therefore announces:
•• the government’s intention to move to a more zonal and ‘red line’ planning
approach, where local authorities use their local plans to signal their development strategy
from the outset and make maximum use of permission in principle, to give early certainty
and reduce the number of stages developers must go through to get planning permission
•• measures to speed up the planning system, including minimising the delays caused by
planning conditions, and ensuring the delivery of local plans by 2017
‘Public Financial Guidance Review: Proposal for consultation’, HM Treasury, March 2016.
Department for Business, Innovation and Skills, research and analysis, to be published alongside the call for
evidence.
97
‘Planning applications in England: October to December 2015’, DCLG, 8 March 2016.
95
96
Budget 2016
37
•• a consultation on options for increasing transparency in the property market,
including by increasing the visibility of information relating to options to purchase or
lease land
•• that the government will deliver provisions to provide greater freedoms and flexibilities
for the deployment of mobile infrastructure, including reducing planning restrictions
for existing telecoms infrastructure and allowing taller new ground based masts to be built
Unlocking more land for housing
1.121 The government is committed to bringing more land into the planning system to ensure
more families have a chance to own a home. At the Autumn Statement 2015 the government
committed to releasing enough public sector land for 160,000 homes, over 50% more than in
the last Parliament. The government will now go even further to release public sector
land for housing:
•• for the first time ever Local Authorities are collaborating with central government
on a local government land ambition, working with their partners to release
land with the capacity for at least 160,000 homes, helping to support the
government’s policy on estates regeneration
•• the Homes and Communities Agency will work in partnership with Network Rail
and local authorities to provide land around stations for housing, commercial
development and regeneration. The government will set out shortly which sites will take
part in the scheme
1.122 To increase densities on brownfield land, following the consultation on ‘building up’ in
London, the government will consult on providing similar powers through devolution deals.
Garden towns, cities, and villages
1.123 The government supports the construction of a new wave of garden towns and
cities across the country, with the potential to deliver over 100,000 homes. The Budget
announces that the government will legislate to make it easier for local authorities to
work together to create new garden towns, as well as consult on a second wave of
Compulsory Purchase Order (CPO) reforms with the objective of making the CPO process
clearer, fairer and quicker.
1.124 For areas that want to establish smaller settlements, the government will provide
technical and financial support to areas that want to establish garden villages and
market towns of between 1,500 to 10,000 homes. The government will shortly announce
what planning and financial flexibilities will be offered to local authorities that submit proposals
for settlements that deliver a significant number of additional houses.
Additional properties
1.125 As part of the government’s commitment to support home ownership and first-time
buyers, the Autumn Statement 2015 announced that from 1 April 2016, higher rates of Stamp
Duty Land Tax (SDLT) will apply to purchases of additional residential properties, such as second
homes and buy-to-let properties. The higher rates will be 3 percentage points above the current
SDLT rates and will apply to purchases of additional residential properties in England, Wales and
Northern Ireland.
1.126 Following consultation, the government has decided:
•• to help those moving in difficult circumstances, purchasers will have 36 months
rather than the originally proposed 18 months to either claim a refund from
the higher rates or before the higher rates will apply, in the event that there is a
period of overlap or a gap in ownership of a main residence
38
Budget 2016
•• there will be no exemption from the higher rates for significant investors, and the
higher rates will apply equally to purchases by individuals and corporate investors
1.127 The government will provide £60 million of the additional receipts from higher rates
on additional residential properties to enable community-led housing developments, including
through Community Land Trusts, in rural and coastal communities where the impact of second
homes is particularly acute.
Preventing homelessness
1.128 The Autumn Statement 2015 announced a real terms protection for central funding for
homelessness, demonstrating the government’s commitment to support the most vulnerable in
society. This funding will support wider work to reform and refocus the system on preventing
homelessness.
1.129 To further support rough sleepers off the streets and to help those who are recovering
from a homelessness crisis, Budget 2016:
•• invests £100 million to deliver low-cost ‘second stage’ accommodation for rough
sleepers leaving hostel accommodation and domestic abuse victims and their
families moving on from refuges. This will provide at least 2,000 places to enable
independent living for vulnerable households and individuals, freeing up hostels and refuges
for those in most acute need
•• invests £10 million over two years to support and scale up innovative ways to
prevent and reduce rough sleeping, particularly in London, building on the success of
the No Second Night Out initiative
•• doubles the funding for the Rough Sleeping Social Impact Bond announced at the
Autumn Statement 2015 from £5 million to £10 million, to drive innovative ways of
tackling entrenched rough sleeping, including ‘Housing First’ approaches
•• takes action to increase the number of rough sleeping EU migrants returning to
their home countries. Building on the success of the Operation Adoze pilot, the government
will roll out a new approach in which immigration officials work with Local Authorities and
outreach workers to connect rough sleepers to services that can return them home
1.130 The government recognises the important work of providers of supported
accommodation, including the providers of homelessness shelters and other services for those
who may otherwise be sleeping rough. On 1 March 2016 the government confirmed that
the date from which Local Housing Allowance caps apply to new tenancies in the supported
accommodation sector will be delayed by one year. It will now apply to tenancies in this sector
signed after 1 April 2017. The evidence review of the supported accommodation sector, due to
report in the spring, will provide a foundation to support further decisions on protections for the
supported housing sector in the long term.
Delivering full employment
1.131 A productive, dynamic economy is one that makes full use of its workforce, ensuring
that as many people as possible can benefit from a growing economy and higher wages. The
government has set out an ambition to achieve the highest employment rate among major
economies by the end of the parliament. As Chart 1.10 shows, the difference between the
employment rate in the UK and Germany, the country with the highest employment rate in the
G7, has more than halved since 2011. On current population levels, an extra 500,000 people
would need to move into employment to equal Germany98 and deliver on the government’s full
employment ambition.
98
OECD Labour Force Statistics.
Budget 2016
39
Chart 1.10: UK and German employment rates (15-64)
76
Employment Rate 15-64 (%)
74
72
70
68
66
64
Q1 10
Q1 11
Q4 11
Q3 12
Q2 13
Germany
Q1 14
Q4 14
Q3 15
UK
Source: Organisation for Economic Co-Operation and Development statistics.
1.132 Much of the contribution to the increase in working-age employment seen over the last
parliament came from substantial reductions in unemployment. Unemployment is at a 10 year
low.99 It has fallen by 820,000 since 2010, and at the end of last year, the claimant count was
the lowest since 1975.100 In order to meet the government’s full employment goal, it is crucial
to continue to reduce unemployment but also economic inactivity. In particular, the government
wants to remove the barriers to work for key groups – notably women and the disabled, building
on the progress made in the last parliament. The government will also introduce measures to
support the self-employed, as set out in the business and enterprise section of this document.
Disability employment reform
1.133 The government is delivering on its manifesto pledge to halve the disability employment
gap. The number of disabled people in employment has increased by 150,000 to over
3.25 million people over the last year101 and the government is taking action to increase this
further. At Summer Budget 2015, the government allocated funding to provide additional help
for those on Employment and Support Allowance to move closer to the labour market.
1.134 This Budget announces that the government is accepting the
recommendations of an independent stakeholder group and will offer new peer
and specialist support for those suffering from mental health conditions and young
disabled people. Later this year, the government will publish a White Paper focusing on the
roles that the health, care and welfare sectors can play in supporting disabled people and those
with health conditions to get into and stay in work.
‘UK Labour Market’, ONS, February 2016.
‘UK Labour Market’, ONS, February 2016.
101
Table A08, ‘UK Labour Market’, ONS, February 2016.
99
100
40
Budget 2016
Support for parents in employment
1.135 Significant progress has been made in achieving greater equality of opportunity for
women. Female employment is at a record high and the number of women in full time jobs has
increased by over 30% since 1992, when records began.102 Yet it is still the case that 90% of
those who aren’t working because they are caring for a family or home are women,103 and there
are over 1 million women who aren’t currently able to work who want a job.104 The OECD have
said equalising the roles of men and women in the labour force could raise UK GDP by 10% by
2030.105
1.136 To support families in this Budget, government will launch a consultation in
May 2016 on how to implement its commitment to extend Shared Parental Leave and
Pay to working grandparents. The consultation will also cover options for streamlining the
system, including simplifying the eligibility requirements and notification system, and will explore
the potential to make better use of digital technology.
1.137 The government will work with the Behavioural Insights Team to look at new
ways to support parents in choosing how and when to return to work.
1.138 From early 2017, the government is introducing Tax-Free Childcare to help working
parents with the cost of childcare, ensuring more parents who want to can go out to work
or increase the number of hours they work. Tax-Free Childcare will be rolled out in such
a way that allows the youngest children to enter the scheme first, with all eligible
parents brought in by the end of 2017. The existing scheme Employer-Supported
Childcare will remain open to new entrants until April 2018 to support the transition
between the schemes. This will sit alongside doubling the free childcare entitlement
from 15 hours to 30 hours a week for working families with three and four year olds from
September 2017.
1.139 Last year, the Economic Secretary to the Treasury asked Jayne-Anne Gadhia, CEO of
Virgin Money, to lead a review into the representation of women in senior managerial roles
in the financial services industry. It is the sector with the highest pay in the UK and the widest
gender pay gap.106 The review will launch its report on the 22 March at the Bank of
England with recommendations on how to improve gender diversity and will complement
wider government work to eliminate the gender pay gap.
Higher wage society: the National Living Wage and National Minimum Wage
1.140 The new mandatory National Living Wage (NLW) will come into effect from 1 April 2016,
set at £7.20 an hour for workers aged 25 and above. This will represent a £900 cash increase
in earnings for a full-time worker on the current National Minimum Wage (NMW) – the largest
annual increase in a minimum wage rate across any G7 country since 2009, in cash and real
terms.107 Around 65% of those who will benefit directly from the NLW are women, and the OBR
estimate that by 2020 1.9 million women will be earning the NLW.108
‘UK Labour Market’, ONS, February 2016.
‘UK Labour Market’, ONS, February 2016.
104
‘UK Labour Market’, ONS, February 2016.
105
‘Effects of Reducing Gender Gaps in Education and Labour Force Participation on Economic Growth in the OECD’,
Thevenon, Ali, Adema & Salva Del Pero, OECD Social, Employment and Migration Working Papers No. 138, 2012.
106
‘Trailblazing Transparency: Mending the Gap’, Government Equalities Office/Deloitte, February 2016.
107
HM Treasury calculations using OECD Minimum Wage Statistics, 2016.
108
‘Number of employees paid the National Living Wage - November 2015 Economic and fiscal outlook’, OBR,
November 2015.
102
103
Budget 2016
41
1.141 The government has asked the Low Pay Commission (LPC) to set out how the new
NLW will reach 60% of median earnings by 2020.109 Based on the OBR’s March 2016
earnings forecasts, a NLW of 60% of median earnings would be £9 in 2020,110 in line with the
government’s objective.
1.142 The Budget announces that the government will set the main rate of the NMW,
which applies for workers aged between 21 and 24, at £6.95 from October 2016, in
line with the Low Pay Commission’s recommendations.111 This increase means the main NMW
rate will reach its highest ever level in real terms.112 The government has also accepted the LPC’s
recommendations for the youth and apprentice rates of the NMW.
Addressing imbalances in the tax system
1.143 The government wants to see lower taxes for all, while continuing to put the public
finances on a more sustainable footing. To do this in a fair way, this Budget takes steps to better
align the tax treatment of different forms of remuneration and removes some imbalances in the
tax system.
Different forms of remuneration
1.144 Long-standing anomalies in the tax system mean that employer-provided benefits are
taxed more favourably than cash salaries, and individuals who work through their own company
can pay lower taxes. The measures in this Budget aim to treat different forms of income in a
similar way, to fund a fairer, more sustainable tax system for everyone.
Tax and NICs rules for pay-offs
1.145 Certain forms of termination payments are exempt from employee and employer
National Insurance contributions and the first £30,000 is income tax free. The rules are complex
and the exemptions incentivise employers to manipulate the rules, structuring arrangements to
include payments that are ordinarily taxable such as notice and bonuses to minimise the tax and
National Insurance due.
1.146 From April 2018, the government will tighten the scope of the exemption
to prevent manipulation and align the rules so employer National Insurance
contributions are due on those payments above £30,000 that are already subject to
income tax. The government will continue to support those individuals who lose their job.
The first £30,000 of a termination payment will remain exempt from income tax and the full
payment will be outside the scope of employee NICs.
Salary sacrifice
1.147 Salary sacrifice arrangements enable employees to give up salary in return for benefits-inkind that are often subject to more favourable tax treatment than salary. The government wants
to encourage employers to offer certain benefits but is concerned about the growth of salary
sacrifice schemes: clearance requests for salary sacrifice arrangements from employers to HMRC
have increased by over 30% since 2010. The government is therefore considering limiting
the range of benefits that attract income tax and NICs advantages when they are
provided as part of salary sacrifice schemes. However, the government’s intention is that
pension saving, childcare and health-related benefits such as Cycle to Work should continue to
benefit from income tax and NICs relief when provided through salary sacrifice arrangements.
‘Low Pay Commission Remit 2016’, BIS, July 2015.
‘Economic and fiscal outlook’, OBR, March 2016.
111
‘National Minimum Wage Report’, Low Pay Commission, March 2016.
112
HM Treasury calculations using OECD minimum wage statistics.
109
110
42
Budget 2016
Off-payroll engagement in the public sector
1.148 Some individuals who work through their own limited company are undertaking jobs
that would ordinarily mean they are employees of the business that they are working for. In
those circumstances, existing legislation on off-payroll working requires them to pay broadly
the same taxes as employees. However, non-compliance with these rules is costing the taxpayer
around £440 million a year – and these costs are rising.113
1.149 Public sector bodies have a responsibility to taxpayers to ensure that the people working
for them are paying the right tax. From April 2017, where the public sector engages an
off-payroll worker through their own limited company, that body (or the recruiting
agency if the public sector body engages through one) will become responsible
for determining whether the rules should apply, and for paying the right tax. This
strengthens the public sector’s role in ensuring that the workers it engages comply with the
rules.
1.150 The government also recognises that the current rules are seen as complex and can
create uncertainty. It will therefore consult on a simpler set of tests and online tools that will
provide a clear answer as to whether and when the rules should apply.
Loans to participators
1.151 The loans to participators rules aim to prevent owners of close companies avoiding
Income Tax and National Insurance contributions by remunerating themselves through loans or
advances that are not repaid, rather than taking dividends or salary. Budget 2016 announces an
increase in the rate of tax payable by close companies under the loans to participators rules so
that it continues to mirror the higher rate of dividend tax. The loans to participators tax rate
will be increased from 25% to 32.5% in April 2016, with effect for loans, advances
and arrangements made on or after 6 April 2016.
113
HMRC analysis of taxpayer data.
Budget 2016
43
Backing business and enterprise
1.152 Businesses are the lifeblood of the economy, and it is enterprise and innovation by British
business which will deliver growth and opportunity for the next generation. In particular, the
government recognises the importance of small businesses, responsible in 2015 for almost half
of employment and a third of turnover in the private sector.114
1.153 Since 2010, the government’s economic plan has delivered security for British business.
Reducing the deficit and fixing the public finances is continuing to provide the strong and
stable environment which businesses need. Reforms to the banking sector have made the
UK economy more resilient and ensured that banks lend again. By supporting capital investment
– committing over £100 billion to infrastructure over this Parliament and setting up the National
Infrastructure Commission – the government is continuing to take the long term steps to make
the UK the best place in the world to do business.
Competitive taxes in a global economy
1.154 Since 2010, the government has provided a competitive environment for business by
cutting taxes. Budget 2016 builds on this success by setting out a business tax road map for this
Parliament with a clear plan to deliver low taxes, but low taxes which must be paid. The road
map will implement international best practice and focus on supporting small business. This
approach will help to raise productivity, create job opportunities and increase wages for the next
generation.
1.155 Reforms to business tax have been a central part of the government’s strategy to boost
economic growth. Since 2010, these reforms have included:
•• cutting the main rate of corporation tax from 28% to 20% – the lowest rate in the G20115 –
with further cuts to 19% in 2017 and 18% in 2020 to come
•• introducing the Employment Allowance, reducing the cost of employer National Insurance
contributions by up to £2,000 every year for businesses and charities. The allowance will
increase to £3,000 from April 2016
•• increasing the permanent level of the Annual Investment Allowance to £200,000, meaning
99% of firms will receive 100% first-year relief on all qualifying investment116
•• extending the doubling of small business rate relief to April 2017, meaning that over
400,000 properties continue to receive 100% business rates relief117
•• introducing the Diverted Profits Tax to target contrived arrangements so that multinational
enterprises pay more tax on their UK profits, forecast to raise £1.3 billion over the next
5 years
Business tax road map
1.156 In 2010, the government set out a corporate tax road map for the first time. This
outlined plans to back business through lower corporation tax rates and the modernisation of
tax rules and administration. The road map gave businesses the certainty to invest, and a clear
and consistent direction for reform. Investment has grown by 30% since 2010, twice as fast
Business population estimates 2015, Department for Business, Innovation and Skills, 14 October 2015
Corporate tax rates table, KPMG, 2015
116
HMRC analysis of corporation and self-assessment tax return data
117
Department of Communities and Local Government (DCLG) calculation using DCLG and Valuation Office Agency
data
114
115
44
Budget 2016
as consumption over the same period.118 Meanwhile, the UK was the number one recipient for
inward investment in the EU in 2014,119 creating job opportunities across the UK.
1.157 The government is building on its achievements in the last Parliament, with a new plan to
focus support on small businesses through ambitious reforms to business rates. The business tax
road map will support investment while continuing to crack down on avoidance and aggressive
tax planning, making sure rules are fair and taxes paid. In particular, the road map will:
•• cut tax rates to drive growth and support small businesses
•• modernise the business tax system in line with international best practice
•• ensure a level playing field, with large multinationals paying their fair share of tax
Lower tax rates to drive growth and support small businesses
Lower corporation tax
1.158 In the last Parliament, the government cut the main rate of corporation tax from
28% to 20%. The small profits rate was also cut to 20%, and the two rates were unified, in a
major simplification of the tax system. Future reductions in this unified rate have already been
announced: to 19% in 2017 and 18% in 2020 to support small and large businesses alike.
1.159 Budget 2016 announces that the government will cut corporation tax further,
so the rate will fall to 17% in 2020. This measure will benefit over a million companies,
large and small.120 It will ensure the UK has the lowest tax rate in the G20, as set out in
Chart 1.11 below. Overall, the cuts to corporation tax delivered since 2010 will be worth almost
£15 billion a year to business by 2021.121
Chart 1.11: G20 Corporate Tax Rates in 2020*
UK
Russia
Saudi Arabia
Turkey
South Korea
China
Indonesia
Canada
South Africa
Germany
Australia
Mexico
Italy
France
Japan
Brazil
India
Argentina
US
0
5
10
15
20
25
30
35
40
Source: KPMG Corporate Tax Rates Table.
* Based on legislated plans.
‘UK Quarterly National Accounts – Q3 2015’, ONS, 23 December 2015
‘World Investment Report 2015’, United Nations Conference on Trade and Development (UNCTAD), 24 June 2015
120
HMRC analysis based on taxpayer data
121
Policy measures database, OBR
118
119
Budget 2016
45
Cutting business rates
1.160 The government has concluded the business rates review and has decided to cut the
burden on ratepayers in England by £6.7 billion over the next 5 years,122 cutting business rates
for all properties and ensuring that the smallest businesses pay no rates at all, while modernising
the tax to make it fit for the 21st century.
1.161 The government recognises that business rates represent a higher fixed cost for small
businesses and this Budget cuts business rates from next year for half of all properties
– 900,000 smaller properties – starting 1 April 2017. The government will:
•• permanently double Small Business Rate Relief (SBRR) from 50% to 100% and
increase the thresholds to benefit a greater number of businesses. Businesses with
a property with a rateable value of £12,000 and below will receive 100% relief.
Businesses with a property with a rateable value between £12,000 and £15,000
will receive tapered relief. 600,000 small businesses, occupiers of a third of all
properties, will pay no business rates at all – a saving worth up to £5,900 in 2017-18. An
additional 50,000 will benefit from tapered relief123
•• increase the threshold for the standard business rates multiplier to a rateable
value of £51,000, taking 250,000 smaller properties out of the higher rate.124 This
will reduce business rates for many small businesses – including some high street shops
1.162 From April 2020, taxes for all businesses paying rates will be cut through a
switch in the annual indexation of business rates from RPI to be consistent with
the main measure of inflation, currently CPI, in line with the government’s previous
commitment to consider moving the indexation of indirect taxes from RPI once fiscal
consolidation is complete. This represents a business rates cut every year from 2020.125 In
2020-21 alone it is worth £370 million to businesses and the benefit will grow significantly
thereafter.126
1.163 The government will also modernise the administration of business rates to
revalue properties more frequently and make it easier for businesses to pay the taxes that are due:
•• the government will aim to introduce more frequent business rate revaluations
(at least every 3 years) and will publish a discussion paper in March 2016 outlining
options on how to achieve this to support both businesses and the stability of
local authority funding
•• the government will transform business rates billing and collection. By 2022, local
authority business rate systems will be linked to HMRC digital tax accounts so that
businesses can manage their rates bills in one place alongside other taxes. As a first step,
the government will work with local authorities across England to standardise
business rate bills and ensure ratepayers have the option to receive and pay bills
online by April 2017
•• once local authority and HMRC systems are linked, the government will consider the
feasibility of replacing SBRR with a business rates allowance for small businesses
– this would be applied to a business’s total property portfolio across local authority areas
allowing businesses that grow and acquire more property to benefit from relief
HM Treasury calculations
HM Treasury calculations based on DCLG and Valuation Office Agency data
124
DCLG calculation
125 HM Treasury calculations based on OBR forecasts of RPI and CPI
126 HM Treasury calculations based on OBR forecasts of RPI and CPI
122
123
46
Budget 2016
1.164 These measures build on the devolution revolution confirmed at Autumn Statement 2015,
which will allow local government to keep the rates they collect from business, give councils the
power to cut business rates to boost growth, and give elected city-wide mayors the power to levy
a business rates premium for local infrastructure projects – with the support of local business.
Local government will be compensated for the loss of income as a result of the business rates
measures above, and the impact considered as part of the government’s consultation on the
implementation of 100% business rate retention in summer 2016.
Table 1.6: Impact of business rate measures
Property rateable
value
£
6,000
Type of
premises
Guest house
Ratepayer’s bill in
2017-18 after
Budget 2016
measures applied
£
Total value of
Budget 2016
support in
2017-18
£
Total value of
Budget 2016
support over the
period 2017-21
£
0
1,476
6,162
12,000
Small shop
0
5,904
24,648
14,000
Hairdresser
4,592
2,296
9,641
30,000
Pub
14,760
390
1,740
50,000
High street shop
24,600
650
2,900
1,000,000
Department store
505,000
0
6,000
Source: HMT calculations.
Supporting the self-employed
1.165 Self-employment is a major part of the British economy and this Budget offers new
support to the self-employed.
1.166 The government announced its intention to reform self-employed National Insurance
contributions (NICs) in the March 2015 and July 2015 Budgets. This Budget delivers on that
commitment. From April 2018, Class 2 NICs will be abolished. This represents an
annual tax cut for 3.4 million self-employed people of £134 on average.127 This will
allow millions of self-employed individuals to keep more of their money and invest it back into
growing their business, as well as ending an outdated and complex feature of the NICs system.
1.167 The government will reform Class 4 NICs, so that self-employed individuals
continue to build entitlement to the State Pension and other contributory benefits,
following the abolition of Class 2 NICs. The government will set out its plans for the
contributory benefit tests in its response to the recent consultation on this reform.
1.168 The Lifetime ISA provides a more flexible way for the self-employed to save for their
retirement, with greater freedom to withdraw funds if needed. For the self-employed who pay
the basic rate of tax it is at least as generous as a private pension, and more so if they expect to
pay tax in retirement.
1.169 The government wants to help low-earning self-employed people to grow their
businesses. The Budget provides self-employed Working Tax Credit claimants with
access to business support and will extend the mentoring support offered on the
New Enterprise Allowance scheme to self-employed Universal Credit claimants.
The government will also trial face-to-face support from Jobcentre advisors for selfemployed Working Tax Credit claimants, with a view to national roll out if successful.
HMRC calculation
127 Budget 2016
47
1.170 The rapid growth of the digital and sharing economy means it is becoming easier for
more and more people to become ‘micro-entrepreneurs’. However, for those making only
small amounts of income from trading or property, the current tax rules can seem daunting
or complex. To help make the tax position more certain and simple for these individuals,
from April 2017 the Budget introduces two new £1,000 allowances for property
and trading income. Individuals with property income or trading income below the level of
allowance will no longer need to declare or pay tax on that income. Those with relevant incomes
above £1,000 can benefit by simply deducting the allowance instead of calculating their exact
expenses.
Cutting Capital Gains Tax
1.171 The government wants to ensure that companies have the opportunity to access the
capital they need to grow and create jobs, and wants the next generation to be backed by a
strong investment culture. Budget 2016 announces that, from 6 April 2016, the higher
rate of Capital Gains Tax (CGT) will be reduced from 28% to 20%, and the basic rate
will be reduced from 18% to 10%. There will be an 8 percentage point surcharge on these
new rates for carried interest and for gains on residential property. This will ensure that CGT
provides an incentive to invest in companies over property. Private Residence Relief will continue
to ensure that an individual’s main home is not subject to CGT.
1.172 In addition, entrepreneurs’ relief will be extended to long term investors in
unlisted companies. This will provide a 10% rate of CGT for gains on newly issued shares
in unlisted companies purchased on or after 17 March 2016, provided they are held for a
minimum of three years from 6 April 2016, and subject to a separate lifetime limit of £10 million
of gains.
48
Budget 2016
Figure 2: How the government is using the tax system to support businesses as they grow
For start-ups
•• new trading and property income
allowance
•• incentivising investment through
the Seed Enterprise Investment
Scheme
•• a dedicated HMRC phone line
a streamlined digital process to
register as a business
For businesses starting to
undertake research and
development
•• generous R&D tax credits
For businesses investing in
plant and machinery
•• an Annual Investment Allowance
at its highest ever permanent
level
For businesses taking on
their first employee
For businesses generating
profit
•• employer NICs cut through the
£3,000 Employment Allowance
•• Capital Gains Tax rates cut and
entrepreneurs’ relief extended to
long term investors in unlisted
companies
For businesses moving to
dedicated business premises
•• business rates in England cut by
£6.7bn over the next 5 years,
600,000 small businesses pay
no rates
•• incentivising investment through
the Enterprise Investment Scheme
and Venture Capital Trusts
•• the lowest corporation tax rates
in the G20
•• non-residential SDLT cut for many
small businesses
Ongoing support from HMRC
•• investing in HMRC to reduce call waiting times and open phones lines and online services 7 days a week
•• piloting projects for HMRC and Regional Growth Hubs to work together
Simplifying and modernising business tax
1.173 The government will continue to simplify and modernise the tax system to keep pace
with a changing world, including implementing international best practice. Businesses that
comply with tax rules fairly and consistently should find the tax system easy to understand and
navigate. The government also believes in keeping pace with a changing economy, recognising
the increasing role of micro-entrepreneurs and the self-employed.
Corporation tax loss relief
1.174 Loss relief is an important part of the corporation tax regime, but the current system is
outdated and in need of reform.
Budget 2016
49
1.175 First, under the current system, losses carried forward can only be used by the company
that incurred the loss, and not used in other companies in a group. In addition, some losses
carried forward can only be set against profits from certain types of income, for example trading
losses can only be set against trading profits. This produces unfair outcomes and is out of step
with the way businesses now operate. So the Budget makes these rules more flexible, benefiting
over 70,000 companies.128 For losses incurred on or after 1 April 2017, businesses will be
able to use carried forward losses against profits from other income streams or from
other companies within a group.
1.176 Second, the current rules enable companies to offset all of their eligible taxable profits
through losses carried forward. This can lead to a situation where a large company pays no tax
in a year when it makes substantial profits. To address this, the Budget applies a restriction
of the amount of profit that can be offset through losses carried forward. The
majority of G7 countries already have restrictions of this kind in place.129 From 1 April 2017 the
government will restrict to 50% the amount of profit that can be offset through losses carried
forward. The restriction will only apply to profits in excess of £5 million. This allowance
will ensure that 99% of all companies are unaffected by the restriction.130
1.177 This package of reforms will ensure that large companies make a tax contribution when
they make significant profits. It will modernise one of the most outdated elements of the tax
regime, and bring the UK into line with international best practice. The government will consult
on the design of the reforms in 2016, and will legislate in 2017.
1.178 At the same time, the government will reduce the amount of profit that
banks can offset with pre-2015 losses from 50% to 25% from 1 April 2016. This will
rightfully maintain the exceptional treatment of banks’ losses relating to the financial crisis
and subsequent misconduct scandals. Banks’ post-2015 losses, as well as any pre-2015 losses
covered by the existing reliefs for new-entrant banks and building societies, will be treated in the
same way as other industry groups.
Stamp duty on commercial property
1.179 The government will reform Stamp Duty Land Tax (SDLT) on non-residential property
transactions. This will cut the tax for many businesses purchasing property.
1.180 Currently, SDLT rates on freehold and lease premium transactions operate on a slab
system, where one tax rate is due on the entire transaction value. This creates distortions in the
market and leads to large increases in SDLT as transactions move into higher tax bands. A small
business buying a property for £250,000 pays £2,500 in SDLT. If the price is just £1 higher, their
tax bill is trebled. This Budget announces that these rates will be reformed to a slice
system, so that SDLT is payable on the portion of the transaction value which falls
within each tax band. The new rates will be 0% for the portion of the transaction
value between £0 and £150,000; 2% between £150,001 and £250,000; and 5% above
£250,000. This means that all freehold and lease premium transactions below £1.05 million will
pay the same or less in SDLT.131
1.181 The government will also introduce a new 2% rate for leasehold rent
transactions where the net present value is above £5 million. These transactions are
already taxed on a slice basis. All leasehold rent transactions up to £5 million will remain
unaffected.
HMRC analysis based on taxpayer data
‘Worldwide tax summaries: Corporate taxes 2015/16’, PwC
130
HMRC analysis based on taxpayer data
131
HMRC analysis based on taxpayer data
128
129
50
Budget 2016
1.182 In combination, these changes ensure that businesses purchasing the highest value
freeholds and leases make a larger contribution whilst delivering a tax cut for those purchasers,
often smaller businesses, who purchase less expensive properties. Around 42% of commercial
property transactions pay no SDLT at all due to the generous nil-rate bands.132 Of the remainder
that do pay SDLT, around 43% will pay less tax and a further 42% will pay the same.133
As a result of these changes, over 90% of non-residential property transactions will pay
the same or less in SDLT,134 with only 9% paying more.
1.183 These changes will take effect on 17 March 2016. For those transactions which have
already exchanged contracts but not completed when the changes come into force, transitional
rules will ensure taxpayers will not lose out.
Modernising tax collection
1.184 At the March 2015 Budget the government committed to transform the tax system
through digital technology and end the need for annual tax returns. Spending Review and
Autumn Statement 2015 announced a major investment in HMRC to deliver this. To make
further progress towards this transformation, the Budget announces that:
•• from 2018 businesses, self-employed people and landlords who are keeping their
records digitally and providing regular digital updates to HMRC will if they wish
be able to adopt pay-as-you-go tax payments – this will enable them on a voluntary
basis to choose payment patterns that suit them and better manage their cashflow
•• the government will explore options to simplify the tax rules for businesses,
landlords, and the self-employed, to reduce administrative burdens and ensure that
regular digital updates work smoothly
1.185 The government will consult on these measures in 2016, alongside publishing detailed
proposals for other elements of the Making Tax Digital programme announced previously.
1.186 Individuals and businesses should be able to get the help and support they need from
HMRC, when they need it. By the end of this Parliament, HMRC’s digital transformation will
have made it quicker and easier for customers to report and pay their taxes online. But the
government recognises that more needs to be done now, and is investing £71 million to
improve the service it provides taxpayers. This investment will deliver:
•• a 7-day a week service by 2017, with extended hours and Sunday opening on online
services and the tax and tax credits phone lines, so that people and businesses have more
opportunity to contact HMRC outside of working hours
•• improved telephone services and reduced call waiting times by recruiting over
800 new staff into HMRC call centres
•• a dedicated phone line and online forum for new businesses and self-employed
individuals to get help and support about filing and paying their taxes for the first time,
and on the transition to using digital services
HMRC analysis based on taxpayer data
HMRC analysis based on taxpayer data
134
HMRC analysis based on taxpayer data
132
133
Budget 2016
51
Simplifying the tax rules
1.187 The government will increase the VAT registration threshold in line with
inflation to £83,000 from 1 April 2016. This will save around 2,000 small businesses from
having to register for VAT by the end of the 2016-17 financial year.135
1.188 The government welcomes the Office of Tax Simplification’s (OTS’s) reviews of small
companies136 and the closer alignment of income tax and National Insurance contributions
(NICs).137 These reports provide a valuable contribution to the debate on long-term reform and
will help the government to make the tax system quicker, simpler and easier for taxpayers. The
government will commission the OTS to review the impacts of moving employee
NICs to an annual, cumulative and aggregated basis and moving employer NICs to
a payroll basis. It will also commission the OTS to review the options to simplify the
computation of corporation tax. The terms of reference for both reviews will be published
shortly.
Bringing forward corporation tax payments
1.189 At Summer Budget 2015, the government announced that corporation tax payment
dates for the largest and most profitable companies in the UK – those with profits in excess
of £20 million – would be brought forward, so tax is paid closer to the point at which these
companies make a profit. These companies will be required to make payments in the third,
sixth, ninth and twelfth months of their accounting period. The government will defer the
introduction of this measure, to give businesses more time to prepare for the transition to the
new payment schedule. The new schedule will apply to accounting periods starting on or after
1 April 2019, and it will have a broadly neutral impact on the public finances over the scorecard
period.
Energy taxes
1.190 The government is committed to meeting the UK’s ambitious environmental targets
in a cost-effective way, ensuring value for money for the taxpayer and retaining protection for
the smallest and most energy intensive businesses. This Budget announces the biggest
business energy tax reforms since the taxes were introduced, in response to the business
energy efficiency tax review. To simplify the landscape and drive business energy efficiency the
government will:
•• abolish the CRC energy efficiency scheme (CRC) following the 2018-19 compliance
year, ending a complex scheme with bureaucratic and costly administrative requirements.
