With the Conservatives having been in Government for the last five years the circumstances are different this time, but nonetheless within two weeks of his party winning the General Election on 7 May, Chancellor George Osborne announced that he would hold a 'Stability Budget' on 8 July because, in his words, 'I don't want to wait to turn the promises we made in the Election into a reality'.
Although many commentators expected the Conservatives to be the largest party following the May 2015 General Election, few predicted that they would win enough seats to be able to form an overall majority government and have the power to implement their manifesto in full. The Second Budget has provided the Chancellor with an opportunity to introduce measures on tax, spending and borrowing that he might not have been able to enact while in Government with his Coalition partners at the time of the Spring Budget on 18 March.
CHANCELLOR UNVEILS 'NEW SETTLEMENT FROM A ONE- NATION GOVERNMENT'
Delivering the first Conservative-only Budget in nearly 20 years, Chancellor George Osborne announced a series of bold measures affecting business, tax and welfare in his 2015 Second Budget.
Heralding the Second Budget as a ‘big Budget for a country with big ambitions’, the Chancellor unveiled his announcements with the stated aim of moving from a ‘low wage, high tax, high welfare economy to the higher wage, lower tax, lower welfare country we intend to create'.
Acknowledging the ongoing risks posed by the global economy, the Chancellor reported that the Office for Budget Responsibility had revised down its economic growth forecast to 2.4% for 2015 and announced that a budget surplus will now be reached a year later than planned, in 2019/20.
In a series of moves designed to incentivise UK businesses, the Chancellor announced future reductions in corporation tax to 18%. The Annual Investment Allowance will be set at £200,000 from 1 January 2016, while the Employment Allowance will be increased by 50% to £3,000 from April 2016. Meanwhile, a new apprenticeships levy will be applied to all large firms.
Key announcements on personal taxation include an increase in the basic income tax personal allowance threshold to £11,000 next year, and a rise in the basic rate limit to £32,000. The pensions tax relief annual allowance for the highest earners will be reduced from next year, and a new Green Paper will propose radical changes to the pension saving system.
A new, compulsory National Living Wage will apply for those aged 25 and above from next April, while working parents will receive up to 30 hours a week of free childcare for 3-4 year olds from September 2017.
Changes to the inheritance tax rules will include a new main residence allowance starting at £100,000 and rising to £175,000 by 2021. This could allow families to pass on up to a total of £1m to their children without paying inheritance tax.
Further measures to clamp down on tax evasion and aggressive tax avoidance are expected to raise an additional £5bn and the Government will abolish permanent non-dom status from April 2017.
Other measures announced include a freeze in fuel duty for the remainder of the year, a planned relaxation of Sunday trading laws for England and Wales, and a new Roads Fund which will be supported by Vehicle Excise Duty.
- New inheritance tax allowance for main residence
- Future cut in corporation tax to 18%
- Annual Investment Allowance set at £200,000 from January 2016
- Employment Allowance increased to £3,000 from April 2016
- Personal allowance to rise to £11,000 from April 2016
- New National Living Wage from April 2016
- Permanent non-dom status to be abolished from April 2017
- Pensions tax relief annual allowance to be reduced from next year
- New fiscal charter to commit Government to a budget surplus
WELFARE REFORM – SOME KEY MEASURES
- A freezing of working-age benefits, including tax credits and Local Housing Allowance, for a period of four years from 2016/17 (excluding Maternity Allowance, maternity pay, paternity pay and sick pay)
- A reduction in the household benefit cap to £20,000 (£23,000 in London)
- Support through Child Tax Credit to be limited to two children, for those born from April 2017
- A new requirement for those aged 18 to 21 who are on Universal Credit to apply for an apprenticeship or traineeship, gain work-based skills, or go on a work placement six months after the start of their claim
- A reduction in rents for social housing by 1% a year for four years, and a requirement for tenants on higher incomes (over £40,000 in London and over £30,000 outside London) to pay market rate, or near market rate, rents.