2015 Budget Summary: The Election Budget

Introduction and Political Background

As the Chancellor stood up to speak on Wednesday March 18th there were less than 50 days to go until the General Election on May 7th. The opinion polls – and the bookmakers – still had the Conservatives marginally ahead, with David Cameron expected to remain in 10 Downing Street after the Election. But no one expected the Conservative party to have a clear majority and, as many commentators remarked, the ‘campaign’ so far had done nothing to capture the public imagination.

So there was all to play for as George Osborne delivered his speech – the Budget was clearly a chance to break the ‘logjam’ in the opinion polls. While the pundits were divided about the result of the Election, they were as one in their expectations of the Chancellor’s speech. Irrespective of the Election, this would be a ‘no gimmicks, no giveaways’ Budget, with George Osborne determined to cement his reputation as the man who had guided Britain’s recovery and, in his words, “cleared up the mess” he had inherited.

All of the well-trailed measures were certainly there. There was help for savers, even more flexibility for those with pensions and the expected help for the North Sea oil and gas industry. But there was more – there was another shake up of the ISA rules and there was also the introduction of a new ‘Help to Buy’ ISA which will see the Government top up the savings of first time buyers who are saving for their first deposit.

So much for those who thought the Conservative strategists had decided older voters were the key to another five years of Government. Here was the Chancellor very firmly making a pitch for the younger voter – and using his speech to make plenty of jokes at Ed Miliband’s expense. No one could doubt that a General Election was just around the corner.

The Numbers

There was good news for the Chancellor on the morning of the Budget as the Office for National Statistics released figures showing that UK unemployment had fallen by 102,000 to 1.86 million in the three months to January. The unemployment rate remains at 5.7% but the number in work is at an all-time high, while the number of people claiming Jobseeker’s Allowance is at its lowest level since 1975.

In his Autumn Statement, the Chancellor had been keen to accentuate the positive, pointing out that the UK was (at the time) growing faster than any other major economy. Growth would be consistently above 2% and, by the tax year 2019/20, the UK would be back in the black, with a forecast surplus of £23bn.

Little more than three months later and as the Chancellor stood up to deliver his Budget the Office for Budget Responsibility had revised these figures even further upwards. All were now higher than in the Autumn Statement, with growth of 2.5% forecast in 2015, followed by 2.3% for 2016-18 and then 2.4% in 2019.

There had been further good news for the Chancellor between the Autumn Statement and the Budget. Inflation has fallen – lower fuel and food prices saw it fall to a record low of 0.3% in January – and this means that the rise in many inflation-linked benefits will be lower than anticipated. Interest payable on the National Debt (which is estimated to be £1.6tn by the end of next year) will also fall.

The Chancellor opened his speech with a barrage of statistics: he rattled off the growth figures and then confirmed that inflation for this year was expected to be 0.2% (compared to a prediction of 1.2% in December).

Turning to Government debt and borrowing, the Chancellor said that he would be taking advantage of the current low interest rates to pay off much of the UK’s historic debt – but the lower borrowing costs would not signal a giveaway, rather a determination to pay down debt.

Debt as a percentage of GDP would fall in 2015/16 for the first time since 2001. It will be 80.2% of GDP in 2015/16, falling to 71.6% by the tax year 2019/20.

NewspapersThe falling interest rates also allowed public borrowing forecasts to be revised down, from £91.3bn to £90.2bn in the current year, with the UK now having a surplus of £5.2bn in 2018-19; a year earlier than the Chancellor had anticipated in the Autumn Statement.

The Chancellor promised spending cuts of £30bn by 2017-18, with £13bn due to come from Government departments, £12bn from welfare savings and £5bn by clamping down on tax evasion and avoidance.

And then, having dealt with the numbers, he turned to his more specific measures…

Pensions and Savings

Personal Taxation

Business and Business Taxation

Tax Returns

Fuel and Consumer Taxes

Housebuilding and Infrastructure

Other Measures and Announcements

Other measures announced by the Chancellor that may be of interest to you were:

• Previously announced 65+ bond extension. The extension of the availability of 65+ bonds through National Savings and Investments (NS&I) until 15 May 2015 is estimated to generate £3.2bn of additional sales.
• Premium Bond investment limit. The planned increase to the NS&I Premium Bond investment limit, to £50,000, provided further support for savers. The increase will come into force on 1 June 2015.
• A package of measures to improve the accessibility of R&D tax credits for smaller businesses will be introduced over the next 2 years.
• The National Insurance upper earnings and upper profits limits will increase to stay in line with the higher rate threshold.
• The closing of more tax loopholes will raise an extra £3.1bn of revenue.
• The Chancellor set aside £25m to support army veterans, including nuclear test veterans.
• A further £75m of LIBOR fines are to go to charities for regiments which fought in Afghanistan.
• On survivors’ pensions, the Government announced that it will ensure that all widows, widowers and civil partners of police officers and firefighters who are killed on duty, will no longer lose their survivor benefits if they remarry, cohabit, or form a civil partnership.
• Farmers are to be allowed to average their incomes over 5 years, helping to limit the financial impact of seasonal harvesting.
• As announced during last year’s Autumn Statement, the Government will increase the blind person’s allowance, married couple’s allowance and the income limit by amounts equivalent to the Retail Prices Index (RPI).
• In 2019-20, the company car tax rates for Ultra Low Emission Vehicles will be increased at a slower rate than had previously been announced.
• There will be consultations on tax relief for local newspapers.
• To ensure compliance with new EU rules, the Government will make amendments to the Seed Enterprise Investment Scheme (SEIS), Enterprise Investment Scheme (EIS), and Venture Capital Trusts (VCTs).
• The Mayor of London is to have new powers over skills and planning and Greater Manchester councils are to be allowed to keep 100% of the growth in business rates, with the Chancellor ‘open’ to extending this concession to other areas.
• The Government has doubled the maximum amount that parents of disabled children will be able to receive to help to pay for their childcare costs, from £2,000 to £4,000 per disabled child per year.
• There will be a new rail franchise for the South West of England.
• The Category 2 tolls (for small goods vehicles and small buses) for the Severn river crossings are to be abolished from 2018 in a bid to reduce business costs.
• Consultations will begin on a new £1bn ‘tidal lagoon’ in Swansea Bay to generate green energy.
• And finally, the Chancellor sought divine approval for his Budget. The £15m fund for the repair of church roofs is to be trebled…

Conclusions

Whatever he had said before the Budget, no-one could deny that George Osborne delivered a Budget with at least half an eye on 7th May. He constantly punctuated his speech with jibes at the Labour front bench and positive reminders that, “Britain is walking tall again.” Given the choice between a return to a previous administration or his Brave New World, the Chancellor emphatically declared that, “We choose the future.”His Budget, he declared, was one for a “truly national recovery”, with the same message repeated several times: “We set out a plan and that plan is working. Do we return to the chaos of the past or keep to a plan that is working for you?”The polls – and the financial markets – will give their verdict in due course. But for today, George Osborne managed to both stick to his principles and also pull a few rabbits from the hat. Britain, he announced, is “the comeback country.” We do not have to wait very long to find out if the Budget has delivered a comeback Government.