It will significantly streamline the business energy tax landscape by moving to a system
where businesses are only charged one energy tax administered by suppliers rather than
CRC participants being required to forecast energy use, buy and surrender allowances
•• increase the Climate Change Levy (CCL) from 2019, to recover the revenue from
abolishing the CRC in a fiscally-neutral reform, and incentivise energy efficiency among
CCL-paying businesses
HMRC analysis
‘Small company taxation review’, OTS, 3 March 2016
137
‘The closer alignment of income tax and National Insurance contributions’, OTS, 7 March 2016
135
136
52
Budget 2016
•• rebalance CCL rates for different fuel types to reflect recent data on the fuel mix
used in electricity generation, moving to a ratio of 2.5:1 (electricity:gas) from April 2019.
In the longer term, the government intends to rebalance the rates further, reaching a ratio of
1:1 (electricity:gas) rates by 2025. This will more strongly incentivise reductions in the use of
gas, in support of the UK’s climate change targets
•• keep existing Climate Change Agreement (CCA) scheme eligibility criteria in place
until at least 2023, ensuring energy intensive industries remain protected. From April
2019, the CCL discount available to CCA participants will increase so that they pay no more
than an RPI increase. The government will ensure that these agreements deliver on their
energy efficiency goals through a DECC-led target review starting in 2016
1.191 At Budget 2014 the government capped Carbon Price Support (CPS) rates at
£18 t/CO2 from 2016-17 to 2019-20 to limit competitive disadvantage to British businesses. Due
to the continued low price of the EU Emissions Trading System (EU ETS), the government is
maintaining the cap on CPS rates at £18 t/CO2, uprating this with inflation in 2020‑21,
in order to continue protecting businesses. The government will set out the long-term
direction for CPS rates and the Carbon Price Floor at Autumn Statement, taking into account the
full range of factors affecting the energy market.
Motoring taxes
1.192 Transport is a major element in the cost base of many businesses, and the government
recognises the link between low fuel prices and economic growth. Budget 2016 announces
a further freeze to fuel duty, meaning the average small business with a van saves £12 each
time they fill their tank compared to the fuel escalator plans in place before 2010.138 Hauliers
have on average saved a total of £14,400 over the last six years.139 The government has also kept
the rates of HGV VED and Road User Levy frozen in 2016-17, benefiting HGV operators.
1.193 This Budget also announces measures to support transition in the UK to cleaner zero and
ultra-low emission vehicles, which will help improve air quality in the UK’s towns and cities and
protect the environment for the next generation. The government will:
•• extend the 100% First Year Allowance (FYA) for businesses purchasing low
emission cars for a further 3 years to April 2021
•• reduce the main rate threshold for capital allowances for business cars to 110
grams/kilometre of CO2 and the FYA threshold to 50 grams/kilometre of CO2 from
April 2018, to reflect falling vehicle emissions
•• continue to base Company Car Tax on CO2 emissions of cars, and consult on
reforming the lower CO2 bands for ultra-low emission vehicles to refocus
incentives on the cleanest cars beyond 2020-21
Support for oil and gas
1.194 The government believes in making the most of the UK’s oil and gas resources. The oil
and gas industry delivers significant economic benefits, supports hundreds of thousands of jobs
and supplies a large portion of the nation’s primary energy needs.140
138
HM Treasury/HMRC calculations, based on DfT data on distance travelled per van, DECC data on pump prices, OBR
RPI data and manufacturer’s specifications for a Ford Transit 2.2 diesel van
139
HM Treasury/HMRC calculations, based on DfT data on distance travelled per heavy goods vehicle and average fuel
economy of heavy goods vehicles, DECC data on pump prices and OBR RPI data
140
‘Economic Report 2015’, Oil and Gas UK, 9 September 2015
Budget 2016
53
1.195 Budget 2016 delivers the next stage of the government’s plan to ensure the fiscal regime
supports the objective of maximising economic recovery while obtaining a fair return on the
nation’s resources. The government will:
•• effectively abolish Petroleum Revenue Tax by permanently reducing the rate from
35% to 0%,141 to simplify the regime for investors and level the playing field between
investment opportunities in older fields and infrastructure and new developments. The
change will take effect from 1 January 2016
•• reduce the Supplementary Charge from 20% to 10%, to send a strong signal that the
UK is open for business and in recognition of the exceptionally challenging conditions that
are currently facing the sector. The change will take effect from 1 January 2016
•• provide a further £20 million of funding for a second round of seismic surveys
in 2016‑17, as announced by the Prime Minister in January, to build on the success of the
seismic programme in 2015 and encourage exploration in under-explored areas of the UKCS
•• extend the Investment and Cluster Area Allowances to include tariff income, in
order to encourage investment in key infrastructure maintained for the benefit of third
parties
•• provide certainty that companies will be able to access tax relief on their costs
when they retain decommissioning liabilities for an asset after a sale, to encourage
new entrants for late-life assets and the development of late-life business models
•• build on the new decommissioning powers of the Oil and Gas Authority (OGA) by
undertaking further work with the OGA and industry to reduce overall
decommissioning costs, to deliver significant savings for industry and the Exchequer.
If significant progress can be made, the government will explore whether
decommissioning tax relief could better encourage transfers of late-life assets
1.196 This radical package will ensure the UK has one of the most competitive tax regimes for
oil and gas in the world, supporting jobs and investment and safeguarding the future of this
vital national asset.
1.197 The government is willing to consider proposals for using the UK Guarantees Scheme
for infrastructure where it could help secure new investment in assets of strategic importance
to maximising economic recovery of oil and gas. Any proposals would also need to meet the
existing criteria of the scheme, including in relation to commerciality and financial credibility.
Better financial services
1.198 Access to fairly priced financial services is vital for both households and firms. At this
Budget the government reaffirms its commitment to boost competition in UK retail financial
services, including by:
•• pursuing more proportionate capital requirements for small banks and building
societies in the EU
•• working with the New Bank Start-up Unit to promote the authorisation of new
banks, building on the three new banks already authorised in this Parliament
•• ensuring action is taken to improve further the Current Account Switch Service
following Bacs’ recent report on making improvements to the service
141
While no company will ever pay Petroleum Revenue Tax again, the tax will not be abolished in legislation. This is to
ensure that companies which decommission fields that have paid Petroleum Revenue Tax will be able to benefit from
the decommissioning relief to which they are entitled.
54
Budget 2016
1.199 New ways of providing financial services also expand choice for consumers and
businesses. The government is examining recommendations from the recent Fintech
benchmarking exercise142 and will announce further measures to support the sector
in the coming months. These build on actions the government has already taken, including
support for alternative lending, to make the UK the global FinTech Capital.
1.200 The government is supporting SME access to finance, setting out a £1 billion package
to support SMEs through the British Business Bank. It will support the first loans under
its Help to Grow programme from spring 2016, supporting at least £200 million of lending.
The Enterprise Finance Guarantee programme, which supports firms that lack a sufficient track
record or collateral to access the finance that they need, will be extended until at least 2018.
1.201 This Budget also supports competition in the SME credit market. Small firms that are
rejected for finance by high-street banks will be able to access new options as the Budget
announces that Bizfitech, Funding Options and Funding Xchange will be designated
as finance platforms to help match borrowers and alternative lenders. And on 1 April
2016 the government will designate the banks and Credit Reference Agencies (CRAs) that are
within scope of the SME credit data regulations. This will ensure CRAs will receive SME credit
information from high street banks and provide equal access to this information to all finance
providers.
1.202 The government is doing more to help exporters access trade finance.
Steps that aim to cut UK Export Finance (UKEF) transaction times in half are being trialled. If
successful, they will be rolled out across trade finance providers supported by UKEF.
Long term investment
1.203 The government is committed to working in partnership with investors and businesses
on the productivity challenge. Short term horizons can undermine the investment the UK
needs so the government welcomes the forthcoming Productivity Action Plan from
the Investment Association. The Investment Association advocates encouraging firms to
move away from quarterly reporting, improving the measurement and reporting of firm-level
productivity, and ensuring that long term incentives are incorporated into investment mandates.
1.204 In addition, a large group of institutional investors has agreed a 3-year plan to fund
the Investor Forum, helping boost long termism by improving dialogue between shareholders
and corporates. And the Productivity Leadership Group, led by Sir Charlie Mayfield, continues
to make good progress in exploring how businesses can boost productivity and is expected to
report in the summer.
Funding further investment in flood defence
1.205 In order to fund increased investment in flood defence and resilience, the standard
rate of Insurance Premium Tax (IPT) will be increased from 9.5% to 10%. This ensures
that the impact of the rate increase is spread broadly across the entire general insurance
industry. IPT is a tax on insurers. However, if they do pass the cost of this rate increase on to their
business and household customers, the average combined home and contents insurance would
only increase by £1, and the average motor insurance premium by £2 per year.143 All the revenue
raised from this increase in IPT will be invested in flood defence and resilience measures.
‘UK FinTech: On the cutting edge’, EY for HM Treasury, 24 February 2016
HM Treasury calculations
142 143 Budget 2016
55
Claims management companies
1.206 The government is clamping down on the rogue claims management companies (CMCs)
that provide bad service and bombard customers with nuisance calls. Alongside action to cap
the amount that CMCs charge, Budget 2016 announces that the government accepts
the recommendations of the independent review into the regulation of CMCs. The
new regime will be tougher and will ensure CMC managers can be held personally accountable
for the actions of their businesses. In order to ensure that the new regulatory regime is
implemented effectively, the government intends to transfer responsibility for regulating CMCs
to the Financial Conduct Authority.
Ensuring companies pay their fair share of tax
1.207 The government has taken significant action to tackle tax avoidance by multinational
companies, especially through working with G20 and OECD partners on the Base Erosion and
Profit Shifting (BEPS) project to modernise the international tax rules. Following the publication
of the OECD BEPS outputs in October 2015, and the endorsement by G20 leaders in November
2015, the government is setting out a comprehensive package to take further action, to modernise
the tax rules in the UK and to ensure these rules are applied effectively to multinationals.
1.208 The government is committed to low taxes to support business – but these low taxes
must be paid. Tax avoidance and aggressive tax planning by multinationals is unacceptable and
the business tax road map sets out a package specifically targeting multinational enterprises that
are engaged in these activities.
Interest relief
1.209 The government is leading the way in implementing the G20 and OECD
recommendations to ensure that profits are taxed in line with activities in the UK. Where large
multinationals are over-leveraging in the UK to fund activities elsewhere in their worldwide
group or claiming relief more than once, the government will act to prevent aggressive tax
planning and level the playing field, so that multinational businesses can no longer arrange their
interest expenses to shelter profits.
1.210 The government will cap the amount of relief for interest to 30% of taxable
earnings in the UK or based on the net interest to earnings ratio for the worldwide
group. To ensure the rules are targeted where the greatest risk of base erosion and profit
shifting lies, the rule will include a threshold limit of £2 million net UK interest expense
and provisions for public benefit infrastructure. The government will continue to work
with the OECD on the appropriate application of these rules to groups in the banking and
insurance sectors.
Royalty payments
1.211 The ease with which capital can be moved in the modern economy enables
multinationals to avoid tax by using intragroup royalty payments to shift profits from the UK to
low or no-tax jurisdictions, either directly or via a second country. The government will change
the rules on withholding tax on royalty payments to counter this type of avoidance. There are
a number of aspects to this – the government will extend withholding tax rights to cover all
intangible assets such as trademarks and brand names, apply this tax to all payments connected
with the activities of a business liable for tax in the UK, and introduce a domestic law to prevent
our tax treaties being abused by royalty payments being routed through third countries to gain a
tax advantage.
56
Budget 2016
Hybrid mismatch arrangements
1.212 At Autumn Statement 2014, the government announced new rules to address hybrid
mismatch arrangements, which are used by some multinational companies to avoid tax by
exploiting differences between countries’ rules to avoid paying tax in either country, or to get
excessive tax relief by deducting the same expense in more than one country. To strengthen
these proposals, Budget 2016 announces that the rules will be extended to cover
hybrid mismatches arising from permanent establishments, further restricting the
opportunities for tax avoidance by multinationals. These rules will be introduced in
Finance Bill 2016, and come into effect from 1 January 2017.
Offshore property developers
1.213 The government believes it is unfair to allow property developers to use offshore
structures to avoid UK tax on their trading profits from developing property in the UK. By
enforcing the international rules on the taxation of trading profits derived from property, the
government will level the playing field between UK and offshore developers. The government
will introduce legislation in Finance Bill 2016 to ensure offshore structures cannot be
used to avoid UK tax on profits that are generated from developing UK property.
1.214 HMRC will also create a task force to focus on offshore property developers.
This task force will target offshore structures used to avoid tax on profits and rental income from
property development in the UK. The task force aims to achieve a long term improvement in
taxpayer compliance.
Tackling tax avoidance and evasion
1.215 Alongside the measures above targeting multinational enterprises, the government is
cracking down on all forms of tax evasion and avoidance, and aggressive tax planning and
non-compliance. There should be a level playing field for the majority who pay their tax, and
everyone should make their contribution. In the last Parliament, HMRC secured £100 billion
in additional tax revenue as a result of action take. This Budget goes further, and introduces a
comprehensive package of measures – raising £12 billion in total144 – including those specifically
targeting multinational companies.
Disguised remuneration
1.216 At Autumn Statement 2015 the government announced it would ensure that those who
have used disguised remuneration tax avoidance schemes pay their fair share of tax and National
Insurance contributions. In 2011, the government legislated to clamp down on these schemes.
This action successfully protected £3.9 billion, £100 million more than originally estimated.145
Since then, new schemes have emerged which attempt to sidestep this legislation.
1.217 These schemes often involve individuals being paid in loans through structures such as
offshore Employee Benefit Trusts. The government will raise £2.5 billon146 by taking action
to tackle both the historic and continued use of these schemes, beginning with
legislation in Finance Bill 2016 and with further action to follow in future Finance
Bills. This will include a new charge on loans paid through disguised remuneration schemes
which have not been taxed and are still outstanding on 5 April 2019.
HM Treasury calculations
‘Anti-avoidance costings: an evaluation’, OBR, January 2016
146
HM Treasury calculations
144
145
Budget 2016
57
Tackling VAT evasion by overseas sellers
1.218 The government is taking firm action to protect the UK market from unfair online
competition. Some overseas traders from beyond the EU avoid paying UK VAT, undercutting
online and high street retailers and abusing the trust of UK consumers who purchase goods via
online marketplaces.
1.219 Budget 2016 announces action that will help to protect consumers and level the playing
field for businesses. HMRC will be able to require non-compliant overseas traders to
appoint a tax representative in the UK, and will be able to inform online marketplaces
of the traders who have not complied. If traders continue to evade VAT and no action is
taken to prevent the fraud, then online marketplaces can be made liable for the VAT.
1.220 The government will also introduce a due diligence scheme for the fulfilment
houses where overseas traders store their goods in the UK. This will make it harder for
VAT evading firms to trade. While the government continues to take action domestically, the
global nature of the fraud means international action is also required. The UK has already raised
this issue with EU and international partners and the EU and OECD’s current work programmes
include further work to help combat this fraud.
Addressing issues in the waste sector
1.221 The government will increase HMRC compliance activity to tackle tax evasion
and non-compliance across the waste supply chain – waste-related crime is a blight on
communities and undermines the environmental objectives of landfill tax. This is why HMRC
and the Environment Agency are already working together to tackle fraud and tax evasion
in the waste sector. The government will provide additional funding for HMRC to increase its
compliance activity in this area.
Crackdown on smuggling
1.222 The government is dedicated to cutting the funding sources of organised crime and
catching the individuals responsible. Tobacco smuggling undermines legitimate businesses and is
dominated by organised criminal groups often involved in other crimes, such as drug smuggling
and people trafficking. At this Budget, the Home Office will receive £31 million of funding
to form a dedicated group of border officers and intelligence officials to tighten the
government’s grip on the most prolific smuggling routes and intercept smugglers
as they try to adapt their tactics. Coordinated enforcement, alongside the additional
intelligence and investigative resources provided at Summer Budget 2015, will work to further
increase the seizure of illicit shipments and increase prosecutions for tobacco fraud.
The hidden economy
1.223 Tackling the hidden economy is an important part of the government’s stance in
supporting compliant business – by levelling the playing field so that those playing by the rules
do not face unfair competition from those not paying their fair share. The government will
consult over the summer on a range of measures to address the hidden economy,
including introducing tougher sanctions for traders and evaders who have been penalised for
deliberate non-compliance but have failed to change their behaviour.
58
Budget 2016
Addressing imbalances in the tax system
Remote gambling
1.224 Remote gaming operators currently benefit from a more generous tax treatment when
they offer discounted or free gambling (‘freeplays’) to customers in Remote Gaming Duty than
would be the case for operators offering free bets on things like football and horseracing. The
government will therefore amend the tax treatment of freeplays in Remote Gaming
Duty to bring it into line with the tax treatment of free bets in General Betting Duty.
Asset managers
1.225 Following the draft legislation issued at Autumn Statement 2015, the government has
finalised the rules that determine when asset managers can pay capital gains tax rather than
income tax on their performance related returns (‘carried interest’). These new rules ensure
that carried interest will be taxed as a capital gain only when the fund undertakes
long term investment activity (with investment horizons longer than 3 years).
Employee Shareholder Status
1.226 The government believes that Employee Shareholder Status (ESS) provides vital flexibility
for early stage firms, and that it is right that employee shareholders receive tax benefits
on shares awarded in exchange for relinquishing certain employment rights. However, the
government wants to ensure that the benefits for individuals are proportionate and fair. Budget
2016 introduces an individual lifetime limit of £100,000 on gains eligible for Capital
Gains Tax (CGT) exemption through ESS. This limit will apply to arrangements entered into
on or after 17 March 2016, and will not apply to arrangements already in place. This change will
enable employee shareholders to realise a significant growth in the value of their shares without
paying any CGT, whilst helping to ensure that the status is not misused.
Budget 2016
59
Opportunity across the UK
Boosting productivity for the next generation
1.227 Productivity growth is the key driver of long-term increases in living standards. This
Budget announces further measures to drive productivity across the UK. It continues to deliver
on the government’s 2015 productivity plan147, encourages long-term investment, promotes a
dynamic and competitive economy, and devolves more power to local leaders.
Encouraging long-term investment
1.228 Investment is an essential part of raising productivity. In today’s economy, that applies
to increasing the stock of machines, equipment and essential physical infrastructure and also to
the development of human and intellectual capital in the next generation. This section sets out
further measures to support long-term investment, alongside action to improve education and
skills and to back businesses through the tax system set out earlier in the chapter.
1.229 As Chart 1.12 shows, productivity growth varies across the services sector. The financial
services sector continues to act as a drag on productivity growth, while other parts of the
services sector have grown more strongly since 2010.
Chart 1.12: Contribution to service sector productivity growth (2010-2014)
6.0
Arts & entertainment
Health & Education
5.0
Transport
4.0
Real estate
IT
3.0
R&D
Professional services
2.0
Other services
1.0
Financial services
Total
0.0
-1.0
-2.0
Source: Office for National Statistics, Low level aggregates, second estimate Q4 2015 GDP
and productivity jobs, Labour Productivity Q3 2015.
‘Fixing the foundations: Creating a more prosperous nation’, HM Treasury, July 2015
147 60
Budget 2016
Table 1.7: Action to raise productivity 1
Policy area and key evidence
Existing policies
Budget 2016 measures
Encouraging long term investment
Business investing for the long term
• An even more competitive tax system
• Rewards for saving and long term
investment
OECD research suggests that corporate
taxes are the most damaging to growth
Cut corporation tax to 18%, the
lowest in the G20
Annual Investment Allowance set at
£200,000, its highest ever permanent
level
A £6.7 billion package of cuts and
reforms to business rates
Cutting Capital Gains Tax and
expanding entrepreneur’s relief
Cutting corporation tax to 17% in
2020
Skills and human capital
• A highly skilled workforce
• World-leading universities, open to all
who can benefit
16-24 year olds in England and NI still
ranked in the bottom 4 of 22 countries
for literacy and numeracy skills
An apprenticeship levy to fund more
high quality apprenticeships
Protected the core schools budget
Removed HE student numbers cap
All schools in England academies
by 2022
Accelerating the move to fairer
funding for schools
Review of post 16 maths
Northern Powerhouse Schools
Strategy
Economic infrastructure
• A modern transport system
• Reliable and low carbon energy
• World-class digital infrastructure
UK investment as a share of GDP has
been in the lowest 25% of OECD
countries for 48 of the last 55 years
Over £100bn infrastructure
investment this Parliament
National Infrastructure Commission
to improve long term planning
A Roads Fund from 2020-21 to provide
certain long term investment
Green light to Crossrail 2, and High
Speed 3 between Leeds and Manchester
New National Infrastructure
Commission studies on 5G and the
Cambridge-Milton Keynes-Oxford corridor
Ideas and Knowledge
• High-quality science and innovation
New ideas are central to long run growth
and there is a robust link between R&D
spending and productivity
Protected science funding in real terms
£6.9bn for research infrastructure
by 2021
Funding for doctoral loans
Making the UK a centre for driverless
vehicles
Flexible, fair markets
• Planning freedoms, more houses to buy
• A higher pay, lower welfare society
• More people able to work and
progress
A productive economy ensures work
always pays and uses land efficiently
Introduced a new National Planning
Policy Framework
Doubled the affordable housing
budget at SR2015
A new National Living Wage
Launching a £1.2bn Starter Homes
Land Fund
Supporting areas to establish new
settlements
Highest ever National Minimum
Wage (for under 25s)
Productive finance
• Financial services that lead the world in
investing for growth
Financial services generated £58 billion in
net exports in 2014 and facilitate
investment in the wider economy
Launched the British Business Bank
Boosted competition in the banking
market and encouraged new entrants to
ensure a better deal for SMEs
Over £250m Midlands Engine
Investment Fund
Help to Grow will support over £200m
of finance in the next 2 years, from
spring 2016
Openness and competition
• Competitive markets with less
regulation
• A trading nation open to international
investment
Improvements in competition in the 80s
and 90s accounted for up to 20% of
industry productivity growth in the
decade to 2005
Committed to cut £10 billion of red
tape this Parliament
Published “A Better Deal” with
measures to open up markets
Helped make the UK the number 1
destination in Europe for FDI projects
Consulting on improving choice and
competition in legal services
and increasing transparency of local
authority procurement
A goal to halve turnaround times for
accessing trade finance
Resurgent cities
• A rebalanced economy and a thriving
Northern Powerhouse.
Cities with fragmented governance
structures have up to 6% lower levels of
productivity than those that do not
Signed landmark mayoral devolution
deals with Greater Manchester, Sheffield
City Region, the North East, Tees Valley,
Liverpool City Region and the West
Midlands
£1.2bn City deal for Cardiff, and
deals for East Anglia, West of
England and Greater Lincolnshire
A Thames Estuary 2050 Growth
Commission
Promoting a dynamic economy
1
All sources can be found in the accompanying sources document
Budget 2016
61
National Infrastructure Commission
1.230 The government has set up the new National Infrastructure Commission, chaired by Lord
Adonis, to produce a clear picture of the future infrastructure the country needs and provide
expert, independent advice on infrastructure priorities.
1.231 The commission has begun work on a National Infrastructure Assessment, which will
establish priorities for the decades to come. It will set out an overarching, long-term vision and
the government will be obliged to respond formally.
1.232 In the shorter term, the Chancellor asked the commission to report on three high-priority
issues by Budget 2016: Northern connectivity, London transport and energy infrastructure. The
commission has now published its first three reports and has made innovative proposals to
address some of the country’s most pressing infrastructure challenges. This Budget confirms
that the government accepts the commission’s recommendations, as set out later in
this chapter:
•• the government is providing £300 million of funding to improve northern
transport connectivity and is giving the green light to High Speed 3 between
Leeds and Manchester to reduce journey times to around 30 minutes, in response
to the commission’s report ‘High Speed North’
•• the government is giving the green light to Crossrail 2, supported by £80 million
to help fund development, in response to the commission’s report ‘Transport for a World
City’. The government is asking Transport for London to match that contribution, with the
aim of depositing a Hybrid Bill within this Parliament
•• the government will lay the foundations for a smart power revolution, with support
for innovation in storage and other smart technologies, and an increased level of ambition
on interconnection, which the NIC estimates could unlock benefits to UK consumers of up to
£8 billion per year
1.233 Budget 2016 announces that the commission will carry out two new studies
on the following infrastructure challenges:
•• an assessment of how the UK can become a world leader in 5G deployment, and
how it can take early advantage of the potential benefits of 5G services. This review
will include a case study of the south-west of England
•• proposals for unlocking growth, housing and jobs in the Cambridge-Milton
Keynes-Oxford corridor – the commission will report on the strategic infrastructure
priorities needed to generate further growth and maximise the potential of this corridor,
which encompasses some of the UK’s fastest-growing and most productive cities
1.234 The government is consulting on the structure, governance and operation of the
commission, which is currently in interim form, and proposes to introduce legislation to put it
on a statutory footing. The public consultation closes on 17 March.
62
Budget 2016
Transport and infrastructure
Roads
1.235 The government is making the biggest investment in transport infrastructure in
generations and is increasing capital investment in the transport network by 50% over this
Parliament compared to the last, investing £61 billion.148
1.236 The first Roads Investment Strategy is the biggest programme of investment in England’s
strategic road network since the 1970s.149 The government continues to take a long-term
approach to improving England’s motorways and major roads and this Budget marks
the launch of the second Roads Investment Strategy, which will determine the
investment plans for the period from 2020-21 to 2024-25.
1.237 The government will also establish the UK as a global centre for excellence in
connected and autonomous vehicles. The government will:
•• conduct trials of driverless cars on the strategic road network by 2017
•• consult this summer on sweeping away regulatory barriers within this Parliament to enable
autonomous vehicles on England’s major roads
•• establish a £15 million ‘connected corridor’ from London to Dover to enable vehicles to
communicate wirelessly with infrastructure and potentially other vehicles
•• carry out trials of truck platooning on the strategic road network
•• start trials of comparative fuel price signs on the M5 between Bristol and Exeter by spring
2016 to drive fuel price competition and help motorists save money
1.238 The government is allocating £151 million from the Local Majors Fund in the
first round of allocation, and is launching the bidding process for the second tranche
of funding, designed to fund transformative local transport projects.
1.239 Budget 2016 also announces the allocation of the £50 million Pothole Action
Fund for England in 2016-17, enabling local authorities to fill nearly a million potholes.150
The government will also provide a further £130 million to repair roads and bridges damaged by
Storms Desmond and Eva.
Rail
1.240 Nicola Shaw has today published the Shaw Report151 on the future structure and
financing of Network Rail, including recommendations for greater devolution to the routes
and the creation of a new, dedicated northern route. The government welcomes the
recommendations of the Shaw Report, and will respond in full later this year. To ensure
an improved service for passengers through greater accountability and more competition, the
government will also work with the Competition and Markets Authority to explore
how their recommendations152 could potentially be implemented as part of the
government’s wider reforms.
1.241 As set out above, the government is investing in rail by giving the green light to Crossrail
2, supported by £80 million to help fund development, and to High Speed 3 between Leeds and
Manchester to bring journey times to around 30 minutes.
‘Spending Review and Autumn Statement 2015’ (p50), HM Treasury, November 2015
‘Road Investment Strategy’, Department for Transport, December 2014
150
‘Annual Local Authority Road Maintenance (ALARM) Survey 2014’, Asphalt Industry Alliance, April 2014
151
‘The Shaw Report. The future shape and financing of Network Rail: final report.’
152
‘Competition in passenger rail services in Great Britain’, CMA, 8 March 2016
148
149
Budget 2016
63
Flood defences
1.242 Many communities experienced the devastating impacts of flooding this winter, with
homes and businesses destroyed. On top of the government’s £2.3 billion capital programme,
which will invest in over 1,500 flood defence schemes across the country, Budget 2016
announces an additional boost to spending on flood defence and resilience of over
£700 million by 2020-21. The government will increase maintenance expenditure in England
by £40 million per year, and deliver even more flood defence schemes – including investing over
£150 million in Leeds, York, Calder Valley, Carlisle and wider Cumbria. This increase in investment
will be funded by a rise in the standard rate of Insurance Premium Tax by 0.5 percentage points.
Smart and low carbon energy
1.243 The government welcomes the National Infrastructure Commission’s energy study
‘Smart Power’ as an opportunity to transform the future of the UK’s electricity sector, saving
consumers up to £8 billion a year.153 The government will implement the commission’s
recommendations, and will work with Ofgem to remove regulatory and policy barriers,
positioning the UK to become a world leader in flexibility and smart technologies, including
electricity storage.
1.244 The government will allocate at least £50 million for innovation in energy
storage, demand-side response and other smart technologies over the next five
years to help new technologies and business models access the market. Ofgem will consult
later this year on the future of the £100 million Network Innovation Competition to
maximise the delivery of genuinely innovative projects and technologies.
1.245 The government recognises the important contribution interconnection can make to the
future energy mix. There is a strong pipeline of projects in development, and the government
supports the market delivery of at least 9 GW of additional interconnection capacity –
an 80% increase on previous estimates.
1.246 The government is committed to driving down the costs of decarbonisation. Budget
2016 announces that the government will auction Contracts for Difference of up
to £730 million this Parliament for up to 4 GigaWatts of offshore wind and other
less established renewables, with a first auction of £290 million. Support for offshore wind
will be capped initially at £105/MWh (in 2011-12 prices), falling to £85/MWh for projects
commissioning by 2026. The government will continue to control costs on consumer bills –
further details will be announced in the autumn.
1.247 The government also welcomes the publication of the Competition and Market
Authority’s (CMA’s) provisional decision on their Energy Market Investigation.154 The
government will act quickly on the CMA’s final recommendations and ensure that bill payers get
a fair deal from our energy markets.
1.248 At Autumn Statement 2015, the government announced a competition to identify
the best value small modular nuclear reactor (SMR) in the UK. This will pave the way to build
one of the world’s first SMRs. Budget 2016 announces the launch of the first stage
of this competition, which will generate a list of SMR developers that could deliver on the
government’s objectives. The government will also publish an SMR delivery roadmap
later this year and will allocate at least £30 million for an SMR-enabling advanced
manufacturing R&D programme to develop nuclear skills capacity.
153
154
64
‘Smart power’, National Infrastructure Commission, 4 March 2016
‘Energy market investigation: Summary of provisional decision on remedies’, CMA, 10 March 2016
Budget 2016
1.249 The government will be consulting later this year on the priorities and delivery
models for the Shale Wealth Fund, and how it can be deployed in local communities and
the North as a whole. The Shale Wealth Fund could be worth up to £1 billion over 25 years155
and will provide additional funds over and above industry schemes and other sources of
government funding.
Supporting the digital economy
1.250 Digital technology is transforming every sector of the UK economy, opening up
opportunities for businesses and individuals. The UK has the highest internet usage of any
G7 economy, as shown in Chart 1.13 and in 2014, the UK’s digital sector contributed around
£120 billion to the economy.156
Chart 1.13: G7 Percentage of individuals using the internet across the G7
United Kingdom
Japan
United States
Canada
Germany
France
Italy
0
10
20
30
40
50
60
70
80
90
100
Source: International Telecommunications Union, Percentage of Individuals using the Internet, 2014.
1.251 This Budget sets out steps to ensure the benefits of digital technology are felt by all
businesses and individuals. The government will:
•• establish a new Broadband Investment Fund, in partnership with private sector
investors, to support the growth of alternative broadband networks by providing greater
access to finance
•• deliver a 5G strategy in 2017, based on an assessment by the National
Infrastructure Commission of how the UK can become a world leader in 5G
•• establish a panel of leading experts, chaired by Kathryn Parsons, to shape the £20
million Institute for Coding competition
•• provide up to £5 million to develop options for an authoritative address register
that is open and freely available – making wider use of more precise address data and
ensuring it is frequently updated will unlock opportunities for innovation
155
156
HM Treasury calculations
Digital Sector Economic Estimates Statistical Release, Department for Culture, Media and Sport, January 2016.
Budget 2016
65
1.252 Affordable broadband is essential for a connected household sector but pricing in this
market can be opaque. The government expects quick action to ensure the price of broadband
provision is as clear as possible. New proposals from the Advertising Standards Authority (ASA)
will ensure broadband adverts do not mislead. A new cost comparison measure for telecoms
services will be developed by Ofcom this year.
1.253 Electromagnetic spectrum is a valuable and scarce resource. Budget 2016 announces
a new government commitment that 750MHz of valuable public sector spectrum in
bands under 10GHz will be made available by 2022, of which 500MHz will be made
available by 2020. This builds on government’s previous 2010 commitment, and will deliver
wider economic benefits by generating capital receipts and by supporting innovation in digital
communications services and the development of new technologies.
Response to the Independent Review of Economic Statistics
In ‘Fixing the Foundations: Creating a more prosperous nation’, the Chancellor of the
Exchequer and the Minister for the Cabinet Office commissioned Professor Sir Charles
Bean to conduct a review of economic statistics assessing the UK's future statistics
needs, the capability of Office for National Statistics in delivering those statistics and the
most appropriate governance framework to support production of those statistics. The
government welcomes the review and accepts all its recommendations.
To enable the Office for National Statistics to develop world-leading analytical and digital
capabilities in economic measurement, the government will invest over £10m in a new
hub for data science and a centre for excellence in economic measurement in line
with Professor Sir Charles Bean's recommendations. The new hub for data science will
maximise the public value of existing and new data sets – so called ‘big data’ from public
and private sources – using cutting-edge techniques to allow the Office for National Statistics
to produce more innovative, accurate and timely statistics. The centre for excellence will
improve the Office for National Statistics’ capability to measure the changes in the UK’s digital
economy and to push the frontiers of economic measurement.
Investing in creative industries
1.254 The government’s creative sector tax reliefs have been highly successful at supporting
growth, investment and innovation in industries that employ 1.8 million people.157 To
encourage museums and galleries to develop creative new exhibitions and display
their collections across the country, the government will introduce a new tax relief
from 1 April 2017. This will be available for the costs of developing temporary or touring
exhibitions and will follow a consultation on its design over summer 2016.
