BUDGET 2016 BUDGET 2016 HM Treasury contacts This document can be downloaded from www.gov.uk If you require this information in an alternative format or have general enquiries about HM Treasury and its work, contact: Correspondence Team HM Treasury 1 Horse Guards Road London SW1A 2HQ Tel: 020 7270 5000 Email: [email protected] HC 901 March 2016 54616 HMT Red Book 2016 00a-cover spread.indd 1 16/03/2016 03:02 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 54616 HMT Red Book 2016 00b-cov-prelims A4.indd 3 15/03/2016 22:14 © Crown copyright 2016 This publication is licensed under the terms of the Open Government Licence v3.0 except where otherwise stated. To view this licence, visit nationalarchives.gov.uk/doc/open-government-licence/version/3 or write to the Information Policy Team, The National Archives, Kew, London TW9 4DU, or email: [email protected]. Where we have identified any third party copyright information you will need to obtain permission from the copyright holders concerned. This publication is available at www.gov.uk/government/publications Any enquiries regarding this publication should be sent to us at [email protected] Print ISBN 9781474129572 Web ISBN 9781474129589 ID 29021615 54616 03/16 PU1910 Printed on paper containing 75% recycled fibre content minimum Printed in the UK by the Williams Lea Group on behalf of the Controller of Her Majesty’s Stationery Office 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. 54616 HMT Red Book 2016 00b-cov-prelims A4.indd 4 15/03/2016 22:14 Contents Page Executive Summary 1 Budget Report Chapter 1 Budget Report 9 The UK economy and public finances 9 Support for working people 29 Backing business and enterprise 44 Opportunity across the UK 60 Chapter 2 Budget policy decisions 83 Annex A Financing 131 Office for Budget Responsibility: Budget forecast Annex B Office 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 54616_02_Red_Book_Contents.indd 1 15/03/2016 22:15 Budget 2016 54616_02_Red_Book_Contents.indd 2 15/03/2016 22:15 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 long- term 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 commodity- exporting 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 54616_03_Red_Book_ExecSumm.indd 1 15/03/2016 22:16 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 54616_03_Red_Book_ExecSumm.indd 2 15/03/2016 22:16 • 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.