Thursday, July 9, 2015

News: Summer Budget 2015

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Rothbiz editor Tom Austen takes a look at the key announcements from the Summer Budget, the first announcement on spending plans by the new Conservative Government.

The chancellor, George Osborne certainly pulled a "rabbit out of the hat" with the announcement that his Government would introduce a mandatory National Living Wage of £7.20 an hour for the over 25s but I imagine that it is still being digested by some businesses regarding what it may do to their bottom line. To be introduced in April 2016, it pushes up the current minimum wage for the age group of £6.50 and will rise to over £9 an hour by 2020.

Stating that "Britain deserves a pay rise," the Chancellor was not so forthcoming for the public sector, whose wages will rise by 1% a year for the next four years, and probably hasn't risen in real terms for the previous four.

The Government estimates that the new National Living Wage is set to have a "fractional" effect on jobs and the cost to business will amount to just 1% of corporate profits. To offset that, corporation tax is cut to 19% in 2017 and 18% in 2020. For small firms, national insurance contributions have been cut further with the new Employment Allowance increased by 50% to £3,000 in 2016.

To support investment by SMEs, the Annual Investment Allowance (AIA) is to be increased to £200,000 for all qualifying investment in plant and machinery made on or after January 1 2016, its highest ever permanent level.

The tax-free Personal Allowance will be increased from £10,600 in 2015-16 to £11,000 in April 2016.

No announcements were made on the important issue of business rates with a wide-ranging review set to be completed by the end of 2015.

The chancellor stated that the forecast for economic growth in the UK is at 2.4% for 2015 and is faster than America, faster than Germany and twice as fast as France. With businesses creating two million more jobs, a "Plan for Productivity," detailing how the growth can be sustained is to be set out on Friday.

The first mention of the "Northern Powerhouse" phrase was greeted with various noises from both sides of Parliament given the recent post-election decision to pause the electrification of the Midland Mainline. Transport for the North (TfN), representing authorities across the north, has been given "statutory footing" and £30m of funding as it hopes to realise a vision of transforming connectivity with a high-speed TransNorth rail system, a revitalised highways network and a host of other transport improvements.

Plans for northern transport projects, including options for a new TransPennine Tunnel, are set to be produced by the Budget 2016.

A new Roads Fund is set to be created using the revenue from changes to vehicle excise duty. Taxes on new cars from 2017 would go to ensuring sustained investment in the strategic road network.

On the issue of skills, apprenticeships is given further attention with three million new apprenticeships expected to be created by 2020, funded by a levy on large employers. The control of funding is being placed in the hands of employers via a digital apprenticeships voucher, and the Government believes that firms that are committed to training will be able to get back more than they put in. Details including rates and implementation will be set out in the Spending Review.

The meat in the sandwich however was the Government's plans for £37 billion of further consolidation over the Parliament. "Further consolidation" meaning cuts for the next five years. The chancellor stated that "no year will see cuts as deep as those required in 2011-12 and 2012-13" but set out "annual savings of £12bn from welfare and £5bn from tackling tax evasion, avoidance, planning and imbalances in the tax system."

HM Treasury website

Images: HM Treasury / twitter

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