1.255 The government will also broaden the eligibility criteria for the VAT refund
scheme for museums and galleries, with new guidance to allow a wider range of free
museums to access the support.
157
66
‘Creative industries: Focus on employment’, DCMS, 30 June 2015
Budget 2016
Competitive markets
1.256 Competitive and efficient markets lie at the core of a productive economy, promoting
innovation and efficiency. At Autumn Statement 2015, the government published a
comprehensive plan to boost competition158. Since its publication, there has been concrete
progress in a number of markets:
•• mobile – even when a handset has been paid off, some operators still charge customers to
unlock it. At Autumn Statement 2015, the government challenged the industry to do better;
since then operators have committed to unlocking many more of their customers’ handsets
for free. Unlocking handsets currently costs consumers an estimated £48 million a year159
•• government procurement – the public sector can drive competition via open procurement
practices. The government wants to ensure the £60 billion local authorities spend to procure
services160 is done in an efficient and competitive way. The government will consult on
new rules requiring local authorities to be transparent about the cost of the inhouse services they provide, and whether there could be savings from using competitive
external providers
•• legal services – where competitive pricing can make some of the biggest decisions in life,
from buying a house to setting up a business, easier. The government will launch a
consultation shortly on how to reduce regulatory barriers so that new providers
can provide legal advice
Stronger and more focused economic regulators
1.257 The government is committed to robust but focused economic regulation. The UK’s
system of independent economic regulation is widely regarded as one of the best in the world.
Building on this, Budget 2016 announces that the government will:
•• streamline regulators. E-Serve will be split off from Ofgem to ensure Ofgem can
focus on its core functions of economic regulation and promoting competition.
DECC are committed to consolidating their delivery providers and will set out the future of
consumer-facing functions, including those currently undertaken by E-Serve, at Autumn
Statement 2016. The government will continue to consider whether economic regulators’
functions can be further streamlined
•• strengthen competition and innovation, including by legislating to give Ofgem more
power to make sure the system of industry codes supports competition and by
enhancing the role of the Competition and Markets Authority in the regulated
sectors. The government will continue to look at further changes
•• drive efficiency, by working with economic regulators to review the business case
for co-locating and sharing back office functions across regulators, reporting by
summer 2016
158
‘A better deal: Boosting competition to bring down bills for families and firms’, HM Treasury and BIS, 30 November
2015
159
‘Brits spend over £48 million unlocking mobile phones every year’, uSwitch Press Release, 10 June 2015
160
Department for Communities and Local Government analysis based on ‘Local Authority Revenue Expenditure and
Financing England 2014-15 Final Outturn’ (ONS)
Budget 2016
67
A devolution revolution
1.258 This government is fundamentally changing the way the country is run, rebalancing the
economy for the next generation through a devolution revolution. Local leaders are taking on
radical new powers and responsibility for driving local growth through historic devolution deals,
retention of business rates and further targeted investment in response to local priorities.
1.259 Strong progress has been made. Budget 2016 announces new devolution deals
with the West of England, East Anglia, and Greater Lincolnshire. Building on existing
devolution deals with Greater Manchester, Liverpool City Region, Sheffield City
Region, the North East and Tees Valley, this means that 57% of the population of the
North of England will be covered by an elected mayor.161 The government also continues
to devolve unprecedented powers to Scotland, Wales and Northern Ireland.
Devolution across the UK
1.260 The UK’s economic recovery is benefiting families and businesses across Scotland, Wales
and Northern Ireland. There are now more people in work in Scotland and Wales than ever
before and in Northern Ireland employment grew by 15,000 in 2015.162 This government is
delivering on its commitments to transfer powers to each of the devolved administrations. It also
looks to the governments of the devolved administrations to continue to devolve powers within
Scotland, Wales and Northern Ireland, so that they empower local areas and ensure that their
great cities and regions are not left behind.
1.261 The government will legislate in order to meet its manifesto commitment to
apply ‘English Votes for English Laws’ to Income Tax. This will allow MPs representing
constituencies in England, Wales and Northern Ireland to have a decisive say on the main rates
of income tax, when those rates are devolved to the Scottish Parliament.
Northern Ireland
1.262 In 2015 the government legislated to make a lower Northern Ireland Corporation Tax
rate a real possibility. There is now broad support within Northern Ireland for a rate of 12.5%,
to be introduced in 2018. The additional financial support and flexibility provided through the
Stormont House and Fresh Start Agreements has delivered immediate improvements in the
Executive’s stability. Now Northern Ireland’s own political leaders must press on with the reforms
necessary to put the Executive’s finances on the sustainable footing required to complete
Corporation Tax devolution.
1.263 Where the Northern Ireland Executive intends to top-up UK-wide benefits from within
its block grant as it implements welfare reform, the government will exempt from tax the
top-up payments to non-taxable benefits.
1.264 The Northern Ireland Executive has set the boundaries of a pilot Enterprise Zone near
Coleraine. The government will legislate to ensure that Enhanced Capital Allowances can be
offered within the Enterprise Zone, with the first investors expected on site later in 2016.
1.265 The Budget allocates £4.5 million from banking fines to help establish a
Helicopter Emergency Medical Service for Northern Ireland.
The North of England is defined as the North East, North West, and Yorkshire and Humber regions. ‘Annual midyear population estimates: 2014’, ONS June 2015.
162
‘Regional Labour Market Statistics’, ONS, February 2016.
161 68
Budget 2016
Scotland
1.266 The Scotland Bill delivers the legislative elements of the Smith Commission, while the
new Fiscal Framework for the Scottish Government was agreed in February 2016. The powers in
the Bill, covering tax, welfare and borrowing, will see the Scottish Parliament become one of the
most powerful and accountable devolved Parliaments in the world.
1.267 The government demonstrated its ongoing investment in Scotland through a £125
million commitment to an Aberdeen City Deal earlier this year. Good progress has been made
towards an Inverness City Deal. This Budget announces that the government will also
work with local partners and the Scottish Government towards a deal for Edinburgh
and South East Scotland.
1.268 Edinburgh and the Lothians will also benefit from a science and innovation
audit, to map the area’s research strengths in data-driven innovation and identify areas of
potential global competitive advantage.
1.269 Nearly half of UK jobs supported by the oil and gas industry are in Scotland, particularly
around Aberdeen.163 The Budget announces a major package of measures, including zero
rating Petroleum Revenue Tax and cutting the Supplementary Charge from 20% to
10% to help support the industry through the challenging commercial conditions facing the
sector.
1.270 The duty on Scotch whisky will also be frozen this year, continuing the
government’s support for this great British success story.
1.271 To support Scotland’s cultural heritage, creative industries and communities, the
government will contribute £5 million to the V&A Dundee and £150,000 towards local
regeneration projects in New Cumnock.
1.272 The government will also allocate £5 million from banking fines for a new
leisure facility in Helensburgh, which will benefit both local residents and Royal Navy
personnel and their families stationed nearby at Faslane.
Wales
1.273 The government is taking forward the St David’s Day agreement for Wales and is
committed to delivering the Welsh Rates of Income Tax, alongside devolution of further powers,
including on energy and transport. A funding floor for the Welsh Government was announced
at the Spending Review.
1.274 To reduce costs for businesses and families in Wales and the South West of England
the government will halve tolls on the Severn River Crossings, once the Crossings are in
public ownership, subject to public consultation. Alongside this, the government will review
the case for free-flow tolling on the Crossings.
1.275 The government has agreed a £1.2 billion city deal for the Cardiff Capital
Region with the Welsh Government and local partners. The government’s £500 million
contribution to the deal will provide an investment fund for the region and support
electrification of the Valley Lines railways, a central part of the ambitious Metro project. As
announced in January, £50m will also be invested up to 2020-21 to create a new Compound
Semiconductor Catapult in Wales. The government will open negotiations with local
partners and the Welsh Government towards a deal for the Swansea Bay City Region,
extending from Pembrokeshire to Neath-Port Talbot.
163
Oil and Gas UK, Economic Report 2014, October 2014.
Budget 2016
69
1.276 This Budget opens the door to a growth deal for North Wales to help strengthen
its economy and to make the most of its connection to the Northern Powerhouse. This
government will look to the next Welsh Government to devolve powers down and invest into
the region as part of any future deal.
1.277 South East Wales and South West England will benefit from a science and
innovation audit to map the area’s research strengths and identify areas of potential global
competitive advantage.
1.278 The government will allocate £500,000 in banking fines to CAIS Wales, Change
Step Veteran Services. This will deliver a new referral pathway for peer support and tailored
specialist intervention for 800 veterans in Wales.
English Devolution
Devolution deals
1.279 The government is transferring significant budgets and responsibilities to the local level,
building upon the historic mayoral devolution agreements with Greater Manchester, Sheffield
City Region, the North East, Tees Valley, Liverpool City Region and the West Midlands. The
government has now agreed new mayoral devolution deals with English counties
and southern cities too, reaching agreements with the West of England, East Anglia
and Greater Lincolnshire. The government has also agreed a further devolution deal
with Greater Manchester, including a commitment to work towards the devolution of
criminal justice powers, and a second devolution deal with Liverpool City Region.
1.280 Previously agreed mayoral devolution deals will also each receive unringfenced single pots of funding to spend on local priorities, worth £2.86 billion
in total. This flexibility will allow areas to take more control over strategic investment. The
single pots will initially include a five-year settlement rolling together existing transport funding,
gainshare investment funds and Local Growth Fund allocations. This will be supplemented in
the future with further flexibility over central government funding. The Bus Service Operators
Grant will also be devolved to areas that adopt bus franchising, and the Adult Education
Budget will be included in the single pot from 2018-19 for those areas with devolved adult skills
arrangements.
1.281 The government will pilot the approach to 100% business rates retention in
Greater Manchester and Liverpool City Region and will increase the share of business
rates retained in London. This will help to develop the mechanisms that will be needed to
manage risk and reward under 100% rates retention and will help authorities to build financial
capacity to reform core services and invest in long term economic growth from 2017 – three
years ahead of schedule. The offer is open to any area that has ratified its devolution deal.
Local growth
1.282 The government believes local areas must be empowered to reach their potential in
order to boost national productivity and growth. The Local Growth Fund gives Local Enterprise
Partnerships control over £12 billion of central government funding, ensuring that this money is
spent in line with local priorities. The initial two rounds of Growth Deals have given local areas
nearly £8 billion to drive growth through investing in the infrastructure their areas need. The
government is now announcing further steps in the allocation of the Local Growth
Fund, including:
70
Budget 2016
•• up to £1.8 billion will be allocated through a further round of Growth Deals with
Local Enterprise Partnerships later this year. The government will announce further
detail on the process for the next round of Growth Deals soon
•• a further £2 billion of the Local Growth Fund is being allocated through the Home
Building Fund. This programme provides finance to developers to unlock large housing
sites and bring forward the necessary infrastructure that large house building projects
require
1.283 To date, Enterprise Zones have supported over 560 businesses and secured over £2.3
billion of private sector investment to build world-class business facilities and transport links,
attracting over 20,000 jobs.164 The government will create a new MarineHub Enterprise
Zone in Cornwall following the transfer of Wave Hub to Cornwall Council. Subject to
the necessary business case approvals and local agreements, the government will also create
new Enterprise Zones in Brierley Hill in Dudley, and Loughborough and Leicester, as
well as extending the Sheffield City Region Enterprise Zone. The government will also
ensure that all zones are able to offer Enhanced Capital Allowances for eight years following the
establishment of the ECA site.
1.284 The government has received ambitious proposals from Local Government Pension
Scheme administering authorities to establish a small number of British Wealth Funds
across the country by combining their assets into much larger investment pools.
These pools will deliver annual savings of at least £200-300 million, and we will work with
administering authorities to establish a new Local Government Pension Scheme infrastructure
investment platform, in line with their proposals, to boost infrastructure investment.
1.285 The next round of the Coastal Communities Fund, for projects starting in
2017-18, will open for applications this summer. The CCF funds projects across the UK
which support sustainable economic growth and jobs in coastal communities.
1.286 Greater Manchester and East Cheshire, Sheffield City Region and Lancashire
LEP, and the Midlands will each benefit from a science and innovation audit. These will
help each of these regions to map their research and innovation strengths and to identify areas
of potential global competitive advantage. Future audits in other areas will be announced later
this year.
1.287 The government is working on an ambitious strategy to move civil servants out of
expensive Whitehall accommodation and into the suburbs of London, delivering substantial
savings for the taxpayer. Over the next few years the numbers working in central London will
reduce significantly. In addition, by the middle of this Parliament the Ministry of Justice
will have a major programme to create substantial centres of expertise outside the
capital. This will reduce costs, access highly skilled labour markets in the regions and contribute
to the Northern Powerhouse.
164
DCLG data, based on outputs of the Enterprise Zones programme as self-reported by local areas on a quarterly
basis.
Budget 2016
71
Figure 3: New investment across the United Kingdom
NORTHERN IRELAND
SCOTLAND
NORTHERN POWERHOUSE
■ Stormont House Agreement funding now
delivering infrastructure investment
■ A £1bn package of measures to support
the oil and gas industry in Scotland
■ £300m further investment in transport
including:
■ £4.5m for an air ambulance service in
Northern Ireland
■ £5m for the City of Dundee’s V&A
development
■ £60m to green light HS3 between Leeds and
Manchester and for other major city rail links
■ Pilot Enterprise Zone near Coleraine
offering Enhanced Capital Allowance
■ Opening negotiations on a city deal for
Edinburgh and South East Scotland
■ £161m to accelerate transformation of the
M62 into a smart motorway, reducing congestion
■ £75m to fast-track development of major
new road schemes including on the M60, A66
and A69 and Trans-Pennine tunnel
■ Freezing duty on Scotch whisky
MIDLANDS
■ Over £250m Midlands Engine
Investment Fund for smaller businesses
■ Over £150m investment in flood defence
schemes in Leeds, Cumbria, Calder Valley and
York
■ Put Midlands Connect on a statutory
footing, and develop its priority roads schemes,
including M1 upgrades, and improvements
on the A45, A46, M42 and M5
■ New Enterprise Zones for Loughborough
and Leicester, and for Brierley Hill, Dudley
■ £20m per year Northern Powerhouse
Schools Strategy to improve schools
■ £15m for National Institute for Smart Data
Innovation, Newcastle
■ £14m for STEAMhouse, a new
innovation centre in Birmingham’s
Creative Quarter, Digbeth
■ Extension of Sheffield City Region Enterprise
Zone, subject to agreement
■ Working with Greater Manchester to devolve
powers over criminal justice services, and a
new Life Chances Investment Fund
■ £16m grants to aerospace industry
including £7m for Rolls-Royce in Derby
■ Greater Lincolnshire Devolution
Deal, including £450m gainshare
pot, devolved transport budget
and more joined-up adult skills
and criminal justice
■ Additional £130m to repair roads
and bridges in Cumbria, West Yorkshire,
Northumberland, Greater Manchester, Durham
and North Yorkshire
■ £13m for Hull UK City of Culture 2017
WALES
■ £500m over 20 years for the Cardiff
Capital Region City Deal
EAST
■ Devolution deal with East Anglia, including
£900m gainshare pot, £175m ring-fenced
housing fund and devolved transport and adult
skills budgets
■ Halving tolls on the Severn River
Crossings in 2018, subject to consultation
■ Opening negotiations towards a
Swansea Bay City Region deal
■ £151m towards building new river crossings
at Lowestoft and Ipswich
■ Opening the door to a growth deal
for North Wales
■ £50m for a new world-leading centre for
food and health research at Norwich
■ £5m to redevelop St Albans City rail station
SOUTH WEST
■ West of England Devolution agreement,
including £900m gainshare pot, devolved
transport budget and powers over adult skills
SOUTH EAST
■ £19m from Stamp Duty receipts to communityled housing schemes in areas where the impact of
holiday homes is most acute
■ Thames Estuary 2050 Growth
Commission, chaired by Lord Heseltine to
report in 2017
■ £5m additional development funding to
improve resilience on the Dawlish rail line
■ National Infrastructure Commission
to make proposals on developing the
Cambridge-Milton Keynes-Oxford corridor
■ Increasing grant funding to £14.5m for
ultrafast broadband
■ New Enterprise Zone for Cornwall
■ £3m to improve rail station facilities
■ £2m to refurbish the Hall for Cornwall in Truro
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Budget 2016
LONDON
■ The green light for Crossrail 2 with £80m
development funding
■ Moving towards 100% business rates
retention with the Greater London Authority
■ Piloting a £15m Connected Corridor on
the A2-M2 from London to Dover
■ Supporting the expansion of the Royal
College of Art’s Battersea Campus
■ £7m to improve rail station facilities at
Redhill, Newbury and High Wycombe
■ Supporting the British Library to develop its
Central London site
Northern Powerhouse
1.288 As set out by the Chancellor in 2014, the Northern Powerhouse is the government’s
vision for the North of England. It is built on the solid economic theory that while the individual
cities and towns of the North are strong, if they are enabled to pool their strengths, they could
be stronger than the sum of their parts. It means investing in better transport to connect up
the North; backing strengths in science and innovation; investing in culture, housing and
the quality of life to make the North a magnet for new businesses and talented people; and
devolving powers and budgets and creating powerful new elected mayors who will give people
in northern cities and towns a strong voice.
1.289 Strong progress has been made. Since 2010, unemployment in the North of England has
fallen by a third and the median earnings of full-time employees grew faster in all regions of the
North than they did in London.165 In 2015, employment grew faster in the North than the South
and by the end of the year, the employment rate in the northern regions was at its highest on
record, at 72.2%.166 In 2015, unemployment fell faster in the North West than in any other
region.167
1.290 Alongside the Budget, the government has agreed a joint statement of intent with the
largest cities in the North to drive forward the Northern Powerhouse.
Transport
1.291 The government supports the vision set out by Transport for the North (TfN) in
their Northern Transport Strategy168 and accepts the recommendations from the National
Infrastructure Commission on northern connectivity.169 The government will take forward
these proposals with a total of £300 million of funding, including:
• giving the green light to High Speed 3 between Leeds and Manchester,
committing to reduce journey times to around 30 minutes, in line with the
recommendation by the National Infrastructure Commission. £60 million will be provided
to develop plans for both the Leeds-Manchester route by 2017 and to improve transport
connections between cities of the North
• accelerating the upgrade of the M62 to a four-lane smart motorway. The
government will provide an extra £161 million on top of the existing road programme to
bring forward by 2 years the upgrade between junction 10-12 Warrington to Eccles, and to
accelerate work on junction 20-25 Rochdale to Brighouse
• developing the future transformation of east-west road connections, including
a new Trans-Pennine tunnel under the Peak District between Sheffield and Manchester, as
well as options to enhance the A66, A69 and the north-west quadrant of the M60. The
government will allocate £75 million, including to develop a business case for these schemes
by the end of the year
• accelerating the development of other critical road projects in the North, including
Lofthouse and Simister Island junctions, capacity enhancements to the M1 at junctions
35a-39 Rotherham to Wakefield, and delivering on the commitment to begin upgrades to
the M56 at junctions 6-8 south of Manchester in this Parliament
165
The north is defined as the North East, North West, and Yorkshire and the Humber regions. The south is defined as
London, the South East and South West regions.
‘Regional Labour Market Statistics’, ONS, February 2016. ‘Annual Survey of Hours and Earnings: 2015 Provisional
Results’, ONS, November 2015.
166
‘Regional Labour Market Statistics’, ONS, February 2016.
167
‘Regional Labour Market Statistics’, ONS, February 2016.
168
‘The Northern Transport Strategy: Spring 2016 Report’, Transport for the North, March 2016.
169
‘High Speed North’, National Infrastructure Commission, March 2016.
Budget 2016
73
•• improving the North’s major rail stations. To take forward the commission’s
recommendations, the government will allocate a further £4 million to support the
development of High Speed 2 Growth Strategies for Manchester Piccadilly, Manchester
Airport and Leeds stations
1.292 The Budget announces funding to improve local roads in the North. £15 million will
be allocated from the Pothole Action Fund to repair around 277,000 potholes during
2016-17, and the government is giving the go ahead to £24 million from the Local
Growth Fund to improve roads across North Yorkshire.
Devolution
1.293 The first round of mayoral devolution deals with northern cities were not the end of a
process but the beginning of one. Since agreeing a mayoral deal in November 2014, Greater
Manchester has been a trailblazer for devolution in England. The government will work
with Greater Manchester on the devolution of powers over criminal justice services,
as well as supporting the establishment of a Life Chances Investment Fund. The
radical devolution of justice responsibilities will enable Greater Manchester to offer seamless
interventions for offenders as they transition between prisons and the community, and to join
up public services to tackle the causes of crime and prevent reoffending.
1.294 The government has agreed another mayoral devolution deal with Liverpool
City Region. This builds upon Liverpool’s mayoral deal on 17 November 2015, and gives
Liverpool additional new powers over transport, pilots the approach to 100% business rate
retention across the city region, and commits the city region and government to work together
on children’s services, health, housing and justice.
Northern Powerhouse Schools Strategy
1.295 The government will invest £20 million a year of new funding in a Northern
Powerhouse Schools Strategy. This new funding will ensure that rapid action is taken to
tackle the unacceptable divides that have seen educational attainment and progress in some
parts of the North lag behind the rest of the country. Ensuring access to an excellent education
for all pupils is a critical step in ensuring the long term success and competitiveness of the
Northern Powerhouse. The government will:
•• boost investment to turn round performance in the toughest areas: bringing in
support from the best leaders and schools into these areas, empowering the best local heads
and schools to become leaders of school improvement and increasing funding available for
turnaround activities in coasting and vulnerable schools
•• invest more funding to see the best academy chains expand and to develop new
sponsors in the North; the creation of a new Northern centre of the New Schools
Network will encourage more, innovative, free schools in the region
•• look at further ways to get and retain the best teachers in these areas
•• ask Sir Nick Weller to lead an in-depth report into transforming education across
the Northern Powerhouse
Business, innovation and science
1.296 To support local business growth, the government will extend the Sheffield
City Region Enterprise Zone, subject to local agreement. This will support the area to build
74
Budget 2016
on its expertise in advanced manufacturing across a range of sectors including automotive
industries.
1.297 The government will invest £15 million in the National Institute for Smart Data
Innovation in Newcastle, subject to approved business case. This new facility will bring
together industry, the public sector and universities to create the skills, ideas and resources
needed to exploit the opportunities offered by Smart Data.
1.298 Alongside the launch of a competition to identify the best value small modular
reactor for the UK, government will allocate at least £30 million for a 21st century
nuclear manufacturing programme. This will create opportunities for the North’s centres
of excellence in nuclear research, such as the Nuclear Advanced Manufacturing Research Centre
and the Sir Henry Royce Institute.
1.299 The government will consult on the priorities and delivery models for the Shale
Wealth Fund and how it can be deployed in local communities and the North as a
whole. The Shale Wealth Fund could be worth up to £1 billion over 25 years and will provide
additional funds over and above industry schemes and other sources of Government funding.170
1.300 Greater Manchester and East Cheshire, and Sheffield City Region will benefit
from a science and innovation audit.
Flooding
1.301 Many communities in the North were badly affected by flooding this winter. As part of
the government’s £700 million boost to flood defence and resilience spending, £150 million
will be invested in flood defence schemes in Leeds, Cumbria, Calder Valley and York,
which will better protect 7,400 properties.171 The government will also invest up to £25
million in flood defences in Carlisle once the Environment Agency has concluded a review of
its needs, and will provide funding to support delivery of the final phase of the Leeds Flood
Alleviation Scheme in later years subject to business case approval.
1.302 On top of the £49 million already committed to repair transport infrastructure damaged
by Storms Desmond and Eva, a further £130 million will be spent repairing roads
and bridges in Cumbria, West Yorkshire, Northumberland, Greater Manchester,
Durham and North Yorkshire. This funding will enable repairs to the Ovingham Bridge in
Northumberland, the Linton Bridge in Leeds, Scout Road in Calderdale and the A646 near
Mytholmroyd.
Arts and culture
1.303 The North West had the fastest growing arts, entertainment and recreation sector in the
country in the year to 2014.172 To support the North’s vibrant creative and cultural offering, the
Budget:
•• commits a further £13 million to Hull UK City of Culture 2017. This includes £5
million towards the refurbishment of Hull New Theatre and £8 million to ensure there is a
lasting cultural legacy in Hull
•• provides £5 million support to the Shakespeare North project to establish a new
theatre in Knowsley, subject to business case approval and planning permission being
granted
HM Treasury calculations.
Based on analysis by the Environment Agency.
172
‘Regional Gross Value Added (Income Approach)’, ONS, December 2015.
170
171
Budget 2016
75
•• provides £500,000 to Welcome To Yorkshire for an international marketing
campaign for the Tour de Yorkshire 2016. The government also supports plans to
bid to host the Rugby League World Cup in the Northern Powerhouse
•• provides £1 million support to S1 Artspace to create an arts complex subject to
planning permission being granted
•• invites bids from northern cities and towns to host the Great Exhibition of the
North in 2018
•• considers the case to support the creation of ‘International Screen School
Manchester’, to increase the skilled workforce for the screen-based media sector in the
Northern Powerhouse
LIBOR
1.304 The government will allocate £1.1 million to Central Manchester University
Hospitals NHS Foundation Trust and £700,000 to Sheffield Children’s Hospital Charity
from banking fines. This will contribute to a dedicated helicopter landing pad in central
Manchester and a fully digitally intraoperative 3T MRI scanner in Sheffield.
76
Budget 2016
Figure 4: Northern Powerhouse Timeline
2015-16 Key Project Starts:
•• £220m upgrade to M6 J16-19 between Crewe and Knutsford
•• Construction of the £230m A6 to Manchester Airport relief road
•• Phase one of the Leeds Flood Alleviation Scheme
Key Project Completions
•• Electrification of railway between Manchester and Liverpool
•• £120m M1 J39-42 Smart Motorway between Wakefield and Leeds
•• Construction of the £300m Liverpool2 deep water terminal at Seaforth
2016-17 Key Project Starts:
••
••
••
••
Construction of £200m New Polar Research Vessel, Birkenhead
New rail franchises for TransPennine Express and Northern start 1 April 2016
£100m improvement to A19/A1058 Coast Road Junction in Newcastle
£75m development of improvements to M60, Northern TransPennine links (A66
and A69) and TransPennine tunnel between Manchester and Sheffield
Key Project Completions:
•• £192m upgrade to A556 Knutsford to Bowdon
•• Carrington Power Station enters operation, after a £620m construction
2017-18 Key Project Starts:
••
••
••
••
ESIOS – Energy Subsurface Test Centre, Chester
National Centre for Ageing Science and Innovation, Newcastle
Smart Motorway on the M62 J10-12 (Manchester – Warrington)
£13m Hull UK City of Culture 2017
Key Project Completions:
••
••
••
••
••
£380m of improvement works on the A1 Leeming to Barton
£210m Smart Motorway on M60 J8 – M62 J20
Graphene Engineering and Innovation Centre, Manchester
Cognitive Computing Research Centre, Cheshire (Hartree Phase III)
Plans produced for High Speed 3 between Leeds and Manchester to reduce journey
times to around 30 minutes
•• National College of High Speed Rail, Doncaster
2018-19 Key Project Starts:
•• Ouse and Foss flood defence schemes in York, and phase two of the Leeds Flood
Alleviation Scheme
•• Publish 2nd Roads Investment Strategy (2020-25), which could include
TransPennine tunnel and upgrades to northern TransPennine roads and M60
•• Comprehensive upgrades to the TransPennine rail route, paving the way for
High Speed 3
Key Project Completions:
•• Tees Renewable Energy Plant and £190-200m Energy Works in Hull
•• Great Exhibition of the North 2018
2019-20 Key Project Starts:
•• Upgrades to the A5036 Princess Way and M56 J6-8 Smart Motorway (Manchester
Airport – A556)
•• Smart Motorway on the M62 J20-25 (Leeds – Manchester)
•• Upgrades to the A1 north of Ellingham
•• M62/M606 Chain Bar in Bradford
Key Project Completions:
•• M62 J10-12, M60 J24-27 & J1-4 South of Manchester Smart Motorway
•• Sir Henry Royce Institute for Advanced Materials, Manchester
•• National Institute for Smart Data Innovation, Newcastle
Budget 2016
77
Midlands Engine for Growth
1.305 This Budget pushes forward the government’s vision for the Midlands Engine for
Growth. There are almost 96,000 more businesses in the Midlands than in 2010 – equal to
52 new business created every day.173 In 2015, median earnings of full-time employees grew
faster in the West Midlands than in any other English region.174 The East Midlands also had the
strongest productivity growth between 2010 and 2014 of any region.175 This Budget contains
measures to support industry and growth in the Midlands, with a focus on supporting the
development of Midlands Connect’s long-term transport strategy and the region’s traditional
strengths in manufacturing and engineering.
1.306 The government has agreed with LEPs in the Midlands and the British Business
Bank to create a Midlands Engine Investment Fund of over £250 million to invest in
smaller businesses in the Midlands, subject to final funding arrangements.
1.307 The government has agreed a new mayoral devolution deal with Greater
Lincolnshire. This will give Greater Lincolnshire significant new powers over transport,
planning, and skills. Greater Lincolnshire will also receive control of a £450 million investment
fund over 30 years to boost economic growth.
1.308 To boost transport and connectivity in the Midlands, the government will:
•• put Midlands Connect on a statutory footing by the end of 2018 to create a
sub-national transport body for the Midlands. This will support Midlands Connect in
developing and implementing a long-term Midlands Transport Strategy following the £5
million of funding the government committed at Summer Budget 2015
•• develop Midlands Connect’s priority strategic roads schemes in this Parliament. The
government will carry out development work on four major roads in the Midlands: upgrades
to the M1 to provide a continuous smart motorway from London to Yorkshire, improvements
to the A46 Newark bypass and its junction with the A1, upgrading the single carriageway
link on the A45 Stanwick to Thrapston, and upgrading the M42 and M5 around Birmingham
to a four lane smart motorway
•• launch the Local Majors Fund. This competitive fund will offer the opportunity for local
areas to bid for funding for large local transport projects such as the Carrington Bridge
•• allocate £11 million during 2016-2017 to fill around 214,000 potholes
•• allocate £1 million to expand car parking facilities at Market Harborough rail
station
1.309 To support local businesses and build on the area’s strengths in space science and
research, a new Enterprise Zone will be created across Loughborough and Leicester,
subject to business case approval. The government can also announce the creation of an
Enterprise Zone at Brierley Hill in Dudley, subject to business case approval.
1.310 Budget announces £16 million in R&D funding, matched by industry, to
support aerospace firms in the East Midlands. This includes £7 million to help Rolls-Royce
develop new high-temperature alloys in Derby. The Midlands will also receive over £15
million funding to support R&D into lowering vehicle emissions.
1.311 The Midlands will benefit from a science and innovation audit, to identify the
region’s strengths in research and innovation.
‘Business Population Estimate for the UK and Regions’, BIS, October 2015.
‘Annual Survey of Hours and Earnings: 2015 Provisional Results’, ONS, November 2015.
175
‘Regional Productivity, Levels (£)’, ONS, January 2016.
173
174
78
Budget 2016
1.312 This Budget allocates £2 million to develop a regeneration masterplan for
Birmingham’s Snow Hill district. This will help to maximise the potential of Snow Hill
Station and the surrounding business district. The government will also support Greater
Birmingham and Solihull LEP to develop a proposal for a new Knowledge Quarter in
the area around the Curzon Street HS2 station.
1.313 The government will invest £14 million in STEAMhouse, subject to business case.
This is a creative innovation centre in Digbeth, Birmingham, bringing together arts and culture
with science, technology, engineering and maths to drive innovation.
1.314 This Budget announces the extension of additional work coaches in
Birmingham for the next financial year. These additional work coaches work with
businesses to match individuals with apprenticeships, training opportunities and skilled jobs.
1.315 The government will allocate £700,000 in banking fines to Birmingham
Children’s Hospital Charity. This will complete fundraising for the ‘Eye Believe’ appeal to
transform the hospital’s Eye Department, and also support the ‘Star Appeal’, to create the UK’s
first centre for children with rare diseases and undiagnosed medical conditions.
1.316 The government will also contribute £1 million towards the transformation of the
historic Drapers’ Hall in Coventry into a multi-purpose music venue.
East of England
1.317 The East of England had the highest employment rate of any region at the end of 2015,
and was the joint second fastest growing region in the year to 2014.176 This Budget announces
measures to devolve power down, to strengthen the East of England’s specialisms in science and
research, and to improve transport and connectivity.
1.318 The government has agreed a mayoral devolution deal with East Anglia,
covering Norfolk, Suffolk, Cambridgeshire and Peterborough, giving the local area
new powers over transport, planning, skills, a £900 million investment fund over 30
years to grow the local economy, and access to £175 million ringfenced funding to
deliver new homes.
1.319 The Budget confirms £151 million for the Lowestoft 3rd Crossing and the
Ipswich Wet Dock Crossing from the Local Majors Fund. The government will also look at the
case for other projects, such as the Canvey Island Third Road, to be taken forward.
1.320 Building upon East Anglia’s world-leading status in science and research, the
government will contribute £50 million to the Quadram Institute. The Institute will
develop solutions to a range of global challenges in human health, food and disease.
1.321 To develop transport facilities and connectivity in the East of England, the government
will allocate £5 million to fund the redevelopment of St Albans City station.
1.322 This Budget also allocates £7 million during 2016-2017 to fill around 136,000
potholes.
South West
1.323 In 2015, employment grew faster in the South West than in any other region.177 At the
end of 2015 the South West had the lowest unemployment rate of any region, and has seen the
176
‘Regional Labour Market Statistics’, ONS, February 2016. ‘Regional Gross Value Added (Income Approach)’, ONS,
December 2015.
177
‘Regional Labour Market Statistics’, ONS, February 2016.
Budget 2016
79
fastest business growth since 2010 outside London.178 To drive productivity and support growth,
the government is announcing a package of measures to devolve further powers to the West of
England, improve transport and connectivity, and support tourism in the region.
1.324 The government has agreed a new mayoral devolution deal with the West of
England. This will give the West of England significant new powers over improved transport,
planning, skills and employment. The West of England will also receive control of a £900 million
investment fund over 30 years to boost economic growth.
