There is plenty to cheer in this Budget.
The Chancellor seems to have achieved his targeted cuts in the welfare budget including cuts to housing benefit and tax credits. We support measures to keep the welfare budget under control, including the introduction of a National Living Wage which will see increases in the minimum wage along with sensible age banding and further cuts in national insurance through an increase in the Employment Allowance to £3,000. Measures to reduce the tax credits bill are also important but there is a danger that this leads to even higher marginal tax rates for those on low wages. It is also to be hoped that the planning proposals due to be published on Friday will lead to increased house building and a long-term reduction in the housing benefit bill.
Despite a few small changes, the OBR forecasts that economic growth will remain strong over the coming year and public sector net debt will fall slightly faster than expected. It was also welcome to see the Chancellor recognising the importance of stronger productivity in increasing living standards. The profile of public spending has been smoothed out and the budget is expected to reach an absolute surplus by the end of the Parliament.
It is also good to see the Government continue with its programme of privatisation which will see the largest asset sales ever. The new Surplus Rule to ensure that Government’s will have to run surpluses unless real GDP growth is less than 1% seems a reasonable attempt to ensure that the national debt remains on a downward trajectory.
On tax, the gradual reduction in the bank levy and ensuring it does not apply to international balance sheets is a positive step. The increase in the Personal Allowance to £11,000 is another £1 billion tax cut and the small increase in the higher rate threshold to £43,000 is also welcome. Fixing the Annual Investment Allowance at £200,000 will also reduce business uncertainty and cutting the corporation tax rate to 18% will boost investment, employment and wages. The big increase in the Rent-a-Room Allowance to £7,500 will be a great boost for the Sharing Economy.
The Chancellor outlined a radical idea of treating pensions like ISAs. This is an idea championed by Michael Johnson at the Centre for Policy Studies in our recent paper, The Workplace ISA and the ISA Pension.
On productivity, reform of vehicle excise duty and road improvements are well overdue. The increase in the apprenticeships is welcome, however, the Government must be careful that the funding mechanism is not overly burdensome. Further reform to improve the quality of apprenticeships will also be necessary. Devolving Sunday trading laws will also be a sensible deregulatory measure.
We also welcome the Chancellor’s commitment to achieving the 2% of GDP defence spending target. Finally, the Chancellor has recognised the key challenge of improving productivity and remains committed to deficit reduction. Many of the measures in this Budget will contribute to resolving those problems.
We welcome this Budget – but how much more impressive it would have been if so many of the key announcements had not been released already!
Date Added: Wednesday 8th July 2015