1.325 Budget announces £19 million funding for community-led housing schemes in
areas most impacted by holiday homes, using Stamp Duty Land Tax revenue raised
from the higher rates for purchases of additional properties.
1.326 The government will support the interim report of the Peninsula Rail Task Force
by investing an additional £5 million in developing options to improve the resilience
of the rail line between Newton Abbot and Exeter via Dawlish. The government will fully
consider the recommendations in the Peninsula Rail Task Force’s final report when it is published
in June.
1.327 To strengthen transport and connectivity in the South West, this Budget also:
•• launches the Local Majors Fund, so that local areas in the South West can bid
for funding for large local transport schemes, including the A391 St Austell to A30
improvements and the North Devon Link Road
•• allocates £3 million to improve rail stations across the South West
•• allocates £8 million during 2016-17 to fill around 159,000 potholes
•• provides £500,000 to fund a study into a new junction 18a on the M4 to link with
the Avon ring road A4174
1.328 The government will create a new MarineHub Enterprise Zone for Cornwall,
following the transfer of Wave Hub to Cornwall Council.
1.329 The government is providing a grant of up to £16 million to Dyson to support
research and development for battery technology at their site in Malmesbury.
1.330 The government will distribute £14.5 million in grants to extend ultrafast
broadband coverage in the South West – £4.5 million more than the £10 million
allocated at the Spending Review. As part of its assessment of how the UK can
become a world leader in 5G, the National Infrastructure Commission will use the
South West as a case study.
1.331 To support tourism and cultural activity in the South West, the government will:
•• contribute £2 million towards the refurbishment of the Hall for Cornwall in Truro,
subject to planning permission being granted
•• contribute £620,000 to Being Brunel: the National Brunel Project in Bristol
178
‘Regional Labour Market Statistics, ONS, February 2016’. ‘Business Population Estimate for the UK and Regions’,
BIS, October 2015.
80
Budget 2016
London
1.332 London contributes £364 billion to the UK economy.179 In London since 2010, Gross
Value Added per head has grown 17.1%, there are over 250,000 more businesses, and over
560,000 more people in work.180 The government is committed to building on this success, so
that London continues to thrive as a global city for the next generation.
1.333 London’s continued growth requires strategic, long-term investment in infrastructure.
The National Infrastructure Commission has recommended that Crossrail 2 is the priority
transport investment required to meet the needs of the capital over the decades to come and
that DfT and TfL should urgently undertake the work necessary to update the business case.181
This includes identifying options to improve the affordability and value for money of the scheme
by reducing costs. It advises the project will simultaneously relieve the worst congestion on the
London transport network and unlock the potential for hundreds of thousands of new homes.
1.334 The government accepts the National Infrastructure Commission’s
recommendations and is giving the green light for Crossrail 2 to proceed to the next
stage. The government will therefore provide a contribution of £80 million to fund
the development of Crossrail 2, and asks Transport for London to match that contribution to
ensure that the project can be fully developed with the aim of depositing a Hybrid Bill within this
Parliament. The National Infrastructure Commission has recommended that clear proposals are
identified to significantly reduce and phase costs and that a funding package is developed that
involves London funding more than half of the cost of the project. The government will work
closely with Transport for London to ensure that both of these recommendations are met.
1.335 Old Oak Common has the potential to be one of the most significant regeneration
sites in the country over the next decade. The government has therefore agreed a
Memorandum of Understanding with the Old Oak and Park Royal Development
Corporation on transferring government and Network Rail land into the Development
Corporation’s ownership, on the condition that the Development Corporation develops a
plan for funding, financing and delivering the regeneration.
1.336 The government will increase the share of London’s business rates retained
by the Greater London Authority and transfer responsibility for funding TfL’s capital
projects. This will give the Mayor of London control over almost £1 billion more of locally raised
taxes. The government will also explore with London options for moving to 100% business rates
retention ahead of the full roll-out of the business rates reforms.
1.337 The government has approved the full business case for a new Thameslink
station at Brent Cross Cricklewood, unlocking 7,500 new homes.182
1.338 The government invites TfL to bring forward proposals for financing
infrastructure projects from land value increases, which could support schemes like
the proposal for ‘flyunder’ tunnels to replace busy main roads and support redevelopment
in Barking, Hammersmith or other town centres. The government is also supporting TfL
to generate revenue from its property assets including by consulting on reforms to
compulsory purchase orders.
1.339 The government will provide £5 million to establish a fund to support smaller
local infrastructure projects in outer London boroughs.
‘Regional Gross Value Added (Income Approach)’, ONS, December 2015.
‘Business Population Estimate for the UK and Regions’, BIS, October 2015. ‘Regional labour market statistics’, ONS,
February 2016.
181
‘Transport for a world city’, National Infrastructure Commission, March 2016.
182
Business case from London Borough of Barnet and Greater London Authority.
179
180
Budget 2016
81
1.340 To build upon London’s world-class cultural and educational offering, the government
will:
•• help to fund the expansion of the Royal College of Art’s Battersea Campus
•• support the British Library’s ambition to develop land to the north of its St
Pancras site, subject to business case approval
South East
1.341 The South East contributes £240 billion in Gross Value Added to the national economy.183
This Budget announces measures to promote growth and infrastructure development in areas of
the South East, and to improve transport and connectivity.
1.342 The government has asked Lord Heseltine to lead the Thames Estuary 2050
Growth Commission. The Commission will develop an ambitious vision and delivery plan
for North Kent, South Essex and East London up to 2050. This will focus on supporting the
development of high productivity clusters in specific locations. It will examine how the area
can develop, attract and retain skilled workers. It will also look at how to make the most of
opportunities from planned infrastructure such as the Lower Thames Crossing. It will report back
at Autumn Statement 2017 with a clear and affordable delivery plan for achieving this vision.
1.343 The government has asked the National Infrastructure Commission to develop
proposals for unlocking growth, housing and jobs in the Cambridge – Milton Keynes
– Oxford corridor. Its report will set out opportunities to maximise the potential for future
growth in this corridor.
1.344 This Budget launches the Local Majors Fund, so that local areas in the South East
can bid for funding for large local transport schemes including the Chickenhall Link Road.
The government will allocate £8 million during 2016-2017 to fill around 157,000
potholes, and £7 million to improve rail stations in the South East.
1.345 The government will allocate £2 million in banking fines to University Hospital
Southampton NHS Foundation Trust. This commitment of matched funding will facilitate
the building of a dedicated Paediatric Emergency and Trauma Department, bringing units which
treat sick children into one location.
‘Regional Gross Value Added (Income Approach)’, ONS, December 2015.
183 82
Budget 2016
2
Policy decisions
2.1 Chapter 1 explains how the measures announced in this Budget advance the government’s
long-term economic plan. This chapter provides a brief description of all Budget policy decisions.
There are decisions on tax measures, National Insurance contributions (NICs), measures that
affect Annually Managed Expenditure (AME), changes to Departmental Expenditure Limits (DEL)
and other policy measures. Unless stated otherwise, measures in this chapter are measures
announced at this Budget. The tables in this chapter set out the cost or yield of all Budget policy
decisions with a fiscal impact in the years up to 2020-21.
Fiscal impacts of Budget policy decisions
2.2 Alongside this Budget, the Office for Budget Responsibility (OBR) has published an
independent forecast of the public finances and the economy, incorporating Budget policy
decisions. To produce the Budget forecast, the OBR has certified the government’s assessment
of the direct cost or yield of Budget policy decisions that affect the economy and public finance
forecasts and has made an assessment of the indirect effects of Budget measures on the
economy.
2.3 Table 2.1 shows the cost or yield of all new Budget 2016 decisions with a direct effect on
public sector net borrowing. This includes tax measures, changes to allocated DEL and measures
affecting AME, including the total fiscal impact of the measures affecting the welfare cap.
2.4 Consistent with its commitment to transparency, the government is also publishing the
methodology underlying the calculation of the fiscal impact of each policy decision. This is
included in the supplementary document ‘Budget 2016 policy costings’ published alongside this
Budget.
Budget 2016
83
Table 2.1: Budget 2016 policy decisions1
Head
£ million
2016-17 2017-18 2018-19 2019-20 2020-212
Spending and Efficiency
1
Resource spending adjustment
Spend
0
0
0
+3,500
-
2
Capital spending: accelerate investment
plans3
Spend
0
-760
-970
+1,585
+150
3
Public Service Pensions: update to discount
rate
Spend
0
0
0
+1,970
+2,005
Personal Tax and Savings
4
Personal Allowance: increase to £11,500 in
April 2017
Tax
0
-1,665
-1,945
-1,945
-1,985
5
Higher Rate Threshold: increase to £45,000
in April 2017
Tax
0
-365
-595
-565
-600
6
Lifetime ISA and raise ISA limit to £20,000
Spend
*
-170
-330
-590
-850
7
Savings: remove withholding tax obligations
Tax
0
-260
-45
-100
-120
8
Financial Advice Markets Review: increase tax
relief on employer provided pension advice
Tax
0
-10
-10
-5
*
Tax
0
0
+520
+500
+455
Childhood Obesity and Education
9
Soft Drinks Industry Levy
10
Education: doubling the school sports
premium
Spend
0
-110
-190
-190
-
11
Education: longer school day and breakfast
clubs
Spend
-5
-85
-250
-350
-
12
Education: full academisation and accelerate
transition to National Funding Formula
Spend
-75
-260
-195
-110
-
13
Education: Northern Powerhouse
Spend
-10
-25
-25
-20
-
14
Student Loans: postgraduate loans for parttime and distance learning
Spend
0
0
0
+5
+5
Business Tax
84
15
Business Rates: permanently double the
Small Business Rate Relief and extend
thresholds
Tax
0
-1,575
-1,410
-1,420
-1,460
16
Business Rates: increase threshold for higher
multiplier to £51,000
Tax
0
-125
-110
-110
-115
17
Business Rates: switch from RPI in April 2020
Tax
0
0
0
0
-370
18
Corporation Tax: reduce to 17% in April
2020
Tax
0
0
0
-120
-945
19
Corporation Tax: restrict relief for interest
Tax
0
+920
+1,165
+995
+885
20
Corporation Tax: withholding tax on royalties
Tax
+210
+165
+115
+120
+125
21
Corporation Tax: extend scope of hybrid
mismatch rules
Tax
+15
+265
+255
+215
+200
22
Corporation Tax: reform loss relief
Tax
0
+395
+415
+295
+255
23
Corporation Tax: further restrict use of banks’
pre-2015 losses
Tax
+330
+520
+465
+375
+315
24
Corporation Tax: implement agreed patent
box nexus approach
Tax
0
+15
+25
+35
+45
25
Corporation Tax: extend first year allowance
and lower emission thresholds for business
cars
Tax
0
0
+5
+35
+80
26
Corporation Tax: defer bringing forward
payment for large groups for two years
Tax
0
-6,000
-3,850
+5,965
+3,600
27
Stamp Duty Land Tax for non-residential
property: reform freehold and leasehold
premium regime to slice and increase
leasehold rate over £5m
Tax
+385
+515
+535
+560
+590
Budget 2016
Head
£ million
2016-17 2017-18 2018-19 2019-20 2020-212
Enterprise
28
Capital Gains Tax: reduce basic rate to 10%
and main rate to 20% excluding residential
property and carried interest
Tax
-105
-630
-605
-670
-735
29
Entrepreneurs Relief: extend to long-term
investors in unlisted shares
Tax
*
+5
-25
-40
-60
30
Capital Gains Tax: lifetime limit under
Employee Shareholder Status
Tax
0
0
0
+10
+35
31
Capital Gains Tax: extend reliefs
Tax
-45
-20
-40
-40
-40
32
Self Employed: abolish Class 2 NICs
Tax
0
0
-355
-360
-360
33
Sharing Economy: £1,000 allowance for
both trading and property income
Tax
0
-15
-235
-195
-200
Tax
-165
-265
-225
-155
-200
Spend
-15
0
0
0
-
Energy and Environment
34
Oil and Gas: abolish Petroleum Revenue Tax
and reduce Supplementary Charge to 10%
35
North Sea Seismic Survey
36
Business Energy: abolish Carbon Reduction
Commitment and offsetting increase to
Climate Change Levy
Tax
0
0
0
+425
+35
37
Carbon Price Support Rate: cap at
£18/tCO2 in April 2019 and uprate in
April 2020
Tax
0
0
0
0
+25
38
Corporation Tax: update technologies with
access to enhanced capital allowances
Tax
*
+5
+5
+5
+5
Avoidance, Evasion, Imbalances, and Operational Measures
39
Disguised remuneration: tackling historic and
new schemes
Tax
+100
+335
+645
+1,235
+215
40
Off-payroll working: transfer liability to
public sector employers
Tax
0
+265
+65
+105
+120
41
Loans to participators: align rates with
dividend higher rate
Tax
+15
+80
+80
+70
+65
42
Removing employer tax advantage of
different forms of remuneration: pay-offs
over £30,000
Tax
0
+45
+420
+470
+485
43
Offshore Property Developers: tackle
avoidance and evasion
Tax
+130
+435
+550
+640
+520
44
Stamp Duty Land Tax on additional
properties: exemptions
Tax
+45
+55
+60
+65
+70
45
Corporation Tax: removing the renewals
allowance
Tax
+5
+5
+5
+5
+5
46
Value Added Tax: tackling overseas trader
evasion
Tax
0
+65
+130
+315
+365
47
Value Added Tax: extend reverse charge to
electronic communications services
Tax
+115
+105
+90
+75
+60
48
Gambling Duties: reform treatment of
freeplays
Tax
-20
+45
+90
+100
+110
49
Asset Managers: reform treatment of
performance awards
Tax
+15
+210
+115
+90
+65
50
Border Force: Illicit Tobacco Strategy
Tax
-5
+20
+25
+30
+45
51
Landfill Tax: tackling waste crime
Tax
0
+5
+10
+20
+30
52
Tax Free Childcare and Employer Supported
Childcare: updated roll-out and
grandfathering
Tax
+20
-35
-155
-120
-85
53
DWP and HMRC operational and policy
measures
Spend
-35
-50
+5
+45
+30
Budget 2016
85
Head
£ million
2016-17 2017-18 2018-19 2019-20 2020-212
Duties
54
Fuel Duty: freeze in April 2016
Tax
-440
-435
-445
-445
-450
55
Alcohol Duty: freeze for beer, spirits and
cider
Tax
-85
-85
-85
-85
-85
56
Heavy Goods Vehicles: freeze VED and Road
User Levy
Tax
-5
-5
-5
-5
-5
57
Hand-rolling Tobacco: increase by RPI+5%
Tax
+10
+10
+10
+10
+10
58
Aggregates Levy: freeze rates
Tax
-5
-5
-5
-5
-5
59
Package Recycling Target: reform
Tax
+5
+10
+5
0
-5
Spend
-80
-200
-205
-205
-
Local Growth
60
Flood Defence and Resilience: additional
investment
61
Insurance Premium Tax: increase by 0.5%
Tax
+80
+200
+205
+205
+210
62
City Deals
Spend
-145
-60
-10
-10
-
63
Smart Motorways: M62
Spend
*
*
-75
-115
-
64
Office for National Statistics: Bean Review
Spend
-5
-10
0
0
-
65
Enterprise Zones: extend enhanced capital
allowances
Tax
0
0
0
0
-5
66
Cathedrals repairs fund
Spend
-5
-5
0
0
-
67
Additional cultural investment
Spend
-25
-30
-15
-15
-
68
Other local growth measures
Spend
-5
-5
-10
-5
-
Spend
+100
+250
+380
+380
+190
Previously announced measures
69
Local Government Assets: receipts flexibility
70
Help to Save
Spend
0
0
0
-20
-70
71
Education: mentoring for disadvantaged
pupils
Spend
-5
-5
-5
-5
-
72
Right to Buy: pilots
Spend
0
-35
-35
-5
0
73
Personal Independence Payments: aids and
appliances
Spend
+15
+590
+1,190
+1,300
+1,280
74
Pay to Stay: introduce taper and make
voluntary for housing associations
Spend
0
+260
+205
+260
+305
75
Social Rent downrating: one year deferral for
supported housing
Spend
-15
-20
-20
-25
-25
76
Benefit Cap: exemption for recipients of
carers and guardians allowance
Spend
-10
-20
-20
-20
-20
77
Local Housing Allowance: implement for new
tenancies from April 2017
Spend
0
0
-60
-25
-15
TOTAL POLICY DECISIONS
+285
-7,550
-4,770 +13,915
+4,175
Memo: TOTAL POLICY DECISIONS
(excluding the impact of CT payment date
measure)4
+285
-1,550
-920
+7,950
+575
Total tax policy decisions (excluding the
impact of CT payment date measure)4
+645
-960
-470
+330
-2,760
-360
-590
-450
+7,620
+3,335
Total spending policy decisions
*negligible
Costings reflect the OBR’s latest economic and fiscal determinants.
1
At Spending Review 2015, the government set departmental spending plans for RDEL for years up to 2019-20. RDEL budgets
have not been set for most departments for 2020-21. Given this, RDEL figures are not set out for 2020-21.
2
This measure is fiscally neutral over the scorecard period. Figures do not sum to zero due to rounding.
3
This measure delays the introduction of a new corporation tax payment schedule for larger groups. As it defers the policy, rather
than changing it, its effect over the scorecard period is broadly neutral.
4
86
Budget 2016
Table 2.2: Measures announced at Spending Review and Autumn Statement 2015 or earlier that will take
effect from April 2016 or later1,2
£ million
Head
2016-17 2017-18 2018-19 2019-20 2020-21
Measures announced at Spending Review and
Autumn Statement 2015
a
Apprenticeship Levy (funding employer
apprenticeship scheme)
Tax
0
+2,675
+2,780
+2,885
+3,000
b
Business Rates: small business relief extension
Tax
-730
+90
+20
0
0
c
Enterprise Zones
Tax
*
-10
-15
-15
-5
d
Stamp Duty Land Tax: higher rates on additional
properties
Tax
+630
+695
+750
+805
+855
e
Stamp Duty Land Tax: bringing forward payments
Tax
0
+105
+10
+10
+10
f
Capital Gains Tax: reduce payment window for
residential property
Tax
0
0
0
+930
+220
g
Temporary accommodation: impact of new
funding mechanism
Spend
0
+225
+235
+245
+260
h
Renewable Heat Incentive: capping costs and
improving value for money
Spend
+75
+175
+300
+480
+705
i
Landfill Communities Fund: reform
Tax
+20
+20
+20
+20
+20
j
Company Car Tax: retain the diesel supplement
until 2021
Tax
+270
+270
+270
+265
+270
k
Insurance Premium Tax: reform to motor
insurance claims rules
Tax
0
-35
-45
-55
-55
l
Stamp Duty Reserve Tax: options abuse
Tax
+35
+40
+40
+40
+45
m
Company distributions: preventing avoidance
Tax
*
+30
+20
+15
+15
n
General Anti-Abuse Rule: penalties
Tax
+10
+20
+25
+5
+5
o
Making Tax Digital: reducing errors through
record keeping
Tax
0
0
+10
+310
+625
p
Fraud, error and debt: DWP and HMRC changes
Spend
+80
+130
+90
+115
+100
q
Universal Credit: uprate Minimum Income Floor
with National Living Wage
Spend
*
+10
+60
+125
+185
r
Housing Benefit: limit social sector rates to the
equivalent private sector rate
Spend
0
0
+265
+335
+390
s
Housing Benefit and Pension Credit: limit
temporary absence
Spend
+25
+20
+15
+10
+10
t
Childcare: revised eligibility criteria
Spend
0
+45
+75
+90
+105
u
Pensions automatic enrolment: align with start of
tax year
Tax
0
+385
+440
-10
-10
v
Pension Credit Savings Credit: freeze
Spend
+140
+140
+140
+135
+130
Measures announced at Summer Budget 2015
w
Personal allowance: increase to £11,000 in 201617, with equal gains to higher rate taxpayers
Tax
-1,060
-1,170
-1,145
-1,150
-1,220
x
Higher Rate Threshold: increase to £43,000 in
2016-17
Tax
-95
-185
-175
-185
-195
y
Inheritance Tax: £1m couples allowance from
2020 through new main residence nil-rate band
phased in from 2017
Tax
0
-295
-675
-775
-830
z
Pensions tax relief: restrict for gross income over
£150,000 from 2016-17
Tax
+260
+425
+900
+1,180
+1,280
Tax
-10
-10
-10
-10
-10
0
-375
-665
-690
-705
-10
-685
-1,755
-2,070
-2,880
aa Rent-a-room relief: increase to £7,500
ab Childcare: 30 hour entitlement for working
parents of 3 and 4 year olds
ac Corporation Tax: reduce to 19% from 2017-18,
and 18% from 2020-21
Spend
Tax
Budget 2016
87
£ million
Head
2016-17 2017-18 2018-19 2019-20 2020-21
ad Employment Allowance: increase by £1,000 from
2016-17
Tax
-635
-680
-695
-715
-715
ae Dividends tax: abolish credit, introduce new
£5,000 allowance, and increase effective rates by
7.5pp
Tax
+2,540
-795
+1,185
+2,090
+1,980
af
Tax
0
0
+225
+435
+670
ag Residential property: reform wear and tear
allowance
Tax
0
+205
+150
+170
+170
ah VED: reform for new cars purchased from 2017,
hypothecated to roads fund from 2020-21
Tax
+300
+155
+640
+850
+1,300
ai
Non-domiciles: abolish permanent status
Tax
0
-20
+395
+310
+310
aj
Non-domiciles: IHT on UK residential property
Tax
-5
+30
+90
+60
+70
ak Employment Allowance: withdraw from single
person companies
Tax
+70
+75
+80
+85
+90
al
Tax
+210
+375
+515
+650
+795
am Indirect tax: overseas insurance
Tax
+5
+5
+5
+5
+5
an Large Business: enhanced compliance
Tax
+40
+175
+345
+480
+635
ao Specialist Personal Tax: enhanced compliance
Tax
+5
+40
+110
+195
+280
ap Wealthy: enhanced compliance
Tax
-65
+40
+175
+245
+265
aq Hidden Economy
Tax
+15
+120
+200
+255
+275
Tax
Residential property: restrict finance relief to
basic rate, phase from 2017
Tax Motivated Incorporation: reduction due to
dividend tax reform
+15
+135
+355
+630
+895
as Uprating: freeze working-age benefits, tax credits
and Local Housing Allowances for 4 years from
2016-17
Spend
0
+505
+1,755
+3,470
+3,580
at
Spend
+80
+235
+255
+305
+360
au Limit child element to 2 children for new births
in tax credits and new claims in UC
Spend
0
+360
+795
+1,200
+1,585
av Remove family element in tax credits and UC,
and the family premium in Housing Benefit, for
new claims
Spend
+110
+230
+405
+540
+645
aw Reduce work allowances in UC
Spend
+120
+1,225
+2,225
+2,850
+3,190
ax Reduce income rise disregard in tax credits
Spend
+90
+145
+155
+95
+55
ay End automatic entitlement for out-of-work 18-21 Spend
year olds
0
+25
+35
+40
+40
ar
Local compliance resource
Benefit cap: reduce to £20,000, and £23,000 in
London
az Reduce social sector rents by 1% each year for 4
years from 2016-17
Spend
+590
+1,180
+2,140
+3,185
+3,165
ba Pay to stay: higher income social housing tenants
to pay market rents
Spend
0
+20
-190
-165
-205
bb Limit backdating awards to 4 weeks
Spend
+10
*
*
*
0
bc Support for Mortgage Interest: change from
Spend
welfare payment to loan; maintain capital limit at
£200,000
-30
-35
+265
+245
+245
bd Align Work-Related Activity Group rate with JSA
for new claims
Spend
0
+30
+180
+345
+450
be UC parent conditionality from when youngest
child turns 3
Spend
0
*
*
+30
+30
bf Fraud, error & debt: tax credits changes
Spend
+45
+25
+10
+5
0
bg TV Licence: BBC funding for over-75s
Spend
0
0
+185
+425
+725
-1,150
-2,195
-2,410
-2,460
-2,505
Measures announced at March Budget 2015
bh Personal Allowance: increase to £10,800 in
2016-17 and to £11,000 in 2017-18 with full
gains to higher rate taxpayers
88
Budget 2016
Tax
£ million
Head
2016-17 2017-18 2018-19 2019-20 2020-21
bi
Savings Tax: allowance and ISA flexibility
Tax
-1,320
-565
-600
-635
-675
bj
Annuities: secondary market
Tax
0
+485
+475
-150
-145
bk Pensions: lifetime allowance to £1m from
2016‑17, and index with inflation from 2018-19
Tax
+245
+370
+505
+550
+570
bl
Tax
+155
+175
+160
+145
+130
bm Tobacco: enforcement
Tax
+5
+10
+10
+10
+10
bn Accelerated Payments: extension
Tax
+135
+195
+75
-35
-110
Employment intermediaries: travel and
subsistence (umbrella companies)
bo Restricting EEA jobseekers’ access to Universal
Credit
Spend
+5
+10
+15
+15
0
bp DWP Fraud and Error: strategic use of RTI to
prevent fraud in pension credit and HB
Spend
+15
+30
+35
+40
+40
bq Affordable housing: Housing Benefit impact
Spend
0
0
-5
-20
-20
br Company car taxation: 3ppt increase in 2019-20
Tax
0
0
0
+315
+320
bs Income Tax: extending farmers' profits averaging
period to 5 years
Tax
-15
-30
-35
-35
-35
bt Employer NICs: abolish for apprentices under 25
Tax
-105
-110
-120
-125
-130
bu Peer-to-peer lenders: bad debt relief
Tax
-10
-15
-15
-25
-30
bv Corporation tax: hybrids
Tax
+15
+70
+85
+90
+90
bw Corporation tax: accounting treatment of credit
losses
Tax
+5
+85
+215
-45
-45
bx Income tax: salary sacrifice and expenses,
including umbrella companies
Tax
+85
+65
+55
+60
+60
by Office of Tax Simplification: review of expenses
Tax
-5
-10
-10
-10
-10
bz HMRC Operational Measures
Tax
+280
+390
+155
+165
+160
Measures announced at Autumn Statement 2014
0
+35
0
+15
+25
cb Universal Credit: supporting 85% of childcare costs
ca Peer-to-peer lenders: withholding tax regime
Spend
Tax
-10
-185
-285
-320
-290
cc Bereavement benefits reform
Spend
0
-55
-40
-10
+20
cd Work allowances: maintain current level in
2017‑18
Spend
0
+60
+115
+145
+145
Measures announced at Budget 2014
ce Carbon Price Floor: limit disparity between UK
and EU to £18 from 2016-17
Tax
-340
-615
-870
-1,030
-1,185
cf
Tax
0
+210
+425
+445
+455
Tax
+80
+50
+30
+10
+5
ch Alcohol fraud wholesaler registration
Tax
+15
+245
+235
+215
+190
ci
Tax
0
+45
+55
+55
+55
+5
+20
+50
+75
+100
Company Car Tax: continuing to increase by 2ppt
in 2017-18 and 2018-19
cg Tax Credits debt: increasing recovery rate
Measures announced at Autumn Statement 2013
HMRC: extending online services
Measures announced at Spending Round 2013
cj
Pension Credit: abolish assessed income periods
Spend
Measures announced at Budget 2013
ck Contracting out NICs: public sector employers
Tax
+2,740
+2,740
+2,815
+2,885
+2,975
cl
Contracting out NICs: public sector employees
Tax
+1,125
+1,125
+1,160
+1,185
+1,225
cm Contracting out NICs: private sector employers
Tax
+1,210
+1,145
+1,075
+1,020
+965
cn Contracting out NICs: private sector employees
Tax
+495
+470
+440
+420
+395
*
Negligible
1
Costings reflect the OBR’s latest economic and fiscal determinants.
2
Costings reflect the fact that after Summer Budget 2015 the Government balance sheet now includes Housing Associations.
Budget 2016
89
Public Spending
2.5 Table 2.3 sets out the path for Total Managed Expenditure (TME), Public Sector Current
Expenditure (PSCE), and Public Sector Gross Investment (PSGI) to 2020-21.
2.6 The government has decided to take action in response to global economic uncertainty.
This Budget sets out that the government will find a further £3.5 billion of savings from public
spending in 2019-20, building on the plans set out at Spending Review 2015. To inform future
spending decisions and the delivery of these savings, the government is launching an efficiency
review. After the public finances move into surplus in 2019-20, total departmental resource
spending will grow in line with inflation from 2019-20 to 2020-21. Specific departmental
budgets for 2020-21 will be set out at the next Spending Review. (1)
2.7 The government prioritises capital investment, and has set out plans to surpass its
commitment to invest £100 billion in the UK’s infrastructure by 2020-21. As part of this, the
government is now accelerating around £1.5 billion of capital investment in its priorities,
where faster delivery is possible. This includes funding for housing, transport and flood defence
schemes, and will allow the government to make quicker progress with delivering its long-term
solutions to long-term problems. (2)
Table 2.3: Total Managed Expenditure1
2015-16
2016-17 2017-18 2018-19 2019-20 2020-21
CURRENT EXPENDITURE
Resource AME
345.6
356.2
358.9
373.1
382.4
394.3
315.1
316.1
325.2
327.6
327.0
333.6
20.6
21.9
21.9
21.9
21.9
21.9
681.2
694.2
706.0
722.6
731.4
749.8
Capital AME
33.3
33.5
32.7
31.9
32.5
35.1
Capital DEL
39.4
44.2
45.9
46.5
46.6
56.2
Public Sector Gross Investment
72.7
77.8
78.6
78.4
79.1
91.3
Resource DEL, excluding depreciation
2
Ring-fenced depreciation
Public Sector Current Expenditure
CAPITAL EXPENDITURE
TOTAL MANAGED EXPENDITURE
753.9
771.9
784.6
801.0
810.4
841.1
Total Managed Expenditure (% GDP)
40.2%
39.7%
38.8%
38.0%
37.0%
36.9%
1
Budgeting totals are shown including the Office for Budget Responsibility (OBR) forecast allowance for shortfall. Resource DEL excluding ring-fenced
depreciation is the Treasury’s primary control total within resource budgets and is the basis on which departmental Spending Review settlements are
agreed. The OBR publishes Public Sector Current Expenditure (PSCE) in DEL and AME, and Public Sector Gross Investment (PSGI) in DEL and AME.
A reconciliation is published by the OBR.
2
In 2016-17 the Scottish Government’s block grant has been adjusted by £5.5bn to reflect the devolution of SDLT and Landfill tax with effect from
1st April 2015 and the creation of the Scottish Rate of Income Tax from 1st April 2016. Adjustments to the block grant from 2017-18 onwards will be
reflected once the Fiscal Framework recently agreed with the Scottish Government has been implemented.
Departmental Expenditure Limits
2.8 Spending Review 2015 announced departmental spending allocations for 2016-17 to
2019-20. Capital budgets were also allocated for 2020-21 but resource budgets were only set
for some departments in that year, with the rest to be set at the next Spending Review. Tables
2.4 and 2.4a show the departmental totals set at Spending Review 2015 with adjustments to
reflect policy announcements at this Budget.
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Budget 2016
Table 2.4: Departmental Resource Budgets (Resource DEL excluding depreciation)
£ billion
Estimate
Plans
2015-16
2016-17
2017-18
2018-19
2019-20
27.6
27.7
28.5
29.1
30.0
1.9
1.8
2.0
2.1
2.2
10.6
10.7
10.6
10.6
10.6
Resource DEL excluding depreciation
1
Defence
Single Intelligence Account
Home Office
Foreign and Commonwealth Office
1.7
1.0
1.0
1.0
1.0
International Development
7.2
9.1
9.3
10.7
10.4
113.1
115.6
118.7
121.3
124.1
Health (inc. NHS)
6.2
6.1
6.3
5.9
5.4
Education
Work and Pensions
53.3
54.6
55.9
57.0
57.7
Business, Innovation and Skills
13.1
13.4
12.3
11.7
11.5
2.0
2.0
2.1
2.2
1.8
Transport
Energy and Climate Change
1.4
0.9
1.0
1.0
0.9
Culture, Media and Sport
1.2
1.2
1.2
1.2
1.1
DCLG Communities
2.5
1.5
1.4
1.3
1.2
DCLG Local Government
10.8
9.6
8.2
6.9
6.2
Scotland2
25.7
20.6
26.5
26.6
26.7
Wales
12.8
13.0
13.3
13.3
13.4
Northern Ireland
10.0
9.8
9.9
9.9
10.0
Justice
6.8
6.6
6.3
5.8
5.7
Law Officers Departments
0.6
0.5
0.5
0.5
0.5
Environment, Food and Rural Affairs
1.6
1.7
1.6
1.5
1.4
HM Revenue and Customs
3.3
3.6
3.4
3.2
2.9
HM Treasury
0.1
0.2
0.2
0.1
0.1
Cabinet Office
0.6
0.6
0.6
0.5
0.6
Small and Independent Bodies
1.6
1.5
1.5
1.5
1.5
Reserves
0.0
3.6
3.6
3.7
4.2
Adjustment for Budget Exchange3
0.0
-0.1
0.0
0.0
0.0
Adjustment for planned efficiency savings
0.0
0.0
0.0
0.0
-3.5
315.8
316.6
325.7
328.6
327.5
Total Resource DEL excluding depreciation
OBR allowance for shortfall
OBR resource DEL excluding depreciation
forecast
1.
-0.7
-0.5
-0.5
-1.0
-0.5
315.1
316.1
325.2
327.6
327.0
Resource DEL excluding depreciation is the Treasury's primary control total within resource budgets and the basis on which Spending Review
settlements were made.
2.
The Scottish Government’s block grant has been adjusted by £5.5bn to reflect the devolution of SDLT and Landfill tax with effect from 1st April 2015
and the creation of the Scottish Rate of Income Tax from 1st April 2016. Adjustments to the block grant from 2017-18 onwards will be reflected once
the Fiscal Framework recently agreed with the Scottish Government has been implemented.
3.
Departmental budgets in 2016-17 include amounts carried forward from 2015-16 through Budget Exchange, which will be voted at Main Estimates.
It is assumed that these increases will be offset at Supplementary Estimates in future years so are excluded from spending totals.
Budget 2016
91
Table 2.4a: Departmental Capital Budgets (Capital DEL)
£ billion
Estimate
Plans
2015-16
2016-17
2017-18
2018-19
2019-20
2020-21
Defence
7.6
7.3
7.5
7.8
8.1
8.7
Single Intelligence Account
0.4
0.4
0.4
0.4
0.5
0.5
Home Office
0.4
0.5
0.5
0.4
0.4
0.4
Foreign and Commonwealth Office
0.1
0.1
0.1
0.1
0.1
0.1
International Development
2.2
2.7
3.2
2.8
3.1
3.6
Health (inc. NHS)
3.7
4.8
4.8
4.8
4.8
4.8
Work and Pensions
0.2
0.3
0.4
0.3
0.2
0.2
Education
4.9
5.2
4.7
4.9
3.8
4.6
Business, Innovation and Skills
2.6
3.2
2.3
1.8
1.6
1.6
Transport
6.0
6.3
7.8
9.1
11.3
12.4
Energy and Climate Change
2.3
2.4
2.5
2.4
2.3
2.8
Culture, Media and Sport
0.3
0.4
0.4
0.4
0.3
0.2
DCLG Communities
3.9
4.5
4.4
4.7
3.6
4.8
DCLG Local Government
0.0
0.0
0.0
0.0
0.0
0.0
Scotland
2.9
3.2
3.2
3.2
3.4
3.5
Wales
1.5
1.5
1.5
1.6
1.7
1.7
Northern Ireland
0.8
1.1
1.1
1.2
1.2
1.2
Capital DEL
Justice
0.3
0.7
0.7
0.7
0.4
0.1
Law Officers Departments
0.0
0.0
0.0
0.0
0.0
0.0
Environment, Food and Rural Affairs
0.5
0.6
0.7
0.6
0.5
0.5
HM Revenue and Customs
0.2
0.2
0.2
0.2
0.2
0.2
-0.7
0.1
0.1
0.1
0.1
0.0
Cabinet Office
0.0
0.0
0.0
0.0
0.0
0.0
Small and Independent Bodies
0.1
0.1
0.1
0.1
0.1
0.1
HM Treasury
Reserves
0.0
1.0
1.3
1.3
1.2
1.1
Capital spending not in budgets1
0.0
0.0
0.0
0.0
0.0
3.0
Adjustment for Budget Exchange2
0.0
-0.3
0.0
0.0
0.0
0.0
40.3
46.2
48.1
49.0
48.9
56.2
-3.8
-5.0
-4.9
-3.6
-3.6
-3.6
-0.9
-2.0
-2.2
-2.5
-2.3
-
35.6
39.2
40.9
42.9
43.0
52.6
Total Capital DEL
Remove CDEL not in PSGI
3
Allowance for shortfall
Public Sector Gross Investment
in CDEL
1.
The uplift in Capital DEL in 2020-21 represents funding not allocated to departments. It is presented net of the OBR’s allowance for shortfall in that year.
2
Departmental budgets in 2016-17 include amounts carried forward from 2015-16 through Budget Exchange, which will be voted at Main Estimates.
It is assumed that these increases will be offset at Supplementary Estimates in future years so are excluded from spending totals.
3.
Capital DEL that does not form part of public sector gross investment, including financial transactions in Capital DEL
Devolved Administrations
2.9 The devolved administrations’ budgets will be adjusted in line with the Barnett formula, as
set out in the Statement of Funding Policy. The Northern Ireland Executive, Scottish Government
and Welsh Government will each see increases in their budgets, to be allocated according
to their own priorities, as a result of spending decisions taken by the UK government at this
Budget.
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Budget 2016
Financial Transactions
2.10 Some policy measures do not directly affect public sector net borrowing in the same way
as conventional spending or taxation. These include financial transactions that directly affect
only the central government net cash requirement (CGNCR) and public sector net debt. Table 2.5
shows the effect of the financial transactions announced at this Budget on CGNCR.
Table 2.5: Financial Transactions1
£ million
Financial transactions
2015-16
2016-17 2017-18 2018-19 2019-20 2020-21
i Doctoral loans
0
0
0
-50
-115
-185
ii Extension of Masters loans eligibility
0
-10
-20
-20
-25
-30
TOTAL POLICY DECISIONS
0
-10
-20
-70
-140
-215
1
Costings reflect the OBR’s latest economic and fiscal determinants, and are presented on a UK basis.
Asset sales
2.11 Bank share sales – The government will continue to return its financial assets to the
private sector through launching a retail sale in 2016-17 and fully exiting its stake in Lloyds
Banking Group and raising up to £25 billion from its stake in RBS over the course of this
Parliament.
2.12 UKAR future asset sales – UK Asset Resolution have been exploring the possibility of a
major sales programme of Bradford & Bingley (B&B) mortgages. This programme of sales will be
designed to raise sufficient proceeds for B&B to repay the £15.65 billion debt to the Financial
Services Compensation Scheme (FSCS) and for the FSCS to repay its corresponding loan from the
Treasury. Any sales will be subject to market conditions and ensuring value for money.
Public sector pensions
2.13 Public service pensions SCAPE discount rate – The government has reviewed the
discount rate used to set employer contributions to the unfunded public service pension
schemes. The discount rate is being set at 2.8% and employers will pay higher contributions to
the schemes from 2019-20 as a result. (3)
2.14 Local Government Pension Scheme: British Wealth Funds – The government
will support proposals by local administering authorities to establish both a small number of
British Wealth Funds by combining Local Government Pension Scheme assets into much larger
investment pools by 2018, and a national Local Government infrastructure investment platform.
Charities
2.15 The use of banking fines – The government has committed £45 million of banking fines
over the next 4 years to support military charities and other good causes, including:
•• Air Ambulance Northern Ireland £4.5 million – to help establish a Helicopter Emergency
Medical Service in Northern Ireland
•• National Mesothelioma Centre £5 million – to establish a centre of research in the fight
against mesothelioma, which is directly affecting Service Veterans
•• University Hospital Southampton Charity £2 million matched funding – to help build a
dedicated Paediatric Emergency and Trauma Department
Budget 2016
93
•• Central Manchester University Hospitals Charity £1.1 million – to build a dedicated helicopter
landing pad to reduce transfer times for critical care patients
•• Sheffield Children’s Hospital Charity £700,000 – to complete fundraising for a fully digitally
intraoperative 3T MRI scanner to treat children with brain tumours
•• Birmingham Children’s Hospital Charity £700,000 – to support the ‘Eye Believe’ and ‘Star’
appeals, for children with rare diseases and undiagnosed medical conditions
•• Hostage UK £100,000 – to improve support to British hostages and their families
•• Rescue Global £2.5 million – to provide rapid global disaster response support utilising
former Service personnel
•• Samaritans £3.5 million – to provide first response help and bespoke support services to
current Service personnel, Veterans, and their families
•• Royal British Legion Industries £2.7 million – to support the delivery of specialist nursing care
to Veterans through flexible care suites and a day care facility
•• Royal British Legion Industries £958,000 – to deliver intensive employment support to long
term unemployed Veterans across the UK
•• Recruit For Spouses £316,000 – to assist Service spouses back into work
•• CAIS Wales, Change Step Veteran Services £500,000 – to deliver a referral pathway for
Veterans in Wales
•• NSPCC £1.84 million – to fund NSPCC Service Centres in Tidworth and Catterick Garrison
Towns, to provide support with the particular challenges of Service life
•• Military Wives Choirs £328,000 – to fund the ‘Sing, Share and Support’ project
•• Confederation of Service Charities (Cobseo) £450,000 – to allow Cobseo to represent
250 charities within the Military Charity Sector through to 2020
•• National War Memorial Park, New Zealand £350,000 – to complete fundraising for a ‘British
Presence’ memorial in Wellington, New Zealand
•• Promenade for Peace £20,000 – to contribute to the construction of a commemorative
walkway at Sword Beach, Normandy, commemorating D-Day 1944
•• Commonwealth War Memorial, Dover £500,000 – to initiate a memorial of names
commemorating the 1.7 million Commonwealth lives lost in WW1 and WW2
•• Royal British Legion £1.5 million matched funding – to commemorate RAF Bomber
Command and the 55,296 lives lost in WW2
•• Marine Society and Sea Cadets £2.25 million – to replace ageing sailing dinghies, to benefit
over 150,000 cadets, throughout the UK, over the next 10 years
•• Miriam Hyman Memorial Trust £82,000 – to deliver a project for teachers across the UK,
dealing with the issues of extremism and terrorism
•• Cadet Forces Qualifications £3.3 million – to deliver nationally recognised qualifications and
supporting training for Cadet Forces personnel
•• Scottish Cadets ‘Linked Detachments’ £500,000 – to support seven Cadet ‘Linked
Detachments’ in Scottish schools until 2020
•• We’ll Meet Again £200,000 – to establish a permanent interactive WW2 museum in
Lincolnshire, delivering a unique learning experience to children across the region
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Budget 2016
•• The Scottish Submarine Trust £659,000 – to establish a Museum of the Submarine Service in
Scotland
•• Bletchley Park Trust £1 million – to establish a major new exhibition of the Turing-Welchman
Bombe, which helped to break the Enigma cipher in WW2
•• Brooklands Museum £1 million – to complete fundraising for the Brooklands Aircraft Factory
& Race Track Revival Project and to inspire future generations
•• British Mercantile Marine Memorial Collection £1.23 million – to establish a unique collection
of international maritime art in Hull
•• Helensburgh Leisure Facility £5 million – to co-fund a new leisure facility for use by the local
community and military personnel and their families based at HM Naval Base CLYDE
2.16 Tampon Tax Fund for women’s charities – The government is committing £12 million
of funding to support a range of good causes benefitting women, including:
•• Birth Companions £90,000 – to provide support to women in prison and the community
through pregnancy, birth and early parenting, in London and Peterborough
•• Breast Cancer Care £1 million – to scale up their support services to women recovering from
breast cancer
•• Jo’s Cervical Cancer Trust £650,000 – to launch the ‘Eradicate Cervical Cancer’ campaign
targeted at increasing levels of screening
•• Ovarian Cancer Action £300,000 – to fund research into a pioneering ovarian cancer
prevention strategy
•• Girlguiding £1 million – to develop, implement and evaluate a renewed Youth Programme
and revitalise their national framework
•• Pause £500,000 – to expand their current programme nationwide, enabling women to make
choices about their future and reduce the number of children being removed into care
•• White Ribbon Campaign £265,000 – to deliver the biggest campaign in Europe aimed at
encouraging men and boys to challenge violence against women and girls
•• Standing Together Against Domestic Violence £311,000 – to create a Health Alliance for
Domestic Abuse and develop innovative work identifying risks within the mental health
setting
•• Karma Nirvana £449,000 – to extend the hours of a helpline to support victims of honour
based violence and forced marriage and provide guidance to professionals tackling it
•• Muslim Women’s Network UK £114,000 – to expand their specialist and culturally sensitive
service to Muslim women and girls from diverse backgrounds suffering or at risk of abuse
•• Southern Domestic Abuse Service £190,000 – to provide support to victims of domestic
abuse in South East Hampshire
•• Greater Manchester Women Offender Alliance £375,000 – to secure the development of
their innovative approach to working with women offenders and those at risk of offending
across the region
•• Street Talk £81,000 – to support women trying to exit street based prostitution and provide
additional services in partnership with Trust – the drop in centre for vulnerable women in
Lambeth
Budget 2016
95
•• One25 £65,000 – to part-fund its holistic person-centred work which benefits women who
are trapped in, or vulnerable to, street sex work in the Bristol region
•• [email protected] £120,000 – to provide women with a credible exit strategy from
prostitution
•• The Magdalene Group £123,000 for its Doorway Women’s Service, a front-line service
empowering women in Norfolk to make healthy lifestyle choices and exit prostitution
•• Women’s Fund for Scotland £600,000 – to run a funding programme to target small
grassroots women’s organisations across Scotland
•• Action for Children Swansea SAIL project £497,000 – to provide young mothers and mothers
to be that are going through care proceedings with advocacy and emotional support
•• Parenting NI £118,000 – to empower mothers to develop the skills for managing the
behaviour of their children using appropriate, non-violent means
Within this funding the government has also committed to the following grant-making
partnerships to disburse tampon tax funding to a range of grassroots women’s organisations,
in recognition of the high number of applications received from such organisations across the
country:
•• Comic Relief – to create a funding partnership of £4 million (including £1 million of match
funding) to drive awareness of women’s issues and fund exceptional and varied partners to
deliver
•• Rosa Fund for Women – a £2.2 million ‘Small Grants Fund’ for local grassroots organisations
that will be run by Rosa, the only UK-wide Fund exclusively for women and girls
Health
2.17 Extension of defibrillator grant scheme – The government will extend the defibrillator
grant scheme with a further £1 million.
2.18 Child prosthetics – The government will invest £1.5 million in sports prosthetics for
children and create a fund to develop innovative prosthetics for the NHS.
2.19 War Pensions and Social Care – The government will exempt war pension payments
made to injured veterans from the social care means test in England from April 2017.
Personal tax
Income tax and National Insurance contributions
Rates, thresholds and allowances
2.20 Personal allowance increase – The government will increase the income tax personal
allowance from £11,000 in 2016-17 to £11,500 in 2017-18. (Finance Bill 2016) (4)
2.21 Higher rate threshold increase – The government will increase the higher rate
threshold from £43,000 in 2016-17 to £45,000 in 2017-18. The NICs Upper Earnings Limit will
also increase to remain aligned with the higher rate threshold. (Finance Bill 2016) (5)
2.22 Applying ‘English Votes for English Laws’ to income tax – Following agreement of
the fiscal framework with the Scottish Government, the government will legislate to separate the
income tax rates that apply to savings (the savings rates), from those that apply to non-savings,
non-dividends income (the main rates). The former will apply across the UK and the latter will
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Budget 2016
be devolved to Scotland from April 2017. It will also create a default rate of income tax on
non-savings, non-dividends income that will apply to, but is not limited to, trustees and nonresidents. (Finance Bill 2016)
2.23 Abolishing Class 2 National Insurance contributions (NICs) – The government will
abolish Class 2 NICs from April 2018. The government will publish its response to the recent
consultation on benefit entitlement for the self-employed in due course. This will set out details
of how the self-employed will access contributory benefits after Class 2 is abolished. (NICs Bill)
(32)
2.24 Employment Allowance – Employers who hire an illegal worker face civil penalties from
the Home Office. The government will build on this deterrant by removing a year’s employment
allowance from those receiving civil penalties, starting in 2018.
2.25 Property and trading income allowances – From April 2017, the government will
introduce a new £1,000 allowance for property income and a £1,000 allowance for trading
income. Individuals with property income or trading income below £1,000 will no longer need
to declare or pay tax on that income. Those with income above the allowance will be able to
calculate their taxable profit either by deducting their expenses in the normal way or by simply
deducting the relevant allowance. (Finance Bill 2017) (33)
2.26 Taxation of termination payments – From April 2018, the government will tighten
the scope of the income tax exemption for termination payments to prevent manipulation.
Termination payments over £30,000 which are subject to income tax will also be subject
to employer National Insurance contributions. The government will undertake a technical
consultation on tightening the scope of the exemption. (Finance Bill 2017 and NICs Bill) (42)
2.27 Amendments to finance costs restriction for landlords – As announced at Summer
Budget 2015 and legislated for in Finance (No. 2) Act 2015, relief for finance costs on residential
properties will be restricted to the basic rate of income tax, gradually introduced from 6 April
2017. Finance Bill 2016 amends the landlords finance cost restriction legislation, to clarify that
beneficiaries of deceased persons’ estates are entitled to the basic rate tax reduction and to
ensure that the basic rate tax reduction is applied and calculated as intended. (Finance Bill 2016)
2.28 Reform of the wear and tear allowance – As announced at Summer Budget 2015,
from April 2016 the government will replace the Wear and Tear Allowance with a new relief
that allows residential landlords to deduct the actual costs of replacing furnishings. (Finance Bill
2016)
2.29 Northern Ireland welfare top-ups tax exemption – The government will legislate at a
later stage of the Finance Bill to exempt from income tax the payments intended to top-up nontaxable welfare benefits that the Northern Ireland Executive intends to fund from within its block
grant. (Finance Bill 2016)
2.30 Sporting testimonials – As announced at Autumn Statement 2015, from April 2017 all
income from sporting testimonials and benefit matches for employed sportspersons will be liable
to income tax. An exemption of up to £100,000 will be available for employed sportspersons
with income from sporting testimonials that are not contractual or customary. (Finance Bill
2016)
2.31 Bad debt relief for peer-to-peer (P2P) industry – As announced at Autumn Statement
2014, the government will allow tax relief on bad debts incurred on P2P loans against other
P2P income. (Finance Bill 2016)
2.32 Extending farmers averaging period – As announced at Autumn Statement 2015,
from April 2016 farmers will have the choice of averaging their profits for income tax purposes
over 2 years or 5 years. (Finance Bill 2016)
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97
2.33 Netherlands Benefit Act for Victims of Persecution 1940-1945 – As announced
at Autumn Statement 2015, the government will legislate to exempt from income tax certain
pension and annuity payments made by the Netherlands government, payable to victims of
national-socialist and Japanese aggression during World War II. This exemption will take effect
from April 2016. (Finance Bill 2016)
Taxation of benefits and expenses
2.34 Employer provided pensions advice – The government will legislate to increase the tax
and NICs relief available for employer-arranged pensions advice from £150 to £500. The new
exemption will ensure that the first £500 of any advice received is eligible for the relief. It will be
available from April 2017. (8)
2.35 Salary sacrifice – The government is considering limiting the range of benefits that
attract income tax and NICs advantages when provided as part of salary sacrifice schemes.
However, the government’s intention is that pension saving, childcare, and health-related
benefits such as Cycle to Work should continue to benefit from income tax and NICs relief when
provided through salary sacrifice arrangements.
2.36 Simplification of the administration of tax on employee benefits and expenses –
The government will introduce a package of measures to further simplify the tax administration
of employee benefits and expenses by:
•• extending the voluntary payrolling framework to allow employers to account for tax on
non‑cash vouchers and credit tokens in real time from April 2017
•• consulting on proposals to simplify the process for applying for and agreeing PAYE
Settlement Agreements
•• consulting on proposals to align the dates by which an employee has to make a payment to
their employer in return for a benefit-in-kind they receive to ‘make good’
•• legislating to ensure that if there is a specific statutory provision for calculating the tax
charge on a benefit-in-kind this must be used (Finance Bill 2016 and Finance Bill 2017)
2.37 Trivial benefits-in-kind – As previously announced, the government will introduce
a statutory exemption from income tax for qualifying trivial benefits-in-kind costing £50 or
less. The exemption will remove the charge to income tax or Class 1A National Insurance
contributions (NICs) with effect from 6 April 2016. A corresponding disregard for Class 1 NICs
will take effect later in the year. (Finance Bill 2016)
2.38 Travel and subsistence expenses rules – In September 2015 the government published
a discussion document aimed at modernising the tax rules for travel and subsistence (T&S). The
government has analysed responses and concluded that, although complex in parts, the current
T&S rules are generally well understood and work effectively for the majority of employees and
has decided not to make further changes to the T&S rules at this time.
2.39 Employment intermediaries and relief for travel and subsistence – As announced
at March Budget 2015, the government will introduce legislation in Finance Bill 2016 to restrict
tax relief for home to work travel and subsistence expenses for workers engaged through an
employment intermediary. This will bring the rules into line with those that apply to employees.
(Finance Bill 2016)
Other personal tax changes
2.40 Off payroll working in the public sector – From April 2017 the government will make
public sector bodies and agencies responsible for operating the tax rules that apply to off-payroll
working through limited companies in the public sector. The rules will remain unchanged for
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those working in the private sector. The government will consult on a clearer and simpler set of
tests and online tools. (Finance Bill 2017) (40)
2.41 Dividends tax – As announced at Summer Budget 2015, the government will abolish
the Dividend Tax Credit from April 2016 and introduce a new Dividends Allowance of £5,000 a
year. The new rates of tax on dividend income above the allowance will be 7.5% for basic rate
taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers. (Finance Bill
2016)
2.42 Loans to participators – The government will increase the loans to participators tax rate
from 25% to 32.5%, keeping it aligned with the higher rate of tax charged on dividend income.
The new rate will apply to loans made or benefits conferred by close companies on or after
6 April 2016. (Finance Bill 2016) (41)
2.43 Close company loans to participators: partial exemption for charities –
As announced at Spending Review and Autumn Statement 2015, following consultation the
government will legislate so that a tax charge is not applied to loans or advances made by close
companies to charity trustees for charitable purposes. This will apply to qualifying loans or
advances that are made on or after 25 November 2015. (Finance Bill 2016)
2.44 Non-Domicile taxation – The government is undertaking a major reform to
non‑domicile taxation. As announced at Summer Budget 2015, from April 2017 non-UK
domiciled individuals (non-doms) will be deemed UK domiciled for all tax purposes after they
have been UK resident for 15 of the past 20 tax years. Additionally, individuals who were born
in the UK and who have a UK domicile of origin will revert to their UK domiciled status for tax
purposes whilst resident in the UK. The government will also legislate to charge inheritance tax
on all UK residential property indirectly held through an offshore structure from 6 April 2017. As
set out at Summer Budget 2015, non-doms who have a non-UK resident trust set up before
becoming deemed domiciled in the UK will not be taxed on income and gains retained in the
trust. The government will legislate all non-dom reforms in Finance Bill 2017. Budget 2016
confirms that non-doms who become deemed-domiciled in April 2017 can treat the cost base
of their non-UK based assets as being the market value of that asset on 6 April 2017. Individuals
who expect to become deemed UK domicile under the 15 out of 20 year rule will be subject
to transitional provision with regards to offshore funds to provide certainty on how amounts
remitted to the UK will be taxed. (Finance Bill 2017) (31)
2.45 Gift Aid digital – As announced at March 2015 Budget, the government will legislate to
give intermediaries a greater role in administering Gift Aid. (Finance Bill 2016)
2.46 Venture capital schemes: energy generation – As announced at Spending Review
and Autumn Statement 2015, the government will exclude all remaining energy generation
activities from the Enterprise Investment Scheme, the Seed Enterprise Investment Scheme and
Venture Capital Trusts with effect from 6 April 2016, as well as from Social Investment Tax Relief
when enlarged. (Finance Bill 2016)
2.47 Venture capital schemes – The government will make technical clarifications to
the Enterprise Investment Scheme and Venture Capital Trusts to ensure that the legislation
introduced by the Finance (No.2) Act 2015 works as intended. (Finance Bill 2016)
2.48 Employee share schemes: simplification of the rules – As announced at Spending
Review and Autumn Statement 2015, the government will make a number of technical changes
to simplify the tax-advantaged and non-tax-advantaged employee share scheme rules. (Finance
Bill 2016)
2.49 Disguised remuneration schemes – The government will introduce a package of
measures to tackle the current and historic use of disguised remuneration schemes, which
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are used to avoid income tax and NICs. Legislation will be included in Finance Bill 2016 which
will prevent a relief in the existing legislation from applying where it is used as part of a tax
avoidance scheme from Budget day (16 March 2016). The government will hold a technical
consultation on further changes to the legislation which will be included in a future Finance Bill.
This will include a new charge on loans paid through disguised remuneration schemes which
have not been taxed and are still outstanding on 5 April 2019. HMRC have published a technical
note explaining these changes alongside Budget. (Finance Bill 2016 and Finance Bill 2017) (39)
Taxation on savings and pensions
2.50 Lifetime ISA and ISA limit – A new Lifetime ISA will be available from April 2017 for
adults under the age of 40. They will be able to contribute up to £4,000 per year, and receive
a 25% bonus from the government. Funds, including the government bonus, from the Lifetime
ISA can be used to buy a first home at any time from 12 months after the account opening,
and be withdrawn from age 60. The overall annual ISA subscription limit will be increased to
£20,000 from 6 April 2017. (6)
2.51 Pensions tax consultation – The government has published a summary of responses to
the consultation Strengthening the incentive to save: a consultation on pensions tax relief.
2.52 Help to Save – Individuals in low income working households will be able to save up
to £50 a month into a Help to Save account and receive a 50% government bonus after two
years. Account holders can then choose to continue saving under the scheme for a further two
years. The scheme will be open to all adults in receipt of Universal Credit with minimum weekly
household earnings equivalent to 16 hours at the National Living Wage or those in receipt of
Working Tax Credits. Accounts will be available no later than April 2018. (70)
2.53 Technical amendments to support Pension Freedom and Choice Reforms – The
government will consolidate pension flexibilities to ensure that these are working as intended,
including by:
•• re-aligning the tax treatment of serious ill-health lump sums with lump sum death benefits,
so that they can be paid tax-free (when the provider is content to do so) when someone
aged under 75 has less than a year to live but has already accessed their pension
•• making serious ill health lump sums taxable at an individual’s marginal rate when paid in
respect of individuals aged 75 and over
•• legislating to convert dependants’ flexi-access drawdown accounts to nominees’ accounts
when dependants turn 23, so they do not have to take their funds as a lump sum taxed
at 45%
•• legislating to allow defined contribution pensions already in payment to be paid as a trivial
commutation lump sum, where total pension savings would be under £30,000
•• making top ups to fund dependants’ death benefits authorised payments
•• removing unnecessary legislation relating to charity lump sum death benefits (Finance
Bill 2016)
2.54 Unfunded Employment Retirement Benefit Schemes – Following the informal
consultation announced at Autumn Statement the government will keep this issue under review.
2.55 Reduction of Pensions Lifetime Allowance – As announced at Budget 2015, the
Lifetime Allowance will reduce from £1.25 million to £1 million, effective from April 2016.
(Finance Bill 2016)
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2.56 Automatic deduction of savings income tax – The government will change the
tax rules so that interest from Open-Ended Investment Companies, authorised unit trusts,
investment trust companies and peer to peer loans may be paid without deduction of income
tax from April 2017. (Finance Bill 2017) (7)
2.57 ISAs: tax advantages during the administration period – The government
will legislate to allow the ISA savings of a deceased person to continue to benefit from
tax advantages during the administration of their estate and will set out further plans for
introducing this measure in 2016, following technical consultation with ISA providers. (Finance
Bill 2016)
2.58 Personal savings allowance – As announced at March Budget 2015, the government
will introduce a personal savings allowance from 6 April 2016 to remove tax on up to £1,000 of
savings income for basic rate taxpayers and up to £500 for higher rate taxpayers. Additional rate
taxpayers will not receive an allowance. (Finance Bill 2016)
2.59 Dependant Scheme Pensions – As announced at Autumn Statement 2015, the
government will reduce significantly the number of calculations that need to take place to
determine whether a dependants’ scheme pension exceeds the authorised limit. Following
consultation there are further reductions to the number of calculations that need to be carried
out. The changes will take effect from 6 April 2016. (Finance Bill 2016)
2.60 Bridging Pensions – The pensions tax rules on bridging pensions will be aligned with
Department for Work and Pensions legislation following the introduction of a single tier pension
from 6 April 2016. (Finance Bill 2016)
2.61 Pension Dashboard – The government will ensure the industry designs, funds and
launches a pensions dashboard by 2019. A pensions dashboard is a digital interface where an
individual can view all their retirement savings in on place.
Inheritance tax
2.62 Objects granted exemption from Estate Duty – The government will introduce a
number of technical amendments to the current legislative framework for Estate Duty to ensure
the legislation works in line with the publicly stated policy objective. (Finance Bill 2016)
2.63 Undrawn pension funds in drawdown pensions – As announced at Spending Review
and Autumn Statement 2015, the government will legislate to ensure a charge to inheritance
tax will not arise when a pension scheme member designates funds for drawdown but does not
draw all of the funds before death. This will be backdated to apply to deaths on or after 6 April
2011. (Finance Bill 2016)
2.64 Residence nil-rate band – downsizing – As announced at Summer Budget 2015, the
government will legislate to ensure that the residence nil-rate band will also be available when a
person downsizes or ceases to own a home on or after 8 July 2015 where assets are passed on
death to direct descendants. (Finance Bill 2016)
2.65 Compensation and ex-gratia payments for victims of persecution during the
World War II era – As announced at Spending Review and Autumn Statement 2015, the
government will legislate Extra Statutory Concession F20, which gives an inheritance tax
exemption in respect of certain compensation and ex-gratia payments for World War II claims.
The legislation will also extend the scope of the existing concession to include a payment made
under a recently created compensation scheme known as the Child Survivor Fund and allow the
Treasury to add additional payments from particular schemes in the future. The legislation will
apply to deaths on or after 1 January 2015. (Finance Bill 2016)
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Employment
2.66 National Minimum Wage rates – Following the recommendations of the Low Pay
Commission, the government will increase the National Minimum Wage rates from October
2016. This includes:
•• a 3.7% increase in the rate for 21 to 24 year olds (from £6.70 to £6.95 per hour)
•• a 4.7% increase in the rate for 18 to 20 year olds (from £5.30 to £5.55 per hour)
•• a 3.4% increase in the rate for 16 to 17 year olds (from £3.87 to £4.00 per hour)
•• a 3.0% increase in the rate for apprentices (from £3.30 to £3.40 per hour)
•• a 12.1% increase in the accommodation offset (from £5.35 to £6.00 a day)
2.67 Alignment of the National Minimum Wage and National Living Wage cycles –
The government will align the National Minimum Wage and National Living Wage cycles so that
both rates are amended in April each year. This will take effect from April 2017.
2.68 Shared Parental Leave – The government will consult in May 2016 on how to extend
Shared Parental Leave and Pay to working grandparents, options for streamlining the system and
the potential to make better use of digital technology.
Welfare
2.69 Support for the Self-employed on Working Tax Credit and Universal Credit – The
government will provide self-employed Working Tax Credit claimants with access to business
support and extend the mentoring support offered on the New Enterprise Allowance scheme
to self-employed Universal Credit claimants. The government will also trial face-to-face support
from Jobcentre Advisors for self-employed Working Tax Credit claimants, with a view to national
roll out if successful. (53)
2.70 Improving support for ESA Work Related Activity Group claimants – As
announced by Department for Work and Pensions’ Ministers in Parliament, the government will
fund an additional £15 million in each year from 2017-18 to help Employment and Support
Allowance claimants placed in the Work Related Activity Group and Universal Credit Limited
Capability for Work claimants pay for the additional costs of preparing for work; improve the
process for reassessing claimants placed in the Work Related Activity Group with deteriorating
conditions; and remove the 52 week work time limit on Permitted Work rules for claimants in
the Work Related Activity Group from April 2017. (53)
2.71 Behavioural Insights Unit Research – The government will work with the Behavioural
Insights Team to look at new ways to support parents in choosing when and how to return to
work.
2.72 Allocation of Summer Budget funding for additional disability employment
support – The government announces that it is accepting the recommendations of an expertled taskforce on how to provide £330 million of additional funding for disabled claimants
allocated at Summer Budget. This will include a new, tailored peer support offer to offered
shared experiences and support to disabled people, and bespoke employment support directed
at key priority groups, such as young people and those suffering from mental health conditions.
2.73 The household benefit cap – From Autumn 2016, the government will introduce
exemptions for recipients of Guardians Allowance, Carer’s Allowance and the carers element of
Universal Credit from the household benefit cap, which caps the amount of benefits out-of-work
working-age families can receive at £20,000, and at £23,000 in Greater London. (76)
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2.74 Capping Housing Benefit in the social rented sector – The date from which new
or renewed tenancies in the social sector will be subject to the cap on Housing Benefit at the
relevant Local Housing Allowance rate will be deferred for supported accommodation – from
April 2016 to April 2017 – to enable the government to complete a review of supported
accommodation. (77)
2.75 Housing Benefit and Pension Credit: limiting temporary absence – The
government will delay the ending of the payments of Housing Benefit and Pension Credit to
claimants who travel outside of Great Britain for longer than 4 weeks consecutively. This will
now come into force in May 2016.
2.76 Ensuring disability benefits are better targeted – As announced by the Secretary
of State for Work and Pensions, the government will ensure that support for disabled people is
focused on those with the greatest need, including by:
•• changing the way that entitlement to Personal Independence Payment is determined –
a reduction in the number of assessment points awarded for needing to use an aid or
appliance to carry out two of the ‘daily living’ activities assessed. This will take effect for new
cases and re-assessments from January 2017. (73)
•• altering the arrangements for terminally ill claimants migrating from DLA to PIP – this change
means that those claimants who are granted a greater award under PIP will get that higher
award from the date of the decision, rather than remaining on their DLA award for the
standard four week waiting period
•• considering the case for long-term reform of disability benefits and services that is fair for the
taxpayer and for those with disabilities or health conditions
2.77 Phased rollout of Tax-Free Childcare, with Employer-Supported Childcare
remaining open to new entrants until April 2018 – The government will introduce TaxFree Childcare in early 2017. As announced by Treasury Ministers in the passage of the Childcare
Payments Act 2014, Tax-Free Childcare will be gradually rolled out to children under 12, in
a managed way. Parents of the youngest children will be able to enter the scheme first and it
will be open to all eligible parents by the end of 2017. The existing scheme, Employer-Supported
Childcare, will remain open to new entrants until April 2018 to support the transition between
the schemes. (52)
2.78 ESA and PIP presenting officers – The government will increase the number of
presenting officers in attendance at Employment and Support Allowance and Personal
Independence Payments tribunal hearings from 2017, to support the tribunal in making the
right decision. (53)
Fraud, error and debt
2.79 Extending the use of Real Time Information to reduce fraud and error in
benefits – The government will expand the use of HMRC’s Real Time Information (RTI) on
earnings to prevent and correct overpayments in Jobseeker’s Allowance, Employment Support
Allowance and Income Support. This builds on the wider use of RTI announced at the March
Budget 2015, on Housing Benefit and Pension Credit. (53)
2.80 Application to Scotland of HMRC’s set-off debt collection powers – Following
consultation announced at Spending Review and Autumn Statement 2015, the government will
legislate to ensure that HMRC’s ability to offset and collect debt owed to it against its outgoing
payments covers Scotland as well as the rest of the UK, as intended in Finance Act 2008.
(Finance Bill 2016)
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2.81 Insolvency analytics – The government intends to develop HMRC’s predictive analytics
capability to identify emerging insolvency risk. This will enable it to target debt recovery action to
minimise its losses when taxpayers become insolvent. The government will seek expert external
support in summer 2016.
2.82 Extension of the HMRC debtor and creditor interest rate to Scotland, Northern
Ireland and National Insurance Contribution taxation debt – The government will
extend section 52 of the Finance Act to ensure consistent rates of interest apply across the UK
on taxation and National Insurance contribution related debts payable by HMRC and to HMRC
following a judgement or order. (Finance Bill 2016)
Business tax
Corporate tax
2.83 Corporation tax to 17% in 2020 – The government will reduce the corporation tax rate
to 17% for the Financial Year commencing 1 April 2020. (Finance Bill 2016) (18)
2.84 Corporation tax payment dates – At Summer Budget 2015 the government
announced it would bring forward corporation tax payment dates for those companies that
have taxable profits over £20 million, so that these companies will be required to pay tax in
instalments in the third, sixth, ninth and twelfth months of the year. The government will delay
the introduction of the new payment schedule by two years, so it will apply to accounting
periods starting on or after 1 April 2019. The new rules, including the new commencement
date, will be legislated later this year. (26)
2.85 Corporation tax: R&D tax credits – The government will end Vaccine Research Relief
when its State aid approval runs out on 31 March 2017. (Finance Bill 2016)
2.86 Corporation tax: R&D tax credits – The government will amend legislation for the SME
R&D tax credit scheme to ensure that it continues to work as intended after the previous large
company scheme ends on 31 March 2016. (Finance Bill 2016)
2.87 Corporation tax: museums and galleries tax relief – The government will introduce
a new tax relief for museums and galleries from 1 April 2017 following a consultation over
summer 2016. The relief will be available for temporary and touring exhibition costs. (Finance
Bill 2017)
2.88 Corporation tax: orchestra tax relief – As announced at March Budget 2015, the
government will provide tax relief to orchestras at a rate of 25% on qualifying expenditure from
1 April 2016. (Finance Bill 2016)
2.89 Consultation on how to expand the support that can be given to grassroots
sports through the corporation tax system – The government will launch a consultation
on how to expand support that can be given to grassroots sport through the corporation tax
system.
2.90 Capital allowances: business cars – The government will extend the 100% First Year
Allowance (FYA) for businesses purchasing low emission cars for a further three years to April
2021. From April 2018 the carbon dioxide emission threshold below which cars are eligible
for the FYA will be reduced from 75 grams/kilometre to 50 grams/kilometre. From April 2018,
the government will reduce the carbon dioxide emission threshold for the main rate of capital
allowances for business cars from 130 grams/kilometre to 110 grams/kilometre. The government
will review the case for the FYA and the appropriate business cars emission thresholds from
2021 at Budget 2019. (25)
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2.91 Business Premises Renovation Allowance – The government confirms that the
Business Premises Renovation Allowance will expire on 31 March 2017 for corporation tax and
5 April 2017 for income tax as legislated in Finance Act 2012.
2.92 Plant and machinery: lease accounting changes – The government will publish a
discussion document in spring 2016 with options for change to the tax treatment of leases of
plant and machinery in response to the International Accounting Standards Board’s new lease
accounting standard (IFRS 16).
2.93 Large Business: Requirement to publish tax strategies – At Summer Budget 2015,
the government announced new measures to improve large business tax compliance, with a
consultation over the summer to refine the detail of the measures. Following consultation, the
government will introduce new measures to improve large business tax compliance, including a
new requirement that large businesses publish their tax strategies and special measures powers
to tackle a minority of large businesses that persistently engage in aggressive tax planning.
(Finance Bill 2016)
2.94 Offshore property developers – This measure ensures that profits from trading in UK
land are always subject to UK tax by introducing specific rules to tax the full amount of such
profits whether or not the person to whom they arise is UK resident. Legislation for this measure
will be introduced at a later stage of Finance Bill 2016, following a brief consultation. (Finance
Bill 2016) (43)
2.95 Non-resident UK property development taskforce – Alongside the new legislation,
HMRC will create a new taskforce to ensure tax on these profits is effectively collected by
identifying and investigating offshore businesses which try to avoid paying tax. (43)
2.96 Royalty withholding tax – The government will change the deduction of tax at source
regime to bring all international royalty payments arising in the UK within the charge to income
tax, unless those taxing rights have been given up under a double taxation agreement or the EU
Interest and Royalties Directive. This brings the UK more into line with international practice. The
reform has three parts:
•• UK withholding tax will apply to a wider definition of royalty payments
•• the UK will create a domestic anti-treaty abuse provision which will prevent, for instance,
royalty payments being paid to tax havens without deduction of tax via the use of conduit
companies
•• the UK will ensure that withholding tax will apply to payments that are attributable to a
UK permanent establishment, even if the payment of the royalty is not made from the UK
(Finance Bill 2016) (20)
2.97 Tax deductibility of corporate interest expenses – Following initial consultation,
the government will introduce rules for addressing base erosion and profit shifting through
interest expenses from 1 April 2017 in line with the OECD recommendations. The new rules
will limit the tax relief that large multinational enterprises can claim for their interest expenses.
More information is included in the government’s Business Tax Roadmap published at Budget.
(Finance Bill 2017) (19)
2.98 Addressing hybrid mismatches – Following consultation, the government will
introduce rules for addressing hybrid mismatch arrangements from 1 January 2017. The new
rules will prevent multinational enterprises avoiding tax through the use of certain cross-border
business structures or finance transactions. (Finance Bill 2016) (21)
2.99 Patent Box – Compliance with new international rules – The government will
modify the operation of the Patent Box to comply with a new set of international rules created
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by the OECD, making the lower tax rate dependant on, and proportional to, the extent of
research and development expenditure incurred by the company claiming the relief. This will
come into effect on 1 July 2016. (Finance Bill 2016) (24)
2.100 Transfer pricing administration – The government will consult on whether to
introduce secondary adjustment rules into the UK’s transfer pricing legislation. The rules would
address the underlying cash benefit from incorrect transfer pricing and encourage broader
compliance with the transfer pricing legislation.
2.101 Updating the transfer pricing guidelines – The government will legislate for the
revisions to the OECD Transfer Pricing Guidelines (‘Guidelines’) that were agreed as part of the
OECD BEPS project. This will be done by updating the link between the UK transfer pricing rules
and the Guidelines, so that interpreting the application of the UK rules will be done by reference
to the revised Guidelines. (Finance Bill 2016)
2.102 Corporation tax: reform of loss relief – The government will introduce two reforms
from April 2017. First, the current streaming rules will be made more flexible so that losses
arising on or after 1 April 2017 will be useable, when carried forward, against profits from other
income streams or other companies within a group. Second, from 1 April 2017, companies will
only be able to use losses carried forward against up to 50% of their profits above £5 million.
For groups, the £5 million allowance will apply to the group. These changes will not apply to the
North Sea ring-fenced corporation tax regime. The government will consult on the design of the
reforms in 2016, and will legislate for the measure in 2017. (Finance Bill 2017) (22)
2.103 Repeal of the Renewals Allowance – The government will withdraw the Renewals
Allowance, which provides traders and property businesses with tax relief for the cost of
replacing tools. The changes ensure that tax relief for expenditure incurred on replacement of
tools will be obtained under the same rules as those which apply to other capital equipment.
Businesses can claim tax relief under the normal capital allowance regime or, in the case
of residential landlords, for the cost of replacing domestic items such as furnishings and
appliances. (Finance Bill 2016) (45)
2.104 Asset managers’ performance linked rewards – The government will legislate
to determine when performance awards received by asset managers may be taxed as capital
gains. An award will be subject to income tax, unless the underlying fund undertakes long term
investment activity. (Finance Bill 2016) (49)
2.105 Authorised Contractual Schemes – The government will consult later this year
on measures to streamline the tax rules for investors in Authorised Contractual Schemes and
reporting requirements.
2.106 Trading income received in non-monetary form – The government will introduce
legislation to ensure that trading receipts in non-monetary form are brought into account for tax
purposes at their full value. (Finance Bill 2016)
2.107 Company distributions – As announced at the Spending Review and Autumn
Statement 2015, the government will amend the Transactions in Securities rules and introduce
a Targeted Anti-Avoidance Rule in order to prevent opportunities for income to be converted to
capital in order to gain a tax advantage. The government will respond to the consultation on
company distributions in March 2016. (Finance Bill 2016)
2.108 Capital allowances and leasing – As announced at the Spending Review and Autumn
Statement 2015, the government will amend legislation to counter two types of avoidance
involving capital allowances and leasing, with effect from 25 November 2015. These changes
will prevent companies from artificially lowering the disposal value of plant and machinery for
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capital allowances purposes, and make any payment received for agreeing to take responsibility
for tax deductible lease related payments subject to tax as income. (Finance Bill 2016)
2.109 Partnership taxation: Proposals to clarify tax treatment – The government will
launch a consultation on how partnerships calculate their tax liabilities. This consultation will
include a number of areas where the taxation of partnerships could be seen as uncertain,
including an issue highlighted by the Office of Tax Simplification’s partnerships review.
2.110 Securitisation and annual payments – The government is making a legislative change
to allow it to amend regulations to clarify the tax treatment of ‘residual payments’ made by
securitisation companies, confirming that they can be paid without withholding tax. The revised
regulations will be developed as part of wider ongoing consultation with industry to update and
modernise the tax regime for UK securitisation companies. (Finance Bill 2016)
2.111 Bank losses restriction – The government will further restrict the proportion of a
banking company’s annual taxable profit that can be offset by pre-April 2015 carried-forward
losses from 50% to 25% from 1 April 2016. This restriction will remain subject to a £25 million
allowance for building societies and an exemption for losses incurred by new-entrant banks.
(Finance Bill 2016) (23)
2.112 Banking companies: excluded entities – The government will amend the definition
of an investment bank used in bank-specific legislation to ensure that this is targeted as
intended.
2.113 Life insurance taxation – As announced at Budget 2016, the government will change
the current tax rules for part surrenders and part assignments of life insurance policies to prevent
excessive tax charges arising on these products. The government will consult later this year on
alternatives to the current rules with a view to legislating in Finance Bill 2017.
2.114 Insurance Linked Securities – The government is consulting on proposals for a new,
competitive framework for Insurance Linked Securities (ILS) business, including the supervision,
corporate structure and taxation of ILS vehicles. The Bank of England and Financial Services Bill,
which is currently before Parliament, contains a power to make regulations which will facilitate
ILS business. Finance Bill 2016 will include a power to make regulations for the tax treatment of
ILS at the level of issuers and the investor. The government will then consult on new regulations,
which will be finalised by the end of 2016. (Finance Bill 2016)
2.115 Life insurance policies (Personal Portfolio Bonds) – The government will consult
later this year on changes to the categories of assets that life insurance policyholders can choose
to invest in without giving rise to an annual tax charge under the personal portfolio bond
legislation.
2.116 Insurance companies carrying on long term business – amendments to
Finance Act 2012 – The government will amend the corporation tax rules introduced
by Finance Act 2012 to ensure the regime works as intended in relation to the treatment
of intangible fixed assets debits, deemed income and trading losses in certain specific
circumstances. (Finance Bill 2016)
2.117 Stamp Duty and Stamp Duty Reserve Tax Deep In The Money Options (DITMOs)
– As announced at Spending Review and Autumn Statement 2015, shares transferred to a
clearance service or depositary receipt issuer as a result of the exercise of an option will now be
charged the 1.5% higher rate of stamp duty based on either their market value or the option
strike price, whichever is higher. This will prevent avoidance using DITMOs, which are options
with a strike price significantly below (for call options) or above (for put options) market value.
Share transfers made other than to a clearance service or depositary receipt issuer as a result of
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exercising an option will be unaffected. The change will apply to options which are entered into
on or after 25 November 2015 and exercised on or after 23 March 2016. (Finance Bill 2016)
2.118 Related party rules – partnerships and transfers of intangible assets – The
government will amend the intangible fixed asset rules to clarify the tax treatment on transfers
of assets to partnerships. It will ensure that partnerships cannot be used in arrangements that
seek to obtain a tax relief for their corporate members in a way that is contrary to the intention
of the regime. (Finance Bill 2016)
2.119 Loan relationships – taxation of corporate debt and derivative contracts – The
government will legislate to update the tax rules for company debt and derivative contracts to
ensure they interact correctly with new accounting standards in three specific circumstances.
(Finance Bill 2016)
2.120 Reform of the Substantial Shareholdings Exemption – As part of the Business Tax
Roadmap, the government will consult on possible reform of the Substantial Shareholdings
Exemption for corporate capital gains.
Business rates
2.121 Business rates: indexation – The government will change the annual uprating of
business rates in England from the Retail Prices Index to the main measure of inflation, currently
the Consumer Price Index, from 1 April 2020. (17)
2.122 Small Business Rate Relief (SBRR): doubling – The government will permanently
double SBRR in England from 1 April 2017. (15)
2.123 Small Business Rate Relief: thresholds – The government will raise the SBRR
threshold in England to rateable values of up to £12,000 tapering to £15,000 from 1 April
2017. (15)
2.124 Business rates: standard multiplier – The government will raise the threshold at
which business rates bills in England are calculated using the standard multiplier to properties
with rateable values of £51,000 and above from 1 April 2017. (16)
2.125 Business rates: public lavatories – The government will allow local authorities in
England to use their discretionary relief powers to support publicly owned public lavatories from
1 April 2018.
2.126 Business rates: local newspapers – The government will introduce a £1,500 business
rates discount for office space occupied by local newspapers in England, up to a maximum of
one discount per local newspaper title and per hereditament, and up to state aid limits, for
2 years from 1 April 2017.
2.127 Business rates: long-term review – The government will publish a summary of the
responses received as part of the long-term review of business rates in England in March 2016.
2.128 Business rates: modernisation – The government will work with local authorities in
England to standardise business rates bills by 1 April 2017, ensure that all ratepayers can receive
bills and make payments online by 1 April 2017 and ensure that all local authority billing and
collection systems link with HMRC digital tax accounts by 2022.
2.129 Business rates: valuation reform – The government will aim to introduce more
frequent (at least 3 yearly) revaluations of properties in England for business rates purposes and
will publish a discussion paper in March 2016 outlining options to deliver this.
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2.130 100% Business Rates Retention – The government will pilot approaches to
100% retention of business rates with Liverpool City Region, Greater Manchester and the
Greater London Authority. This offer is also available to other city regions that have ratified their
devolution deals.
Oil and gas taxes
2.131 Zero-rating Petroleum Revenue Tax – The government will permanently reduce the
rate of Petroleum Revenue Tax from 35% to 0%, taking effect for chargeable periods ending
after 31 December 2015. (Finance Bill 2016) (34)
2.132 Reducing the Supplementary Charge – The government will reduce the rate of the
Supplementary Charge from 20% to 10% with effect from 1 January 2016. (Finance Bill 2016)
(34)
2.133 Extension of ‘relevant income’ for the Investment Allowance and Cluster
Area Allowance – The government will give HMRC a new power to extend the definition of
‘relevant income’ for the cluster area and investment allowances by secondary legislation. The
government intends to allow tariff income to activate the allowance to encourage investment in
infrastructure. (Finance Bill 2016)
2.134 Relief for decommissioning expenditure – The government confirms that companies
will be able to access tax relief on their costs when they retain decommissioning liabilities for an
asset after a sale. HMRC will publish a technical note that clarifies the interpretation of existing
legislation.
2.135 Amendments to the anti-avoidance provisions in the onshore, cluster area
and investment allowances – The government will amend the onshore, cluster area, and
investment allowances to update the conditions which disqualify expenditure, incurred on the
acquisition of an asset in certain circumstances, from generating allowance. (Finance Bill 2016)
2.136 Tax deductibility of corporate interest expense (oil and gas ring-fence) – The
government will consult further on the application of the new interest restriction rules to ensure
that existing commercial arrangements within the ring-fence are not adversely affected.
Indirect taxes
Alcohol and tobacco
2.137 Alcohol duty rates – The duty rates on beer, spirits and most ciders will be frozen this
year. The duty rates on most wines and higher strength sparkling cider will increase by RPI from
21 March 2016. (Finance Bill 2016) (55)
2.138 Alcohol strategy – The government is publishing a new alcohol strategy, setting out
its ambition to modernise the alcohol taxes to tackle fraud and reduce burdens on alcohol
businesses. Consultations on reform of procedures for the collection of alcohol duty, and on the
feasibility and impacts of specific anti-fraud measures will follow in 2016.
2.139 Tobacco duty rates – As announced at Budget 2014, duty rates on all tobacco
products will increase by 2% above RPI inflation. Duty on hand-rolling tobacco will also increase
by an additional 3% above this rate, to 5% above RPI. These changes will come into effect from
6pm on 16 March 2016. (Finance Bill 2016) (57)
2.140 Minimum Excise Tax – Following the earlier consultation, the government will
introduce a Minimum Excise Tax on cigarettes. (Finance Bill 2017)
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2.141 Heated tobacco products – The government will consult on the tax treatment of
heated tobacco (heated tobacco does not include e-cigarettes) later this year.
2.142 Tobacco fraud sanctions – Following the publication of the refreshed anti-illicit
tobacco strategy last year HMRC will consult on strengthening sanctions to tackle tobacco fraud.
2.143 Control of raw tobacco – As announced at March Budget 2015, legislation will be
introduced in Finance Bill 2016 to introduce an approval scheme for users and dealers in raw
tobacco. This will require those carrying out a ‘controlled activity’ in relation to raw tobacco to
be approved by HMRC. (Finance Bill 2016)
2.144 Border Force Tobacco Smuggling Enforcement – The government will invest
£31 million from 2016-17 to 2019-20 in a new group of Border Force officers and intelligence
officials who will specialise in seizures of illicit tobacco being smuggled into the UK and prevent
over £100 million of tobacco tax evasion. (50)
VAT
2.145 VAT: consultation on penalty for participating in VAT fraud – The government
will consult on a new penalty for participating in VAT fraud in spring 2016. Subject to the
consultation, the intention is to legislate in Finance Bill 2017.
2.146 VAT: tackling online fraud in goods – VAT representatives and online
marketplace liability – The government will legislate to provide HMRC with strengthened
powers for directing the appointment of a VAT representative and greater flexibility in respect of
seeking a security, and enable HMRC to hold an online marketplace jointly and severally liable for
the unpaid VAT of an overseas business that sells goods in the UK via the online marketplace’s
website. (Finance Bill 2016) (46)
2.147 VAT: Fulfilment House Due Diligence Scheme – The government has published
a consultation on the ‘fit and proper’ standards that fulfilment houses will need to meet in
order to operate. Fulfilment houses will have an obligation to register and maintain accurate
records once online registration opens in 2018. They will also have to provide evidence of the
due diligence they have undertaken to ensure overseas clients are following VAT rules. The
consultation will be used to minimise as far as possible any costs for legitimate businesses. (46)
2.148 VAT: international engagement with the EU and OECD – The government will
continue to engage with international bodies in order to explore international solutions to VAT
fraud, including looking at alternative mechanisms for the collection of VAT.
2.149 VAT: revalorisation of the VAT registration and deregistration thresholds – From
the 1 April 2016 the VAT registration threshold will increase from £82,000 to £83,000 and the
deregistration threshold from £80,000 to £81,000.
2.150 VAT: reverse charge on ‘airtime’ services – With effect from 1 February 2016, the
government introduced an anti-fraud measure to prevent Missing Trader Intra-Community fraud
on wholesale supplies of electronic communications services. This was done by Treasury Order
which was laid before the House on 11 January 2016. (47)
2.151 DCMS extension of museum VAT refund eligibility – The government will broaden
the eligibility criteria for the VAT refund scheme for museums and galleries. DCMS today publish
guidance on the new criteria, which will enable support to a wider range of free museums from
across the UK.
2.152 VAT refunds for shared services – As announced at Autumn Statement 2014, the
government will legislate to enable named non-departmental and similar bodies to claim a
refund of the VAT they incur as part of a shared service arrangement used to support their non110
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business activities, to encourage public bodies to share back-office services, where this results in
efficiencies of scale. (Finance Bill 2016)
2.153 VAT: Isle of Man charities – The government will legislate to ensure charities subject to
the jurisdiction of the High Court of the Isle of Man are capable of qualifying for UK VAT charity
reliefs. (Finance Bill 2016)
Insurance Premium Tax
2.154 Insurance Premium Tax (IPT) – The standard rate of IPT will be increased from 9.5% to
10% with effect from 1st October 2016. (Finance Bill 2016) (61)
Gambling Duties
2.155 Gaming Duty bands revalorisation – The government will increase Gaming Duty
bands in line with RPI for accounting periods starting on or after 1 April 2016. (Finance Bill
2016)
2.156 Reforming the treatment of ’freeplays’ in Remote Gaming Duty – The tax
treatment of discounted and free gambling (‘freeplays’) within Remote Gaming Duty will be
amended to bring it into line with General Betting Duty, to come into effect from 1 August
2017. (Finance Bill 2017) (48)
Soft drinks industry levy
2.157 Soft drinks industry levy – The government will introduce a new soft drinks industry
levy to be paid by producers and importers of soft drinks that contain added sugar. The levy
will be charged on volumes according to total sugar content, with a main rate charge for drink
above 5 grams of sugar per 100 millilitres and a higher rate for drinks with more than 8 grams
of sugar per 100 millilitres. There will be an exclusion for small operators, and we will consult
on the details over the summer, for legislation in Finance Bill 2017 and implementation from
April 2018 onwards. (Finance Bill 2017)
Horserace Betting
2.158 Horserace Betting Levy reform – The government has set out a timetable for
replacing the current Horserace Betting Levy by April 2017. This will give British horseracing the
right to funds from offshore remote betting operators.
Transport taxes
2.159 Fuel duty – The main rate of fuel duty for petrol and diesel will remain frozen at
57.95 pence per litre in 2016-2017. (54)
2.160 Fuel duty incentives for aqua-methanol – As announced at Budget 2014, the
government will legislate for a reduced duty rate of 7.90 pence per litre for aqua-methanol from
1 October 2016. The impact of this incentive will be kept under review alongside other fuel duty
differentials for alternatives to petrol and diesel. (Finance Bill 2016)
2.161 Fuel Benefit Charge (FBC) – From 6 April 2017, the FBC multiplier for both cars and
vans will increase by RPI.
2.162 Van Benefit Charge (VBC) – From 6 April 2017 the main VBC will increase by RPI.
The government will extend VBC support for zero-emission vans so that from 6 April 2016
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the charge will be 20% of the main rate in 2016-17 and 2017-18, and will then increase on a
tapered basis to 5 April 2022. The government will review the impact of this incentive at Budget
2018 together with enhanced capital allowances for zero-emission vans. (Finance Bill 2016)
2.163 VED: classic vehicle exemption – The government will legislate to place the classic
vehicle VED exemption on a permanent basis from 1 April 2017, so that from 1 April each year
vehicles constructed more than 40 years before the 1 January of that year will automatically be
exempt from paying VED. (Finance Bill 2016)
2.164 Vehicle Excise Duty (VED) rates and bands – From 1 April 2016, VED rates for cars,
vans, motorcycles and motorcycle trade licences will increase by RPI. (Finance Bill 2016)
2.165 HGV VED and Road User Levy rates and bands – From 1 April 2016, HGV and Road
User Levy rates, including all other rates linked to the basic goods rate, will be frozen. (Finance
Bill 2016) (56)
2.166 Company Car Tax (CCT) review – At Budget 2013, the government committed to
review the incentives for ultra-low emission vehicles in light of market developments at Budget
2016. From 2020-21, the government will continue to base Company Car Tax on the CO2
emissions of cars and will consult on reform of the bands for ultra-low emission vehicles (below
75 grams of carbon dioxide per kilometre) to refocus incentives on the cleanest cars.
2.167 Company Car Tax (CCT) rates – As announced at Spending Review and Autumn
Statement 2015, from April 2016 the 3 percentage point differential between diesel cars and
petrol cars will be retained until April 2021. (Finance Bill 2016)
2.168 Company Car Tax (CCT) rates for 2019-20 – As announced at March Budget 2015,
the appropriate percentage of list price subject to tax will increase by 3 percentage points for
cars emitting more than 75 grams of carbon dioxide per kilometre (gCO2/km), to a maximum of
37%, in 2019-20. There will be a 3 percentage point differential between the 0-50 and 51-75
gCO2/km bands, and between the 51-75 and 76-94 gCO2/km bands. (Finance Bill 2016)
2.169 Air Passenger Duty (APD) rates – As announced at Budget 2015, all APD rates will
increase by RPI from 1 April 2016. All APD rates will increase by RPI from 1 April 2017. (Finance
Bill 2016 and Finance Bill 2017)
Energy and environment taxes
2.170 Reform of business energy taxes – Following consultation on simplification of the
business energy efficiency tax landscape, the government will:
•• abolish the Carbon Reduction Commitment (CRC) energy efficiency scheme with effect
from the end of the 2018-19 compliance year. Businesses will be required to surrender
allowances for the final time in October 2019. The government will work with the devolved
administrations on closure details for the reporting element of the scheme (36)
•• increase the main rates of Climate Change Levy (CCL) from 1 April 2019, to cover the cost
of CRC abolition in a fiscally-neutral reform and incentivise energy efficiency in CCL-paying
businesses (Finance Bill 2016) (36)
•• increase the CCL discount for sectors with Climate Change Agreements to compensate
equivalently for the increase in CCL main rates. The CCL discount for electricity will increase
from 90% to 93%, and the discount for gas will increase from 65% to 78% from 1 April
2019. The government will retain existing eligibility criteria for Climate Change Agreement
schemes until at least 2023, with a target review to include a review of the buy-out price for
periods 3 and 4 starting in 2016
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•• rebalance the main rates of CCL for different fuel types to reflect recent data on the fuel mix
used in electricity generation. In the longer term, the government intends to rebalance rates
further to deliver greater energy efficiency savings, to reach a 1:1 ratio of gas and electricity
rates by 2025
•• consult later in 2016 on a simplified energy and carbon reporting framework for
introduction by April 2019
2.171 Climate Change Levy (CCL) main rates (2017-18 and 2018-19) – CCL main rates
will increase in line with RPI from 1 April 2017 and 1 April 2018. (Finance Bill 2016)
2.172 CRC energy efficiency scheme (CRC) – Allowance prices for CRC compliance years
2016-17, 2017-18 and 2018-19 will increase in line with RPI
2.173 Climate Change Levy (CCL) exemption on renewably-sourced electricity – As
announced at Autumn Statement 2015, a transitional period for electricity suppliers to apply the
CCL exemption on renewably-sourced electricity generated before 1 August 2015 will end on
31 March 2018. (Finance Bill 2016)
2.174 Carbon Price Support rates – As previously announced, the government will continue
to cap Carbon Price Support (CPS) rates at £18/tCO2 to 2019-20. For 2020-21, the cap will be
maintained in real terms and set at £18/tCO2 plus RPI. This will continue to protect business
competitiveness. The government will set out the long-term direction for CPS rates and the
Carbon Price Floor at Autumn Statement 2016. (Finance Bill 2018) (37)
2.175 Aggregates Levy rate 2016-17 – The Aggregates Levy rate will remain frozen at
£2 per tonne in 2016-17, to support the construction sector. (58)
2.176 Aggregates Levy utilities exemption – The government will consult on a new
exemption from the Aggregates Levy for aggregate which is an unavoidable by-product of laying
pipes for utilities, with a view to legislating in Finance Bill 2017.
2.177 Landfill Tax rates – The standard and lower rates of Landfill Tax will increase in line with
RPI, rounded to the nearest 5 pence, from 1 April 2017 and again from 1 April 2018. (Finance
Bill 2016)
2.178 Landfill Tax: clarifying scope – HMRC will consult later this year on the definition of a
taxable landfill disposal, with the intention of changing the definition in Finance Bill 2017. This
change aims to bring clarity and certainty to the tax without affecting its intended scope.
2.179 Landfill Tax: tackling waste crime – Additional funding will be made available over
the next five years for HMRC to increase compliance activity across the waste supply chain,
enabling the government to better tackle waste crime. (51)
2.180 Changes to the Landfill Communities Fund – At Autumn Statement 2015, the
government announced reforms to the Landfill Communities Fund, including simplification of
record-keeping requirements and changes to the scheme’s objectives. The scheme’s regulator,
ENTRUST, will publish guidance shortly setting out the requirement for landfill operators to make
a greater contribution to the fund from April 2016.
2.181 Enhanced Capital Allowances (ECAs): energy-saving and water-efficient
technologies – The list of designated energy-saving and water-efficient technologies qualifying
for an ECA will be updated during summer 2016, subject to State aid approval. (38)
2.182 Packaging recycling targets – The government will legislate later in 2016 to reduce
statutory plastic packaging recycling targets for 2016 and 2017, to reduce the burden on
business. The government will also set new recycling targets for glass and plastic packaging
for 2018, 2019 and 2020. For plastic, the existing target will be reduced to 49% for 2016 and
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then increased by 2% each year to 2020, to 57%. For glass, the existing target of 77% will be
maintained until 2017 and then increased by 1% each year to 2020, to 80%. (59)
Property taxes
2.183 Stamp Duty Land Tax: additional properties – As announced at Spending Review
and Autumn Statement 2015, the government will introduce higher rates of SDLT on purchases
of additional residential properties from 1 April 2016. The higher rates will be 3 percentage
points above the current SDLT rates. Following consultation, there will be no exemption from
the higher rates for significant investors. Purchasers will have 36 months rather than 18 months
to claim a refund of the higher rates if they buy a new main residence before disposing of their
previous main residence. Purchasers will also have 36 months between selling a main residence
and replacing it with another without having to pay the higher rates. A small share in a property
which has been inherited within the 36 months prior to a transaction will not be considered
as an additional property when applying the higher rates. (Finance Bill 2016) The government
will provide £60 million to enable community-led housing developments in rural and coastal
communities, including through Community Land Trusts, where the impact of second homes is
particularly acute. The South West will receive around £20 million of this funding. (44)
2.184 Stamp Duty Land Tax: application to certain authorised property funds – As
announced at Spending Review and Autumn Statement 2015, the government will introduce
a seeding relief for Property Authorised Investment Funds (PAIFs) and Co-ownership Authorised
Contractual Schemes (CoACSs) and make changes to the SDLT treatment of CoACSs investing in
property so that SDLT does not arise on the transactions in units. These changes will take effect
from the date Finance Bill 2016 receives Royal Assent. (Finance Bill 2016)
2.185 Annual Tax on Enveloped Dwellings (ATED) and 15% rate of Stamp Duty Land
Tax: scope of reliefs – As announced at Spending Review and Autumn Statement 2015, the
government will extend the reliefs available from ATED and the 15% higher rate of SDLT to
equity release schemes (home reversion plans), property development activities and properties
occupied by employees from 1 April 2016. (Finance Bill 2016)
2.186 Stamp Duty Land Tax (SDLT): reform of non-residential rates – The government
will change the calculation of SDLT on freehold and leasehold premium non-residential
transactions so the rates apply to the portion of the purchase price within each band. The
government will also amend the rates and thresholds so that the portion of the transaction value
up to £150,000 is charged at a rate of 0%, the portion between £150,001 and £250,000 is
charged at a rate of 2%, and the portion over £250,000 is charged at a rate of 5%. SDLT on
non-residential leasehold rent transactions, where the rates already apply to the portion of
the purchase price within each band, will be reformed to include a new 2% rate for leasehold
transactions with a Net Present Value over £5 million. These changes will take effect on and after
17 March 2016. (Finance Bill 2016) (27)
Capital Gains Tax
2.187 Capital Gains Tax – The government will reduce the higher rate of Capital Gains Tax
(CGT) from 28% to 20% and the basic rate from 18% to 10%. The 28% and 18% rates will
continue to apply for carried interest and for chargable gains on residential property. These
changes will take effect for disposals made on or after 6 April 2016. (Finance Bill 2016) (28)
2.188 Capital Gains Tax entrepreneurs’ relief: extension to long-term investors –
The government will extend entrepreneurs’ relief (ER) to external investors in unlisted trading
companies. The new rules will apply to newly issued shares purchased on or after 17 March
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2016, providing they are held for a minimum of 3 years from 6 April 2016, and subject to a
separate lifetime limit of £10 million of gains. (Finance Bill 2016) (29)
2.189 Capital Gains Tax entrepreneurs’ relief: associated disposals – The government
will allow ER to be claimed on a disposal of a privately-held asset when the accompanying
disposal of business assets is to a family member. These changes will take effect for disposals
made on or after 18 March 2015. (Finance Bill 2016) (31)
2.190 Capital Gains Tax entrepreneurs’ relief: goodwill on incorporation – The
government will allow ER to be claimed, subject to certain conditions, on gains on the goodwill
of a business when that business is transferred to a company controlled by five or fewer persons
or by its directors. These changes will take effect for disposals made on or after 3 December
2014. (Finance Bill 2016) (31)
2.191 Capital Gains Tax entrepreneurs’ relief: joint ventures and partnerships – The
government will allow ER to be claimed in some cases involving joint ventures and partnerships
where the disposal of business assets does not meet the existing 5% minimum holding
conditions. These changes will take effect for disposals made on or after 18 March 2015.
(Finance Bill 2016)
2.192 Capital Gains Tax entrepreneurs’ relief: review of the definition of a trading
company – The government will review the definition of a trading company for ER purposes to
ensure that it operates effectively.
2.193 Employee Shareholder Status – The government will introduce an individual lifetime
limit of £100,000 on gains eligible for Capital Gains Tax exemption through the Employee
Shareholder Status. This limit will apply for arrangements entered into on or after 17 March
2016. (Finance Bill 2016) (30)
2.194 Capital Gains Tax for non-UK residents disposing of UK residential property –
As announced at Spending Review and Autumn Statement 2015, the government will amend
the CGT computations required by non-residents on the disposal of UK residential property by
removing, with retrospective effect from 6 April 2015, a double charge that occurs in some
circumstances and correcting an omission with effect from 25 November 2015. The government
will also prescribe with effect from 6 April 2015 two specific circumstances where a return
is not required and give HM Treasury powers to add, amend or remove circumstances and
make consequential provision. The government will also add CGT to the list of taxes that the
government may collect on a provisional basis. (Finance Bill 2016)
Avoidance and evasion
Tax evasion and compliance
2.195 2016-17 compliance yield target – The government has set HMRC a compliance yield
target for 2016-17 of £27 billion.
2.196 Tackling the Hidden Economy: Conditionality – The government will consult, over
the summer, on the principle of making access to licenses or services for businesses conditional
on them being registered for tax. This will include consideration of what services or licenses
could be conditional on registration, and ways to minimise burdens on business.
2.197 Tackling the Hidden Economy: Tougher sanctions – The government will consult,
over the summer, on new sanctions on those who repeatedly and deliberately participate in the
hidden economy, including penalties and monitoring of repeat offenders.
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2.198 Tackling the Hidden Economy: Access to data held by Money Service Businesses
– The government will consult, over the summer, on new powers to enable HMRC to gather
data held by Money Service Businesses for tax compliance purposes. This is ahead of potential
legislation in Finance Bill 2017.
2.199 Tackling the hidden economy: Access to data held by online intermediaries and
operators of digital wallets – Following an announcement made at Summer Budget 2015,
the government will now legislate in Finance Bill 2016 to extend HMRC’s powers to obtain
data from online intermediaries and electronic payment providers to find those operating in the
hidden economy. (Finance Bill 2016)
2.200 A new criminal offence for tax evasion – As announced at Spending Review and
Autumn Statement 2015, the government will introduce a new criminal offence that removes
the need to prove intent for the most serious cases of failing to declare offshore income and
gains. (Finance Bill 2016)
2.201 New civil penalties for offshore tax evaders – As announced at Spending Review
and Autumn Statement 2015, the government will increase civil penalties for deliberate offshore
tax evasion, including the introduction of a new penalty linked to the value of the asset on
which tax was evaded and increased public naming of tax evaders. (Finance Bill 2016)
2.202 New civil penalties for those who enable offshore evasion – As announced at
Spending Review and Autumn Statement 2015, the government will introduce civil penalties for
those who enable offshore tax evasion, including public naming of those who have enabled the
evasion. (Finance Bill 2016)
2.203 A requirement to correct past offshore tax non-compliance – The government
will introduce a new legal requirement to correct past offshore non-compliance within a defined
period of time with new sanctions for those who fail to do so. (Finance Bill 2017)
Other tax avoidance
2.204 Tackling marketed tax avoidance – The government will:
•• consider the case for clarifying what constitutes reasonable care in avoidance penalty cases
•• consider options to address the issue of those who “enable” tax avoidance schemes
•• consult during the summer on updating the VAT Disclosure of Schemes Regime (VADR),
including by extending coverage to other indirect taxes and by alignment with the Disclosure
of Tax Avoidance Schemes regime
2.205 Serial Avoiders – As announced at Spending Review and Autumn Statement 2015
and following consultation, the government will now legislate in Finance Bill 2016 to introduce
tough new measures for those who persistently enter into tax avoidance schemes that are
defeated by HMRC. These include: a special reporting requirement and a penalty on those
whose latest return is inaccurate due to use of a defeated scheme; publication of these avoiders’
names; and, for those who persistently abuse reliefs, restrictions on their access to certain tax
reliefs for a period. We are also strengthening the Promoters of Tax Avoidance Schemes (POTAS)
regime, by bringing in promoters whose schemes are regularly defeated by HMRC. (Finance Bill
2016)
2.206 General Anti-Abuse Rule (GAAR) – The government will legislate to introduce a new
penalty of 60% of tax due to be charged in all cases successfully tackled by the GAAR, and
make small changes to the GAAR procedure to improve its ability to tackle marketed avoidance
schemes. (Finance Bill 2016)
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Tax administration and simplification
2.207 Office of Tax Simplification Income Tax and National Insurance contributions
(NICs) alignment review – The government welcomes the OTS’s report on income tax and
NICs alignment and will respond in due course.
2.208 State aid information – The government will allow HMRC to collect additional
data from businesses on certain tax reliefs and allowances. This will help the UK improve the
monitoring of tax State aids and compliance with State aid guidelines. (Finance Bill 2016)
2.209 HMRC customer service – The government is investing £71 million to make it quicker
and easier for individuals and small businesses to deal with HMRC. Customers will be able to
contact HMRC quicker and at a time convenient to them, with improved call waiting times, a
new secure email service, and phone lines and Webchat open 7 days a week from April 2017.
HMRC will also introduce new measures to provide help and support for businesses, including
a dedicated phone service and online forum for new businesses and self-employed individuals.
(53)
2.210 Clarification of Time Limits for Self-Assessment – Following consultation
announced at Spending Review and Autumn Statement 2015, the government will legislate to
clarify the time allowed for making a self-assessment return. It will make clear that the time limit
is 4 years from the end of the relevant tax year. There are transitional arrangements for the years
2013-14, 2014-15 and 2015-16. Returns for these years will have time limits of 5 April in the
years 2018, 2019 and 2020 respectively. (Finance Bill 2016)
2.211 Simple Assessment – Following the consultation announced at Spending Review and
Autumn Statement 2015, the government will legislate to provide a new power to allow HMRC
to make an assessment of a person’s Income Tax and Capital Gains Tax liability without them
first being required to complete a self-assessment return and where it has sufficient information
about that individual to make the assessment. (Finance Bill 2016)
2.212 Making Tax Digital – From 2018 businesses, self-employed people and landlords
who are keeping records digitally and providing regular digital updates to HMRC will be able
to adopt pay-as-you-go tax payments. This will enable them to choose payment patterns that
suit them and better manage their cash flow. The government will also explore options to
simplify the tax rules for these groups. The government will consult on these measures in 2016
alongside publishing detailed proposals for other elements of the Making Tax Digital programme
announced previously. (Finance Bill 2017)
2.213 Office of Tax Simplification (OTS) – The government will establish the OTS on a
statutory basis as a permanent office of HM Treasury from April 2016. (Finance Bill 2016)
2.214 Office of Tax Simplification small companies review – The government has
received the OTS’s review of small companies and will accept or consider nearly all of its
recommendations including that the OTS continues to develop the design for a look-through
taxation system and a new simple business model that protects the assets of the self-employed.
2.215 Office of Tax Simplification next reviews – The government will commission the
OTS to review the impacts of moving employee NICs to an annual, cumulative and aggregated
basis and moving employer NICs to a payroll basis. It will also commission the OTS to review the
options to simplify the computation of corporation tax. The Terms of Reference for both reviews
will be published shortly.
2.216 Simplified expenses: legislative amendments – The government will amend the
simplified expenses regime introduced in Finance Act 2013 to ensure that partnerships can fully
access the provisions in respect of the use of a home and where business premises are also a
home. (Finance Bill 2016)
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2.217 Amendment to Customs and Exercise Management Act (CEMA) – The
government intends to legislate in a future finance bill to clarify the powers HMRC has when
stopping or searching a vehicle suspected of containing goods liable to forfeiture. (Finance Bill
2016)
2.218 Amendment to CEMA schedules – Following consultation, announced at Spending
Review and Autumn Statement 2015, the government will legislate to amend the CEMA to
clarify existing provisions concerning the seizure and detention of goods. (Finance Bill 2016)
2.219 Prosecuting authorities for proceedings under the CEMA – Following
announcement at Spending Review and Autumn Statement 2015, the government will legislate
to amend the Customs and Excise Management Act 1979 to clarify the prosecuting authorities
in Scotland and Northern Ireland for offences under the customs and excise acts. This will
ensure that time limits for starting proceedings apply only to the correctly identified prosecuting
authorities.
Financial Services
2.220 Claims management regulation – The government will establish a tougher regulatory
regime for claims management companies (CMCs) including by introducing a Senior Managers
Regime, requiring reauthorisation of all CMCs and transferring supervisory responsibility from
the Ministry of Justice to the FCA. The dates for the transfer will be announced in due course.
2.221 Women in Financial Services review – Jayne-Anne Gadhia, CEO of Virgin Money, will
publish her review into the representation of women in senior managerial roles in the financial
services industry on 22 March.
2.222 Basic bank accounts: designation and market share data reporting – The
government will legally require nine banks to offer basic bank accounts to help people access
basic banking services. The government has also committed to publish basic bank account
market share data for the first time in autumn 2016.
2.223 Competition in UK retail financial services – The government will continue to pursue
more proportionate capital requirements for small banks and building societies in the EU; work
with the PRA/FCA New Bank Start-up Unit to promote the authorisation of new banks; and
ensure Bacs takes action to further improve the Current Account Switch Service.
2.224 Finance Platforms Regulations: designation – The government intends to designate
Bizfitech, Funding Options and Funding XChange under the Small and Medium Sized Business
(Finance Platforms) Regulations 2015, to help match SMEs that have been rejected for finance
by designated banks with alternative finance providers.
2.225 Credit Information Regulations: designation – On 1 April 2016 the government will
formally designate the banks and credit reference agencies required to share credit data under
the Small and Medium Sized Business (Credit Information) Regulations 2015.
2.226 Amendments to the Limited Partnership Act applied to Collective Investment
Schemes – The government will introduce a final package of amendments to the Limited
Partnership Act to make it a more competitive vehicle for unauthorised funds. The government
will publish its response to the consultation on 24 March 2016, and will implement the
amendments in legislation in due course.
2.227 Financial Advice Market Review (FAMR) – In line with FAMR’s recommendations the
government will:
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•• increase the tax and NICs relief available for employer-arranged pension advice from £150 to
£500 from April 2017 – this will ensure that the first £500 of any advice received is eligible
for the relief (8)
•• consult on introducing a Pensions Advice Allowance over summer 2016, this will allow
people to withdraw £500 tax free before the age of 55 from their defined contribution
pension to redeem against the cost of financial advice – the exact age at which people can
do this will be determined by consultation
•• consult on amending the definition of regulated advice in the existing Regulated Activities
Order to bring it in line with that of the Markets in Financial Instruments Directive – this
would mean that regulated advice is based upon a personal recommendation
2.228 Public Financial Guidance Review – The government will restructure the statutory
financial guidance providers – the Money Advice Service, The Pensions Advisory Service and
Pension Wise – to ensure that consumers can access the help they need to make effective
financial decisions. The new delivery model will direct more funding to the front line and focus
support on areas of greatest consumer need. It will include:
•• a new pensions guidance body, to make sure that consumers can get all their pensions
questions answered in one place, at all stages of their lives
•• a new, slimmed down money guidance body charged with identify gaps in the financial
guidance market and commissioning providers to fill these gaps to ensure that consumers
can access the debt advice and money guidance they need
Regional and Devolution
English Regions
2.229 Devolution deals – The government is announcing new devolution deals with Greater
Lincolnshire, East Anglia, and the West of England and further devolution deals with Greater
Manchester and Liverpool City Regions. (62)
2.230 Local government asset recipets flexibility – As announced at Autumn Statement
and Spending Review 2015, local authorities will have the flexibility to spend capital recipets
from asset sales on the revenue costs of reform projects, subject to the conditions set out in
DCLG’s direction of 11th March 2016. (69)
2.231 Single Pot Allocation – The government is announcing that existing mayoral
devolution deals will receive ‘single pot’ funding settlements, giving them flexible un-ringfenced
budgets to spend on local priorities.
2.232 Ministry of Justice relocation – The Ministry of Justice is moving jobs out of
Whitehall. By the middle of this Parliament the Ministry of Justice will establish a major
programme to create substantial centres of expertise outside the capital.
2.233 Additional work coaches in Birmingham – There are currently 100 additional work
coaches in Birmingham who work with businesses to match workers with apprenticeships,
training opportunities and skilled jobs. This scheme will continue until 2017.
Scotland, Wales and Northern Ireland
2.234 Cardiff Capital region deal – The government has announced a £1.2 billion deal
with the Welsh Government and the 10 local authorities forming the Cardiff Capital Region.
The government will contribute £375 million in additional funding over 20 years towards an
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investment fund, in addition to £125 million already committed to the electrification of the
Valley Lines as part of the South East Wales Metro project. (62)
2.235 Swansea Bay City region deal – The government will open negotiations with the
Welsh Government and local partners on a potential City Deal for Swansea Bay City Region.
2.236 Edinburgh City Deal – The government will open negotiations with local partners on a
potential City Deal for Edinburgh and South East Scotland.
2.237 Enhanced Capital Allowances for the Enterprise Zone at Coleraine, Northern
Ireland – The government will legislate to offer enhanced capital allowances within the
Northern Ireland Executive’s pilot Enterprise Zone at Coleraine.
2.238 Enhanced Capital Allowances for a proposed Enterprise Zone at Port Talbot,
Wales – The government will support proposals for an Enterprise Zone at Port Talbot by offering
enhanced capital allowances to investors within that Zone, subject to agreement with the Welsh
Government on the boundaries within which ECAs will be available.
Supply side reform of the economy
Education and skills
2.239 Alternative provider growth – The government will continue to free up student
number controls for alternative providers predominantly offering degree level courses for the
2017-18 academic year. The best providers will also be able to grow their student places further
through the performance pool.
2.240 Doctoral loans – From 2018-19, the government will introduce doctoral loans of up
to £25,000 to any English student who can win a place at a UK university but doesn’t receive a
research council living allowance. (i)
2.241 Master’s loans – The government will extend the eligibility of master’s loans to include
three-year part-time courses with no full-time equivalent. (14, ii)
2.242 Lifetime learning – The government will review gaps in support for lifetime learning,
including for flexible and part-time study, and bring together information about the wages of
graduates of different courses and financial support for further and higher education to ensure
people can make informed decisions.
2.243 Apprenticeship levy – As announced at Autumn Statement and Spending Review
2015, the government will introduce the apprenticeship levy in April 2017. It will be set at a rate
of 0.5% of an employer’s paybill and will be paid through PAYE. Each employer will receive an
allowance of £15,000 to offset against their levy payment. This means the levy will only be paid
on any paybill in excess of £3 million. (Finance Bill 2016) The government will apply a 10% topup to monthly funds entering apprenticeship levy payers’ digital accounts in England from April
2017.
2.244 Longer school day – The government will provide up to £285 million a year to give
25% of secondary schools increased opportunity to extend their school day. (11)
2.245 Expand breakfast clubs – Starting from September 2017, the government will provide
£10 million funding to expand the number of healthy breakfast clubs. (11)
2.246 Every school an academy – The government expects all schools to become academies
by 2020, or to have an academy order in place in order to convert by 2022. (12)
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2.247 National Funding Formula for schools – Subject to consultation, the government’s
aim is for 90% of schools who will gain funding increases to receive the full amount they are
due by 2020. (12)
2.248 Northern Powerhouse Schools Strategy – The government will invest £20 million a
year to raise education standards across the Northern Powerhouse. This will be achieved by:
•• bringing in support from proven leaders and outstanding schools in neighbouring areas to
mentor weaker schools (13)
•• boosting funding available for turnaround activity in coasting and vulnerable schools (13)
•• fast-tracking the best local schools to become Teaching Schools and the best local heads to
become National Leaders of Education (13)
•• providing funding to establish a Northern branch of the New Schools Network and investing
to expand the best academy chains and develop new sponsors in the North (13)
•• Sir Nick Weller leading a report into transforming education across the Northern Powerhouse
(13)
2.249 Double primary school PE and sport premium – From September 2017 the
government will increase the primary school PE and sport premium funding from £160 million
per year to £320 million per year. (10)
2.250 Post-16 maths – The government will ask Professor Sir Adrian Smith to review how to
improve the study of maths from 16 to 18.
2.251 Mentoring – The government will provide £14 million over the Spending Review period
to deliver a mentoring scheme for disadvantaged young teenagers. (71)
Culture and sport
2.252 Investing in culture and sport – The government will support culture and sport,
including by providing:
•• £1 million to support S1 Artspace to create an arts complex in Sheffield, subject to planning
permission being granted (67)
•• £5 million to support Shakespeare North, a new theatre in Knowsley, subject to business case
and planning permission being granted (67)
•• £5 million to support the refurbishment of Hull New Theatre and £8 million to create a
lasting cultural legacy in Hull (67)
•• £1 million to support the transformation of Drapers’ Hall into a multi-purpose music venue
in Coventry (67)
•• £620,000 to support Being Brunel, the National Brunel Project in Bristol
•• £2 million to support the refurbishment of the Hall for Cornwall, subject to planning
permission being granted (67)
•• £500,000 towards a marketing campaign to promote the Tour de Yorkshire 2016 to overseas
visitors (67)
2.253 Great Exhibition of the North – Building on the announcement of £20 million
funding at the Autumn Statement and Spending Review 2015, the government is inviting bids
from northern cities and towns to host the Great Exhibition of the North.
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2.254 First World War Centenary cathedral repairs fund and English Churches and
Cathedrals Sustainability Review – The government will provide £20 million across 2016‑17
and 2017-18 to extend the First World War Centenary cathedral repairs fund. A review into
sustaining England’s churches and cathedrals will be set up to assess maintenance and repair
pressures and examine how the sector can become more financially sustainable. (66)
2.255 The British Library: St Pancras redevelopment – The government supports the
British Library’s ambition to develop land to the north of its St Pancras site, subject to a full
business case.
2.256 Rugby Football League World Cup – The government supports plans to bid to host
the Rugby Football League World Cup in 2021.
2.257 International Screen School Manchester – The government will consider the case
to support the creation of International Screen School Manchester at Manchester Metropolitan
University.
2.258 Royal College of Art – The government will help to fund an expansion of the Royal
College of Art in Battersea with £54 million funding to 2021-22. (67)
2.259 Dundee V&A – The government will contribute £5 million to the museum’s fundraising
campaign. (67)
2.260 Lloyd George Museum – The government confirms £27,000 of funding per year from
2017-18 to 2019-20 towards the Lloyd George Museum in north Wales.
2.261 New Cumnock – The government will contribute £150,000 towards local regeneration
projects. (67)
Transport and infrastructure
2.262 Roads Investment Strategy 2 – The government is launching the process for setting
the Second Roads Investment Strategy, which will determine road investment plans for the
period from 2020-21 to 2024-25.
2.263 Highways England Innovation Strategy – The government and Highways
England will:
•• carry out trials of driverless cars on the Strategic Road Network by the end of 2017
•• launch a consultation on reducing regulatory barriers in summer 2016
•• establish a £15 million ‘connected corridor’ from London to Dover to enable vehicles to
communicate wirelessly with infrastructure
•• trial truck-platooning on strategic roads
•• start the first trials of comparative fuel price signs on the M5 between Bristol and Exeter by
Spring 2016
2.264 South West rail resilience – The government will provide £5 million for the
development of options for improving the resilience of the rail line between Exeter and Newton
Abbot (via Dawlish), once the current study by Network Rail concludes.
2.265 Northern rail improvements – The government will take forward the
recommendations from the National Infrastructure Commission and allocate £60 million
to develop options for High Speed 3 between Leeds and Manchester, as well as options for
improving other major city rail links. The government will also allocate £4 million to develop
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High Speed 2 Growth Strategies for Manchester Piccadilly, Manchester Airport and Leeds
stations as part of an integrated long-term plan for High Speed 3.
2.266 Northern roads improvements – The government will accelerate the development of
the Lofthouse and Simister Island junctions, capacity enhancements to the M1 at junctions 35a39 Rotherham to Wakefield, and deliver on the commitment to begin upgrades to the M56 at
junctions 6-8 south of Manchester in this Parliament.
2.267 Accelerating improvements to the M62 – The government will provide an additional
£161 million to Highways England to accelerate the delivery of two major projects to upgrade
the M62 to a four-lane smart motorway between junction 10-12 Warrington to Eccles and
junction 20-25 Rochdale to Brighouse. (63)
2.268 Northern road studies – The government will allocate £75 million to Highways
England to further develop the case for a potential Trans-Pennine tunnel between Sheffield
and Manchester, as well as options to enhance the A66, A69 and the north-west quadrant of
the M60.
2.269 Large major transport projects – The government will provide £151 million to fund
new river crossings at both Lowestoft and Ipswich (subject to final business case approval),
and is now inviting further bids for the £475 million Local Majors Fund announced at Autumn
Statement and Spending Review 2015.
2.270 Crossrail 2 – The government will provide £80 million which, together with a
contribution from London, will allow Crossrail 2 to proceed to the next stage with the aim of
depositing a Hybrid Bill within this Parliament.
2.271 Severn crossing tolls – After the existing concession on the Severn River Crossings
ends in 2018, the government will, subject to consultation, halve tolls. The government will also
evaluate the costs and benefits for developing a free-flow barrier-free tolling system.
2.272 Pothole Action Fund – The government is setting out how the Pothole Action Fund will
be allocated across England in 2016-17, with £50 million allowing local authorities to fill nearly
a million potholes.
2.273 Modernising rail stations – The government is announcing the allocation of £16
million funding to improve rail station facilities at Market Harborough, St Albans, Redhill,
Newbury, High Wycombe, Exeter St Davids, Weston-Super-Mare, and Cheltenham Spa.
2.274 Midlands Connect – Midlands Connect will be established as a statutory sub-national
transport body with statutory duties by the end of 2018.
2.275 Midlands roads – The government will carry out feasibility work on 4 major roads in
the Midlands in this Parliament: upgrades to the M1 to provide a continuous smart motorway
from London to Yorkshire, improvements to the A46 Newark bypass and its junction with the
A1, upgrading the single carriageway link on the A45 Stanwick to Thrapston and upgrading the
M42 and M5 around Birmingham to four lane smart motorway running.
2.276 Shaw Report into Network Rail – The government welcomes the recommendations of
the Shaw Report into Network Rail and will respond in full later this year.
2.277 Financing London transport infrastructure via land value uplift – The government
invites Transport for London to bring forward detailed proposals on how it could capture a
proportion of future land value increases around proposed local infrastructure projects funded
by the public sector, in order to provide a source of financing to support the construction of
such projects.
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2.278 Outer London Infrastructure Fund – The government will provide £5 million to
establish a fund to support smaller local infrastructure projects in outer London boroughs in
2017/18.
2.279 New junction on the M4 – The government will provide £500,000 to South
Gloucestershire council to fund a study into a new junction 18a on the M4 to link with the Avon
ring road A4174.
2.280 National Infrastructure Delivery Plan – The government will shortly publish a
National Infrastructure Delivery Plan, setting out details of over £100 billion of public sector
investment in infrastructure across this Parliament.
2.281 National Infrastructure Pipeline – The government will continue to update the
National Infrastructure Pipeline, showing forward projections of planned public and private
investment.
2.282 Growth corridors – The government has asked the National Infrastructure Commission
to develop proposals for unlocking growth, housing and jobs in the Cambridge–Milton Keynes–
Oxford corridor. The commission will produce a final report for Autumn Statement 2017.
2.283 5G – The government has asked the National Infrastructure Commission to consider
by the end of 2016 what the UK needs to do to become a world leader in 5G infrastructure
deployment, and to ensure that the UK can take early advantage of the potential benefits of
5G services.
2.284 National Shipbuilding Strategy – The government has appointed Sir John Parker
to lead the national ship building strategy, which was confirmed in the Strategic Defence and
Security Review 2015. He will report by Autumn Statement 2016.
Housing and planning
2.285 Garden villages and towns – To support areas that want to establish garden villages
the government will:
•• provide capacity support for Local Authorities
•• introduce new legislation that will speed up and simplify the process for delivering new
settlements
•• announce planning incentives to support areas seeking to bring forward new settlements, in
return for commitments to significant housing delivery
2.286 Moving to a more zonal planning system – The government will bring forward
measures to enable a more zonal and ‘red line’ planning system.
2.287 Speeding up the process for assessing housing need – The government intends to
accelerate the preparation and adoption of Local Plans. The government welcomes the report by
the local plans expert group and will consult on the recommendations.
2.288 Local Plans – Following the ongoing consultation on the delivery of Local Plans
by 2017, the government will set out later this year details of measures to encourage the
production of Local Plans. As recommended by the Local Plans Expert Group report, which is
published today, the government will also look at the scope to reduce the weight of outdated
plans in decision-making. The government will consult on the other recommendations made by
the Group until 27 April 2016.
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2.289 ‘Building Up’ – Following the consultation on building up in London and to help
increase densities on brownfield land and reduce the need to ‘build out’, the government will
consult with city regions on extending similar powers as part of devolution deals.
2.290 Streamlining the use of planning conditions – To minimise delays caused by the use
of planning conditions the government intends to:
•• legislate to ensure that pre-commencement planning conditions can only be used with the
agreement of the developer
•• review the process of deemed discharge for conditions, to ensure it is effective and its use
maximised
2.291 Transparency of the land market – The government will consult on proposals to
increase transparency in the property market, including by improving the visibility of information
relating to options to purchase or lease land.
2.292 Secretary of State planning decisions – The government will set statutory 3 month
deadlines for Secretary of State decisions on called-in applications and recovered appeals to
prevent time-delays on decisions on infrastructure, housing and regeneration projects.
2.293 Stations regeneration – The Homes and Communities Agency will work in
partnership with Network Rail and Local Authorities to bring forward land around stations for
housing, commercial development and regeneration, and will announce proposals for specific
sites shortly.
2.294 Compulsory Purchase Order reforms – The government will consult on a second
wave of Compulsory Purchase Order reforms with the objective of making the Compulsory
Purchase Order process clearer, fairer and quicker.
2.295 Mobile Communications Infrastructure – Following a call for evidence published
alongside the Productivity Plan, the government will announce details of greater freedoms and
flexibilities in England to support the deployment of mobile infrastructure.
2.296 Private Rented Sector (PRS) Guarantee – The government will extend the PRS
guarantee scheme until December 2017 to encourage long term institutional investment in the
private rented sector.
2.297 Starter Homes – The government will launch the Starter Homes Land Fund prospectus
today. This prospectus invites Local Authorities to access the £1.2 billion of funding to remediate
brownfield land to deliver Starter Homes.
2.298 Investment in low-cost homeownership – The government will explore options
for encouraging private investment in low-cost homeownership, including the scope to use
guarantees.
2.299 Help to Buy: Shared Ownership – The government will launch the Help to Buy:
Shared Ownership Prospectus in April. The prospectus will invite private developers to come
forward and bid for funding to build Shared Ownership homes.
2.300 Local Authority land – Local Authorities will collaborate with central government on
a local government land ambition, working with their partners to release land with capacity for
at least 160,000 homes, helping to support the government’s policy of regenerating council
housing estates. The government will continue to work with the sector to look for opportunities
to go further, with a view to raising the ambition.
2.301 Brent Cross – The government has approved the full business case for a new Thameslink
station at Brent Cross.
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2.302 Homelessness – To support vulnerable rough sleepers off the streets and to help those
who are recovering from homelessness, the government will:
•• invest £100 million to deliver low-cost ‘second stage’ accommodation places for rough
sleepers leaving hostel accommodation and domestic abuse victims and their families
moving on from refuges
•• invest £10 million over two years in initiatives to support and scale-up innovative ways to
prevent and reduce rough sleeping, particularly in London, building on the success of the No
Second Night Out initiative
•• double funding for the Rough Sleeping Social Impact Bond announced at the Spending
Review, from £5 million to £10 million, to drive innovative ways of tackling entrenched
rough sleeping, including through ‘Housing First’ approaches
•• help rough sleeping EU migrants to return to their home countries
2.303 Right to Buy pilot – As announced at Autumn Statement, the government is piloting
the Right to Buy with five housing associations, to inform the design of the final scheme. (72)
2.304 Homeownership – The government will explore ways to extend homeownership to
social tenants who cannot afford to take advantage of existing schemes.
2.305 Pay to Stay taper – The government will introduce a taper within Pay to Stay, so that
rents rise gradually above the minimum income thresholds of £40,000 in London and £30,000
outside of London. (74)
2.306 Making Pay to Stay voluntary for housing associations – As announced as part of
the government’s deregulatory strategy for the housing association sector, Pay to Stay will be
implemented on a voluntary basis by housing associations. (74)
2.307 Social rent reduction deferral for supported housing – As announced on
27 January, the 1% annual reduction in social rents announced at the Summer Budget will not
apply to supported housing in 2016-17. (75)
Local growth
2.308 Further allocation of the Local Growth Fund – The government will conclude a
further round of Growth Deals with Local Enterprise Partnerships.
2.309 Old Oak Common –The government has agreed a Memorandum of Understanding
with the Old Oak and Park Royal Development Corporation on the transfer of government
owned assets to the Development Corporation.
2.310 Snow Hill regeneration – The government will provide £2 million to support Greater
Birmingham and Solihull Local Enterprise Partnership to develop a regeneration masterplan for
Birmingham’s Snow Hill district.
2.311 Thames Estuary 2050 Growth Commission – The government has asked Lord
Heseltine to lead a Commission to develop a long-term vision and delivery plan for the Thames
Estuary region.
2.312 Enhanced Capital Allowances in Enterprise Zones – The government will ensure
that all Enterprise Zones are able to offer Enhanced Capital Allowances for eight years from the
establishment of relevant sites. (Finance Bill 2016) (65)
2.313 New Enterprise Zones and extensions – The government will create a new Cornwall
MarineHub Enterprise Zone following the transfer of Wave Hub (a wave energy testing facility)
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to Cornwall Council. The government will also extend the Sheffield City Region Enterprise Zone
subject to necessary approvals and agreements, and create new Enterprise Zones at Brierley Hill
and Loughborough and Leicester subject to business case.
2.314 Wave Hub – The government is transferring ownership of Wave Hub, the world’s largest
wave energy testing facility, to Cornwall Council, and providing around £15 million to develop
the facility as part of a new MarineHub Enterprise Zone.
2.315 Coastal Communities Fund Round 4 – The government will open the next round of
the Coastal Communities Fund for applications this summer.
2.316 Local Enterprise Partnership Small Business Representative – The government will
require all Local Enterprise Partnerships to have a nominated Small Business Representative on
their Board.
2.317 Crematoria – The government is today launching a consultation on crematoria provision
and facilities to assess whether they are fit for purpose and sensitive to the needs of all users and
faiths. The consultation will run until 26 May.
Digital
2.318 Independent Review of Economic Statistics – The government will invest in a new
hub for data science and a centre for excellence in economic measurement in line with the
recommendations of Professor Sir Charles Bean’s Independent Review of Economic Statistics.
(64)
2.319 Public sector spectrum – The government will make available 750MHz of valuable
public sector spectrum in bands under 10GHz by 2022, of which 500MHz will be made available
by 2020.
2.320 5G strategy and tool – The government will deliver a 5G strategy in 2017, based on
the National Infrastructure Commission assessment of how the UK can become a world leader in
5G. The government will also support the development of a network planning tool, to be trialed
in Bournemouth. (67)
2.321 Broadband Investment Fund – The government will, in partnership with the private
sector, establish a new Broadband Investment Fund. The fund will operate on a commercial basis
to support the growth of alternative network developers by providing greater access to finance.
2.322 Digital standards in construction – The government will develop the next digital
standard for the construction sector – Building Information Modelling 3 – to save owners
of built assets billions of pounds a year in unnecessary costs, and maintain the UK’s global
leadership in digital construction.
2.323 Ultrafast broadband grant scheme – The government will distribute £14.5 million in
grants to extend ultrafast broadband coverage in the south west.
2.324 Open address data – The government will provide up to £5 million to develop options
for an authoritative address register that is open and freely available.
2.325 Institute for Coding – The government will establish a panel of leading experts to help
shape the £20 million Institute for Coding competition.
Science and innovation
2.326 Birmingham STEAMhouse – The government will invest £14 million in STEAMhouse
subject to approved business case, a creative innovation centre in Digbeth, Birmingham,
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bringing together arts and culture with science, technology, engineering and maths to drive
innovation. (68)
2.327 Quadram Institute – The government will contribute £50 million to a new worldleading centre for food and health research at the Norwich Research Park.
2.328 Science and Innovation Audits – Greater Manchester and East Cheshire, Edinburgh
and the Lothians, South West England and South East Wales, Sheffield City Region and
Lancashire LEP and the Midlands will benefit from the first wave of science and innovation
audits. Audits will to help map the regions research and innovation strengths and identify areas
of potential global competitive advantage.
2.329 Compound Semiconductor Catapult – The government will invest £50 million up to
2020-21 to establish a new Compound Semiconductor Applications Catapult in Wales.
2.330 Dyson batteries – The government is providing a grant of up to £16 million to Dyson
to support research and development for battery technology at their site in Malmesbury.
2.331 Aerospace R&D funding – The government is awarding over £16 million, matched by
industry, to companies and research organisations in the Midlands to support aerospace R&D.
2.332 Low emission vehicles – The government, through the Office for Low Emission
Vehicles and Innovate UK, is awarding £38 million of grants across the UK, matched by industry,
for collaborative R&D into low emission vehicles.
2.333 National Institute for Smart Data Innovation – The government will invest
£15 million in the National Institute for Smart Data Innovation in Newcastle, subject to approved
business case. This new facility will bring together industry, the public sector and universities to
create the skills, ideas and resources needed to exploit the opportunities offered by Smart Data.
(68)
Energy and environment
2.334 Seismic funding – The government will provide a further £20 million of funding for
seismic surveys, as announced by the Prime Minister in January, to support exploration of new
discoveries. (35)
2.335 Shale Wealth Fund and community benefits – The government will consult later
this year on the priorities and delivery models for the Shale Wealth Fund, and how it can be
deployed in local communities and the North as a whole.
2.336 Flood defence package – Flood defence and resilience funding will be increased
by more than £700 million by 2020-21, funded by a 0.5% increase in the standard rate of
Insurance Premium Tax. In addition to this, the government will spend a further £130 million on
repairing transport infrastructure damaged by Storms Desmond and Eva. (60)
2.337 Support for renewable electricity – The government will auction up to £730 million
support for offshore wind and other less established renewable technologies this parliament
for projects generating electricity in 2021 to 2026. The first auction will offer £290 million of
support.
2.338 NIC energy study – Following the National Infrastructure Commission’s report Smart
Power:
•• the government will allocate at least £50 million for innovation in energy storage,
demand‑side response and other smart technologies over the next 5 years
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•• Ofgem will consult on opening up the £100 million Network Innovation Competition to
better enable innovation by non-licensed companies from 2017
•• the government has increased its ambition for greater electricity interconnection by 80%,
now supporting at least an additional 9GW of interconnection
2.339 Small Modular Reactors – The government is launching the first stage of a
competition to identify a small modular nuclear reactor (SMR) to be built in the UK, and will
publish an SMR delivery roadmap later this year. It will also allocate at least £30m of funding for
R&D in advanced nuclear manufacturing.
Markets and regulation
2.340 Competition in legal services – The government will shortly consult on reforms to
improve choice and competition in legal services by making it easier for new providers to enter
the market.
2.341 Unlocking of mobile phones – The government is committed to consulting this year
on ending the practice of handset locking for customers outside any initial contract period. The
government welcomes voluntary commitments, but also stands ready to consult on legislative
options if necessary.
2.342 Transparency in local authority services – The government will consult on new
rules requiring Local Authorities to be transparent about the cost of the in-house services they
provide.
2.343 Competition in rail – The government welcomes the CMA’s report on increasing
competition in railways and will work with the CMA to explore how their recommendations
could potentially be implemented as part of the wider reform programme arising from the Shaw
Report.
2.344 Protections for the smallest businesses acting as consumers – The government
is consulting on measures to ensure that the smallest businesses – including sole traders –
understand their rights and have the protections they need when they are acting as consumers.
2.345 Improving the home buying process – The government will shortly publish a call for
evidence looking at the process of buying a home.
2.346 Trigger points to promote switching – The government will shortly publish the first
of two reports, compiled by research firm GFK-NOP, into the role that key trigger points can play
in empowering consumers.
Stronger and more focused economic regulators
2.347 Ofgem E-Serve – To ensure that Ofgem can focus on its core functions of economic
regulation and promoting effective competition in the energy market, Ofgem’s E-Serve functions
will be split off from Ofgem.
2.348 Energy delivery landscape – The Department of Energy & Climate Change will take
steps to improve the customer experience and coherence of its consumer policy delivery. DECC
are committed to consolidating their delivery providers and will set out the future of consumer
facing functions including those currently undertaken by E-Serve at Autumn Statement 2016.
2.349 Ofgem’s statutory duties – The government intends to amend the statutory duties of
Ofgem to ensure that wherever appropriate it considers competition levers first. This work will
take into account the conclusions of the Competition and Markets Authority (CMA)’s Energy
Market Investigation.
Budget 2016
129
2.350 Role of the Competition and Markets Authority – The Competition and Markets
Authority (CMA) will:
•• enhance its Annual Concurrency Report on the operation of the concurrency arrangements
between the CMA and the sectoral regulators to improve competition in the regulated
sectors. In future, the report will cover new regulations put in place during the year which
might significantly affect competition and innovation. It will also propose areas where
changes to regulation might allow competition and innovation to work better
•• include an estimate of the impact of its contribution to competition enforcement cases led
by sector regulators in its published performance monitoring benefit to cost ratios
2.351 Reducing regulatory burdens – Ofwat will work with the water and sewerage
industry to simplify and streamline water companies’ licences in order to reduce regulation and
facilitate deregulatory changes in future. Ofgem and DECC will review energy supply licence
conditions to ensure they are as clear as possible, provide appropriate protections for consumers
and do not act as a barrier to new companies entering the market, expanding or innovating.
2.352 Energy code reform – The government intends to legislate to license industry code
administrators and give Ofgem more power to set strategic direction and intervene to deliver
essential changes to codes quickly and ensure that customers get a better deal. This work will
take into account the conclusions of the Competition and Markets Authority (CMA)’s Energy
Market Investigation.
2.353 Innovation spaces in energy – Ofgem will consult in spring 2016 on providing
innovation spaces for experimentation, giving more regulatory certainty for innovative
approaches and products to be trialled within the existing regulatory framework.
2.354 Co-location and sharing back office functions – The government will work with
economic regulators to review the business case and implementation issues around co-locating
and sharing back office functions across regulators, reporting by summer 2016.
Access to finance
2.355 British Business Bank – The government confirms up to £1 billion of commitments to
support small businesses to access the finance that they need to grow by:
•• agreeing with LEPs in the Midlands and the British Business Bank to establish a Midlands
Engine Investment Fund to invest in local SMEs, subject to final funding arrangements
•• launching the first transactions from the British Business Bank’s Help to Grow programme
from spring 2016
•• extending the British Business Bank’s Enterprise Finance Guarantee programme until at
least 2018
2.356 Trade finance – The government will trial a streamlined approach to trade finance
provision, through ending duplicated credit and other due diligence between lenders and UK
Export Finance.
130
Budget 2016
A
Financing
A.1 This annex sets out details of the government’s financing plans for 2016-17. Further details
can be found in the ‘Debt management report 2016-17’, available at www.gov.uk.
Financing arithmetic
A.2 The Office for Budget Responsibility’s (OBR) forecast for the 2016-17 central government
net cash requirement (excluding NRAM plc, Bradford and Bingley and Network Rail) (CGNCR
(ex NRAM, B&B and NR)) is £62.1 billion.1 This measure of the government’s cash requirement
is used in the financing arithmetic as it reflects the forecast cash requirement of the Exchequer.
The relationship between public sector net borrowing and the CGNCR (ex NRAM, B&B and NR) is
set out in the OBR’s March 2016 ‘Economic and Fiscal Outlook’.
A.3 The net financing requirement (NFR) comprises the CGNCR (ex NRAM, B&B and NR) plus
any financing for gilt redemptions, planned financing for the reserves and other adjustments,
less the net contribution to financing from National Savings and Investments (NS&I) and any
other in-year contributions to financing.
A.4 The NFR for 2016-17 is projected to be £129.4 billion, reflecting:
•• the forecast for the CGNCR (ex NRAM, B&B and NR) of £62.1 billion
•• gilt redemptions of £69.9 billion
•• a planned short-term financing adjustment of -£2.5 billion resulting from unanticipated
overfunding in 2015-16
•• financing for the Official Reserves of £6.0 billion
•• a net contribution to financing from NS&I of £6.0 billion
•• a contribution to financing from coinage of £0.2 billion
A.5 As set out in Table A.1, the NFR for 2016-17 will be met by gilt sales of £129.4 billion.
Gilt issuance by maturity, type and method
A.6 Decisions on the skew of gilt issuance are set annually with reference to the government’s
debt management objective, as set out in the ‘Debt management report 2016-17’.
A.7 Auctions will remain the government’s primary method of gilt issuance. It is anticipated
that in 2016-17:
•• £95.9 billion (74.1% of total issuance) will be issued by auction
•• a minimum of £25.5 billion (19.7% of total issuance) will be issued by syndication
1
Chapter 4 of OBR’s March 2016 ‘Economic and Fiscal Outlook’ (EFO), http://budgetresponsibility.org.uk/publications/
Budget 2016
131
A.8 The government is introducing a further issuance method, gilt tenders. These will be a form
of auctioning gilts outside of the usual auction calendar. They will replace mini-tenders and sales
via taps, and will be used to supplement gilt issuance through auctions and syndications.
A.9 Issuance by auction and syndication is planned to be split by maturity and type as follows:
•• £30.4 billion of short conventional gilts (23.5% of total issuance)
•• £24.8 billion of medium conventional gilts (19.2% of total issuance)
•• £36.2 billion of long conventional gilts (28.0% of total issuance)
•• £30.0 billion of index-linked gilts (23.2% of total issuance)
A.10 The financing plans of the Debt Management Office (DMO) include an initially unallocated
portion of issuance through which gilts of any maturity or type may be issued, subject to
prior notification. This unallocated portion is set at £8.0 billion (6.2% of total issuance). It is
anticipated that such sales will principally take place via gilt tenders and increases in issuance
through syndications. These sales will be conducted in such a way as to respond best to evolving
market conditions.
Treasury bills
A.11 Treasury bills are forecast to constitute £66 billion of the total debt stock at the end of
2015-16. It is not currently anticipated that Treasury bill issuance will make a net contribution
to debt financing in 2016-17. Treasury bills are also used for cash management purposes and,
consistent with the degree of flexibility now granted to the DMO to use Treasury bills across
year-end for cash management, an end-year target stock of Treasury bills will no longer be set.
Information on the total stock of Treasury bills will continue to be published monthly on the
DMO’s website.
Reserves
A.12 The financing arithmetic provides for £6.0 billion of sterling financing for the Official
Reserves in 2016-17. The government is planning on the basis of sterling financing for the
Official Reserves at a similar level on average over the 3 years from 2017-18 up to, and including
2019-20.
National Savings and Investments
A.13 NS&I will have a net financing target of £6.0 billion in 2016-17, within a range of £4.0
and £8.0 billion
132
Budget 2016
Table A.1: Financing arithmetic in 2015-16 and 2016-17
£ billion
2015-16
2016-17
CGNCR (ex NRAM, B&B and NR)
75.5
62.1
Gilt redemptions
70.2
69.9
Planned financing for the reserves
5.3
6.0
Financing adjustment carried forward from previous financial years
-13.1
-2.5
Gross financing requirement
138.0
135.6
less:
Contribution from National Savings and Investments
11.5
6.0
0.2
0.2
126.2
129.4
127.7
129.4
Short conventional
32.6
30.4
Medium conventional
25.0
24.8
Long conventional
37.2
36.2
Index-linked
32.2
30.0
0.6
8.0
1.0
0.0
128.7
129.4
3.0
0.5
Other financing1
Net financing requirement (NFR) for Debt Management Office (DMO)
Financed by debt issuance:
Gilt sales
of which
Unallocated supplementary sales
Planned net contribution to financing from Treasury bills
2
Total financing
DMO net cash position
Figures may not sum due to rounding.
1
Prior to publication of the end-year outturn in April each year, this financing item will only comprise estimated revenue from coinage.
2
From Budget 2016 onwards, financial year-end stock levels will not be published as part of the financing arithmetic.
Source: DMO, NS&I, HM Treasury and OBR.
Illustrative future gross financing requirement
A.14 Table A.2 sets out the updated illustrative gross financing requirement for the next 4 years
using the OBR’s March 2016 forecast for the CGNCR (ex NRAM, B&B and NR), current planned
gilt redemptions, and planned financing for the reserves.
Table A.2: Illustrative gross financing requirement
£ billion
2017-18
2018-19
2019-20
2020-21
CGNCR (ex NRAM, B&B and NR)
41.0
32.3
3.0
17.0
Gilt redemptions
79.5
67.3
93.2
85.2
6.0
6.0
6.0
0.0
126.5
105.5
102.2
102.3
Planned financing for the reserves
Illustrative gross financing requirement
Figures may not sum due to rounding.
Source: DMO, HM Treasury and OBR.
Budget 2016
133
B
OBR’s Economic and fiscal
outlook: selected tables
B.1 The Office for Budget Responsibility (OBR) has published its March 2016 ‘Economic and
fiscal outlook’ alongside Budget 2016. This annex reproduces the OBR’s key projections for the
economy and public finances. Further detail and explanation can be found in the OBR’s report.
Budget 2016
135
Table B.1 Detailed summary of forecast
Percentage change on a year earlier, unless otherwise stated
Outturn
Forecast
2014
2015
2016
2017
2018
2019
2020
2.9
2.2
2.0
2.2
2.1
2.1
2.1
100.0
102.2
104.3
106.6
108.9
111.1
113.5
UK economy
Gross domestic product (GDP)
GDP level (2014=100)
Nominal GDP
4.7
2.6
3.1
4.1
4.1
4.0
4.1
-1.0
-0.3
-0.2
0.0
0.0
-0.0
-0.0
Domestic demand
3.2
2.7
2.2
2.3
2.2
2.0
2.0
Household consumption¹
2.5
2.9
2.4
2.2
2.1
2.0
1.9
General government consumption
2.5
1.7
0.2
0.6
0.5
0.2
0.7
Output gap (per cent of potential output)
Expenditure components of GDP
Fixed investment
7.3
4.2
2.9
4.5
4.1
4.0
4.3
Business
4.7
4.7
2.6
6.1
5.8
5.5
4.4
General government²
5.8
2.2
0.2
1.9
-0.3
-0.2
6.5
14.0
3.4
5.1
2.8
3.0
3.0
2.9
Change in inventories
0.2
-0.4
0.2
-0.0
0.0
0.0
0.0
Exports of goods and services
1.2
5.0
2.5
3.3
3.3
3.4
3.4
Imports of goods and services
2.4
6.2
3.5
3.3
3.3
3.3
3.3
-5.1
-4.3
-4.2
-3.8
-3.7
-3.5
-3.4
CPI
1.5
0.0
0.7
1.6
2.0
2.1
2.0
RPI
2.4
1.0
1.7
2.4
3.2
3.2
3.2
GDP deflator at market prices
1.8
0.3
1.1
1.9
2.0
1.9
2.0
Employment (millions)
30.7
31.2
31.6
31.7
31.9
32.0
32.1
Productivity per hour
0.1
0.8
1.0
1.7
2.0
2.0
2.0
Private dwellings²
3
Balance of payments current account
Per cent of GDP
Inflation
Labour market
Wages and salaries
2.9
4.1
3.6
4.2
3.9
3.8
3.9
Average earnings4
1.4
2.3
2.6
3.6
3.5
3.4
3.6
LFS unemployment (% rate)
Claimant count (millions)
6.2
5.4
5.0
5.0
5.2
5.3
5.3
1.04
0.80
0.75
0.78
0.84
0.86
0.87
0.6
2.9
1.8
1.9
1.6
1.5
1.5
Household sector
Real household disposable income
Saving ratio (level, per cent)
5.4
4.2
3.3
3.6
3.7
3.9
3.9
House prices
9.9
6.8
6.9
4.2
5.0
4.7
3.9
World GDP at purchasing power parity
3.4
3.1
3.3
3.5
3.8
3.9
3.9
Euro area GDP
0.9
1.5
1.6
1.6
1.6
1.6
1.6
World trade in goods and services
3.5
2.4
3.0
3.6
4.2
4.3
4.3
UK export markets
3.9
4.1
3.4
3.9
4.4
4.5
4.5
World economy
5
136
¹
Includes households and non-profit institutions serving households.
2
Includes transfer costs of non-produced assets.
3
Contribution to GDP growth, percentage points.
4
Wages and salaries divided by employees.
5
Other countries’ imports of goods and services weighted according to the importance of those countries in the UK’s total exports.
Budget 2016
Table B.2: Fiscal aggregates
Per cent of GDP
Outturn
Forecast
2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21
Receipts and expenditure
Public sector current receipts (a)
35.7
36.3
36.9
36.9
37.0
37.5
37.4
Total managed expenditure (b)
40.8
40.2
39.7
38.8
38.0
37.0
36.9
36.8
36.3
35.7
34.9
34.3
33.4
32.9
Public sector net investment (d)
1.9
1.8
1.9
1.7
1.6
1.5
1.9
Depreciation (e)
2.1
2.1
2.1
2.1
2.1
2.1
2.1
Current budget deficit (c+e-a)
3.1
2.1
1.0
0.2
-0.6
-1.9
-2.3
Cyclically adjusted current budget deficit
2.4
1.8
0.9
0.2
-0.5
-2.0
-2.4
Cyclically adjusted net borrowing
4.3
3.6
2.7
1.9
1.0
-0.5
-0.5
-3.4
-2.2
-1.1
-0.1
0.9
2.2
2.1
-2.6
-1.9
-1.0
-0.1
0.8
2.3
2.1
of which:
Public sector current expenditure (c)
Deficit
Primary balance
Cyclically adjusted primary balance
Fiscal mandate and supplementary target
Public sector net borrowing (b-a)
5.0
3.8
2.9
1.9
1.0
-0.5
-0.5
83.3
83.7
82.6
81.3
79.9
77.2
74.7
Central government net cash requirement
4.6
3.2
2.9
2.0
1.5
0.2
0.7
Public sector net cash requirement
4.2
3.3
3.0
2.0
1.4
-0.0
0.6
5.0
Public sector net debt1
Financing
Stability and Growth Pact
Treaty deficit2
Cyclically adjusted Treaty deficit
Treaty debt ratio3
3.9
2.9
2.0
1.1
-0.3
-0.4
4.2
3.6
2.7
2.0
1.1
-0.3
-0.4
87.4
88.9
88.3
87.1
85.6
83.0
80.3
Public sector net borrowing
91.9
72.2
55.5
38.8
21.4
-10.4
-11.0
Current budget deficit
57.0
39.0
19.1
3.5
-11.8
-42.6
-53.4
Cyclically adjusted net borrowing
78.1
67.0
53.3
39.0
21.8
-10.9
-11.3
£ billion
Cyclically adjusted current budget deficit
43.3
33.8
17.0
3.6
-11.4
-43.0
-53.7
Public sector net debt
1547
1591
1638
1677
1715
1725
1740
-0.7
-0.3
-0.1
0.1
0.0
-0.0
-0.0
Memo: Output gap (per cent of GDP)
1
Debt at end March; GDP centred on end March.
2
General government net borrowing on a Maastricht basis.
3
General government gross debt on a Maastricht basis.
Budget 2016
137
Table B.3: Changes in public sector net debt since November
Per cent of GDP
Outturn
Forecast
2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21
November forecast
83.1
82.5
81.7
79.9
77.3
74.3
71.3
March forecast
83.3
83.7
82.6
81.3
79.9
77.2
74.7
0.2
1.3
0.9
1.4
2.6
2.9
3.4
Change in nominal GDP1
0.2
1.7
1.6
1.8
2.0
2.2
2.3
Change in cash level of net debt
0.1
-0.5
-0.7
-0.4
0.6
0.7
1.1
Change
of which:
£ billion
November forecast
1546
1599
1652
1685
1702
1708
1715
March forecast
1547
1591
1638
1677
1715
1725
1740
1
-9
-14
-8
14
16
25
Pre-measures borrowing
0
-1
5
13
25
38
55
Policy effects on borrowing
0
-0
-1
6
10
-4
-17
Foreign currency reserves
0
-10
-10
-10
-10
-11
-11
UKAR asset sales and rundown
0
-1
-9
-18
-14
-11
-10
Other financial asset sales
0
4
2
2
3
3
9
Gilt premia
0
-2
-4
-4
-6
-6
-7
APF balance sheet effects
0
-0
1
1
2
3
4
Other factors
1
1
3
3
4
3
2
Change in cash level of net debt
of which:
1
Non-seasonally-adjusted GDP centred end-March.
Table B.4: Public sector net borrowing since November
£ billion
Outturn
Forecast
2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21
November forecast
94.7
73.5
49.9
24.8
4.6
-10.1
-14.7
Total forecast changes
-2.8
-1.3
6.6
7.2
12.3
13.4
16.7
of which:
Receipts
-0.5
0.4
8.2
10.5
14.0
16.3
19.5
Debt interest spending
-0.0
-0.6
-3.9
-4.9
-4.8
-5.4
-5.2
Non-interest AME spending
-2.3
-1.5
1.8
1.1
2.7
2.0
2.0
Revisions to DEL spending
0.0
0.5
0.5
0.5
0.5
0.5
0.5
91.9
72.2
56.5
32.0
17.0
3.2
2.0
-0.1
-1.0
6.7
4.5
-13.7
-13.1
Scorecard receipts measures
0.0
-0.6
7.0
4.3
-6.3
-0.8
Scorecard AME spending measures
0.0
-0.1
-2.1
-2.6
-4.6
-4.5
Changes to RDEL spending
0.4
0.3
1.8
1.9
-1.8
-8.1
Changes to CDEL spending
-0.4
0.1
0.7
1.1
-1.2
-0.4
March forecast pre-policy decisions
Total effect of Government decisions
of which:
-0.1
-0.7
-0.6
-0.3
0.2
0.7
March forecast post-policy decisions
Indirect effect of Government decisions
91.9
72.2
55.5
38.8
21.4
-10.4
-11.0
Overall change since November
-2.8
-1.3
5.5
14.0
16.8
-0.3
3.7
Note: This table uses the convention that a negative figure means a reduction in PSNB, i.e. an increase in receipts or a reduction in spending will have
a negative effect on PSNB.
138
Budget 2016
Table B.5: Current receipts
£ billion
Outturn
Forecast
2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21
Income tax (gross of tax credits)
1
of which: Pay as you earn
Self assessment
163.7
169.8
182.1
186.6
198.2
208.1
218.8
140.0
146.5
153.4
161.1
169.7
177.8
186.4
23.6
24.1
30.2
28.0
30.9
33.1
34.9
National insurance contributions
110.3
114.9
126.5
133.4
138.9
144.5
151.1
Value added tax
111.2
115.8
120.1
124.8
130.3
135.9
142.0
Corporation tax2
43.0
44.1
43.5
46.0
46.1
52.8
50.2
of which: Onshore
40.9
43.6
43.4
45.9
46.1
53.0
50.4
Offshore
2.1
0.5
0.1
0.1
0.0
-0.1
-0.1
Petroleum revenue tax
0.1
-0.5
-1.1
-1.1
-0.9
-0.9
-0.8
Fuel duties
27.2
27.5
27.6
27.8
28.2
28.7
29.3
Business rates
27.5
27.8
28.4
27.7
28.7
29.8
30.5
Council tax
28.2
28.8
30.1
31.4
32.8
34.1
35.6
VAT refunds
13.7
14.3
14.7
15.0
15.0
15.1
15.5
Capital gains tax
5.6
7.0
7.0
6.9
7.5
9.2
8.9
Inheritance tax
3.8
4.6
4.8
4.9
5.0
5.3
5.6
Stamp duty land tax
10.9
10.7
12.9
14.2
15.2
16.3
17.4
Stamp taxes on shares
2.9
3.2
3.0
3.2
3.3
3.4
3.5
Tobacco duties
9.3
9.2
9.2
9.3
9.4
9.5
9.7
Spirits duties
3.0
3.3
3.3
3.4
3.6
3.8
3.9
Wine duties
3.8
4.0
4.2
4.4
4.7
5.0
5.3
Beer and cider duties
3.7
3.6
3.5
3.7
3.7
3.8
3.8
Air passenger duty
3.2
3.1
3.2
3.3
3.5
3.7
3.9
Insurance premium tax
3.0
3.6
4.6
4.8
4.9
4.9
5.0
3
Climate change levy
1.6
1.8
2.1
2.2
2.1
2.4
2.2
Other HMRC taxes4
6.6
7.1
7.0
7.1
7.4
7.6
7.8
Vehicle excise duties
5.9
5.6
5.5
5.7
5.8
6.0
6.2
Bank levy
2.8
3.5
2.9
2.7
2.5
2.3
2.2
Bank surcharge
0.0
0.0
0.8
1.1
1.1
1.5
1.5
Apprenticeship levy
0.0
0.0
0.0
2.7
2.8
2.9
3.0
Licence fee receipts
3.1
3.1
3.1
3.2
3.2
3.3
3.4
Environmental levies
3.6
6.2
7.4
8.6
10.4
11.9
12.3
EU ETS auction receipts
0.6
0.5
0.5
0.4
0.4
0.4
0.4
Scottish taxes
0.0
0.5
0.6
0.7
0.8
0.8
0.9
Diverted profits tax
0.0
0.0
0.1
0.1
0.1
0.1
0.1
Soft drinks industry levy
0.0
0.0
0.0
0.0
0.5
0.5
0.5
Other taxes
6.5
7.3
7.8
8.0
8.1
8.4
8.8
604.5
630.5
665.1
692.1
723.3
761.4
788.3
-3.0
-3.2
-3.3
-3.2
-3.2
-3.4
-3.6
5
National Accounts taxes
Less own resources contribution to EU
Interest and dividends
Gross operating surplus
Other receipts
Current receipts
Memo: UK oil and gas revenues6
6.0
6.3
5.6
6.3
7.3
9.3
11.1
44.1
45.4
47.0
48.6
50.0
51.5
54.1
3.3
2.7
2.0
2.0
2.1
2.1
2.2
654.8
681.8
716.5
745.8
779.5
820.9
852.2
2.2
-0.0
-1.1
-1.0
-0.9
-1.0
-0.9
1
Includes PAYE, self assessment, tax on savings income and other minor components.
2
National Accounts measure, gross of reduced liability tax credits.
3
Forecast for SDLT is for England, Wales and Northern Ireland from 2015-16.
4
5
6
Consists of landfill tax (excluding Scotland from 2015-16), aggregates levy, betting and gaming duties and customs duties.
Consists of Scottish LBTT and landfill tax but not the Scottish rate of income tax or aggregates levy.
Consists of offshore corporation tax and petroleum revenue tax.
Budget 2016
139
Table B.6: Total managed expenditure
£ billion
Outturn
Forecast
2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21
Public sector current expenditure (PSCE)
PSCE in RDEL
317.6
316.1
321.7
325.3
327.7
327.1
333.7
PSCE in AME
355.7
365.1
372.5
380.8
394.9
404.3
416.2
213.9
216.6
218.3
219.2
221.2
224.2
229.5
119.3
120.4
119.8
118.0
116.4
116.2
118.1
94.7
96.2
98.4
101.2
104.8
108.1
111.4
2.1
2.4
2.6
2.7
2.7
2.8
2.8
of which:
Welfare spending
of which:
Inside welfare cap
Outside welfare cap
Company and other tax credits
Net public service pension payments
12.3
11.5
11.2
12.1
13.7
13.2
14.7
National lottery current grants
1.4
1.4
1.4
1.4
1.5
1.5
1.5
BBC current expenditure
3.8
3.8
3.8
3.8
3.7
3.6
3.7
Network Rail other current expenditure1
1.0
0.8
0.8
0.3
-0.2
-0.1
-0.1
Other PSCE items in departmental AME
1.0
1.2
0.9
0.9
0.8
0.8
0.8
Expenditure transfers to EU institutions
10.4
10.5
11.8
9.4
11.2
11.6
11.9
Locally financed current expenditure
36.0
40.5
40.8
43.3
45.1
47.0
48.8
Central government gross debt interest
45.2
45.7
47.8
51.0
54.1
54.4
53.5
Reductions in debt interest due to APF
-12.4
-11.6
-12.4
-12.4
-11.7
-11.0
-10.1
Public corporations’ debt interest
2.9
3.1
3.3
3.5
3.8
4.0
4.2
General government depreciation
28.5
29.4
31.1
32.8
34.5
36.1
37.8
Current VAT refunds
11.5
12.1
12.4
12.5
12.6
12.6
12.8
R&D expenditure
-7.2
-7.8
-7.9
-7.9
-8.0
-8.1
-8.4
Single use military expenditure
0.3
0.4
0.2
0.2
0.2
0.3
0.3
Environmental levies
3.2
5.9
7.3
8.7
10.7
12.4
13.4
Local authority imputed pensions
1.8
1.8
1.9
2.0
2.1
2.2
2.3
Other National Accounts adjustments
0.0
-2.7
-2.8
-2.9
-3.0
-3.2
-3.3
673.3
681.2
694.2
706.0
722.6
731.4
749.8
PSGI in CDEL
37.3
35.6
39.2
40.9
42.9
43.0
52.6
PSGI in AME
36.1
37.1
38.5
37.6
35.5
36.1
38.7
Tax litigation
0.0
0.0
0.9
1.2
1.5
1.8
1.9
Network Rail capital expenditure
6.2
6.3
6.9
6.1
5.1
5.0
5.3
Other PSGI items in departmental AME
0.8
0.2
1.1
1.5
1.7
2.0
2.4
Locally financed capital expenditure
6.9
7.3
6.9
7.3
5.8
6.4
6.6
15.9
15.8
14.8
13.6
12.9
12.0
13.2
7.2
7.8
7.9
7.9
8.0
8.1
8.4
Total public sector current
expenditure
Public sector gross investment (PSGI)
of which:
Public corporations’ capital expenditure
R&D expenditure
Other National Accounts adjustments
-0.8
-0.2
0.0
0.1
0.5
0.8
1.0
Total public sector gross investment
73.4
72.7
77.8
78.6
78.4
79.1
91.3
Less public sector depreciation
-38.6
-39.5
-41.4
-43.2
-45.1
-46.9
-48.9
Public sector net investment
34.8
33.2
36.4
35.3
33.2
32.1
42.4
Total managed expenditure
746.7
753.9
771.9
784.6
801.0
810.4
841.1
1
140
Other than debt interest and depreciation, which are included in totals shown separately in this table.
Budget 2016
List of abbreviations
AME
APF
APD
ASA
ATED
Annually Managed Expenditure
Asset Purchase Facility
Air Passenger Duty
Advertising Standards Authority
Annual Tax on Enveloped Dwellings
B&B
BBB
BEPS
Bradford and Bingley
British Business Bank
Base Erosion and Profit Shifting
CAIS
CBO
CCA
CCL
CCT
CDEL
CEMA
CGNCR
CGT
CMA
CMC
CoACSs
CPI
CPO
CPS
CRA
CRC
CT
Credit Account Information Sharing
Congressional Budget Office
Climate Change Agreement
Climate Change Levy
Company Car Tax
Capital Departmental Expenditure Limit
Customs and Excise Management Act
Central Government Net Cash Requirement
Capital Gains Tax
Competitions and Markets Authority
Claims management Companies
Co-ownership Authorised Contractual Schemes
Consumer Price Index
Compulsory Purchase Order
Carbon Price Support
Credit Reference Agencies
Carbon Reduction Commitment
Corporation Tax
DAS
DCLG
DCMS
DECC
DEL
DITMOs
DLA
DMO
DWP
Dividend Access Share
Department for Communities and Local Government
Department for Culture, Media and Sport
Department of Energy and Climate Change
Departmental Expenditure Limits
Deep In The Money Options
Disability Living Allowance
Debt Management Office
Department for Work and Pensions
ECA
EFO
ER
ESA
ESS
ETS
EU
Enhanced Capital Allowances
Economic and Fiscal Outlook
Entrepreneurs’ Relief
Employment and Support Allowance
Employee Shareholder Scheme
Emissions Trading System
European Union
Budget 2016
141
FAMR
FBC
FCA
FLS
FSCS
FYA
Financial Advice Market Review
Fuel Benefit Charge
Financial Conduct Authority
Funding for Lending Scheme
Financial Services Compensation Scheme
First Year Allowance
GAAR
GDP
GNI
GVA
General Anti Abuse Rule
Gross Domestic Product
Gross National Income
Gross Value Added
HE
HGV
HMRC
HMT
HS2
HS3
Higher Education
Heavy Goods Vehicle
Her Majesty’s Revenue and Customs
Her Majesty’s Treasury
High Speed 2
High Speed 3
IHT
ILO
ILS
IMF
ISA
IPT
Inheritance Tax
International Labour Organisation
Insurance Linked Securities
International Monetary Fund
Individual Savings Account
Insurance Premium Tax
LBG
LEP
LPC
Lloyds Banking Group
Local Enterprise Partnership
Low Pay Commission
MoD
MPC
Ministry of Defence
Monetary Policy Committee
NI
NIC
NICs
NLW
NMW
NFR
NR
NRAM
NS&I
Northern Ireland
National Infrastructure Commission
National Insurance Contributions
National Living Wage
National Minimum Wage
Net Financing Requirement
Network Rail
Northern Rock Asset Management
National Savings and Investments
OBR
ODA
OECD
OGA
ONS
OTS
Office for Budget Responsibility
Official Development Assistance
Organisation for Economic Co-operation and Development
Oil and Gas Authority
Office for National Statistics
Office of Tax Simplification
P2PPeer-to-Peer
PAIFs
Property Authorised Investment Funds
PAYE
Pay As You Earn
PE
Physical Education
PIP
Personal Independence Payment
PRA
Prudential Regulation Authority
POTAS
Promoters of Tax Avoidance Schemes
PRT
Petroleum Revenue Tax
142
Budget 2016
PSCE
PSGI
PSNB
PSND
PRS
Public Sector Current Expenditure
Public Sector Gross Investment
Public Sector Net Borrowing
Public Sector Net Debt
Private Rented Sector
R&D
RBS
RDEL
RHDI
RPI
RTI
Research and Development
Royal Bank of Scotland
Resource Departmental Expenditure Limit
Real Household Disposable Income
Retail Prices Index
Real Time Information
SBRR
SC
SDLT
SMEs
SMR
SPL
STEM
Small Business Rate Relief
Supplementary Charge
Stamp Duty Land Tax
Small and Medium-sized Enterprises
Small Modular Reactor
Shared Parental Leave
Science, Technology, Engineering and Mathematics
T&S
TfN
TME
Travel and Subsistence
Transport for the North
Totally Managed Expenditure
UKAR
UKEF
UKFI
UK Asset Resolution
UK Export Finance
UK Financial Investments
VADR
VAT
VBC
VED
VAT Disclosure of Schemes Regime
Value Added Tax
Van Benefit Charge
Vehicle Excise Duty
Budget 2016
143
LIST OF TABLES
Table 1
Budget 2016 policy decisions
Table 1.1 Summary of the OBR’s central economic forecast
Table 1.2 Contributions to potential output growth between 2010 and 2020
Table 1.3Comparison of key fiscal aggregates between Budget 2016 and
Autumn Statement 2015
Table 1.4 Overview of the OBR’s central fiscal forecast
Table 1.5 The welfare cap
Table 1.6 Impact of business rate measures
Table 1.7 Action to raise productivity
Table 2.1 Budget 2016 scorecard
Table 2.2Measures announced at Spending Review and Autumn Statement
2015 or earlier that will take effect from April 2016 or later
Table 2.3 Total Managed Expenditure
Table 2.4 Departmental Resource Budgets (Resource DEL excluding depreciation)
Table 2.5 Departmental Capital Budgets (Capital DEL)
Table 2.6 Financial transactions
Table A.1 Financing arithmetic in 2015-16 and 2016-17
Table A.2 Illustrative Gross Financing Requirement
LIST OF FIGURES
144
Budget 2016
Figure 1
The Lifetime ISA
Figure 2
How the government is supporting businesses as they grow
Figure 3
New investment across the United Kingdom
Figure 4
Northern Powerhouse Timeline
LIST OF CHARTS
Chart 1
Public sector spending 2016-17
Chart 2
Public sector receipts 2016-17
Chart 1.1 International comparison of GDP growth
Chart 1.2 International comparison of employment
Chart 1.3 Real total pay growth
Chart 1.4 Rebalancing within the services sector
Chart 1.5 Public sector net borrowing with and without fiscal consolidation
Chart 1.6 Public sector net borrowing
Chart 1.7 Public sector net debt
Chart 1.8 Personal allowance increases since 2010
Chart 1.9 Fuel duty rates in 2015 prices
Chart 1.10 UK and German employment rates (15-64)
Chart 1.11 G20 Corporation Tax Rates in 2020
Chart 1.12 Contribution to service sector productivity growth (2010-2014)
Chart 1.13 Percentage of people using the internet across the G7
Budget 2016
145
HM Treasury contacts
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www.gov.uk
If you require this information in an alternative
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HM Treasury and its work, contact:
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