Wednesday (March 16th) marked chancellor George Osborne’s eighth budget in government. As usual, the chancellor posed outside No.11 Downing Street with the famous red budget box, but there were certainly a few surprises in store for the British public.
Let’s look at a few of the pledges Mr Osborne has made and how they could affect UK businesses. We’ll also examine some of the reactions from key industry groups.
The sugar tax
Arguably the biggest bombshell from the budget was the sugar tax, with the government set to introduce a two-tier system in 2018 for soft drinks manufacturers depending on the level of sugar in their beverages. Mr Osborne didn’t confirm how much companies would be charged, but the levy is expected to raise £520 million a year.
The tax means the UK will follow in the footsteps of Mexico, a country where a similar law led to a reduction in fizzy drink sales by as much as 12 per cent. Advocates of a sugar tax, such as celebrity chef Jamie Oliver, celebrated the news, although others argued the move would disproportionately affect the nation’s low-income households.
Corporation tax drops
While fizzy drink firms are likely to be disappointed with the budget, many other businesses will celebrate the fact that corporation tax got slashed from 20 to 18 per cent. The new rate will not come into effect until 2020, although an interim cut of 1 percentage point is scheduled next year.
The levy has slumped considerably from 28 per cent in 2010 when the coalition government came to office, and the UK already has the joint lowest rate in the G20. According to Mr Osborne, reducing taxes on businesses has boosted investment and created more jobs.
Small business benefits
Small and medium-sized enterprises (SMEs) have been hailed as the real winners of the 2016 budget. From April next year, more than 600,000 SMEs won’t have to pay business rates at all, while a further 250,000 will face reduced bills.
Mr Osborne said small business rate relief would climb from £6,000 to £15,000, with the higher rate set to jump from £18,000 to £51,000. National Insurance Class 2 payments will also be abolished for self-employed workers.
Reactions from business groups
Both the Federation of Small Businesses (FSB) and the British Chambers of Commerce (BCC) welcomed the budget as a positive step forward for commercial interests.
BCC acting director general Dr Adam Marshall said: “Business wanted a steady, workmanlike budget, and that’s what we got. The chancellor listened to our calls to avoid higher business taxes and costs – and indeed moved to lower them in a number of areas.”
Mike Cherry, policy director at the FSB, echoed these sentiments, adding that Mr Osborne’s budget was a step in the right direction for more fundamental reforms to UK business rates.
Nevertheless, the country still faces a tough economic road ahead, with the chancellor forced to admit growth forecasts have been cut for the next five years. He also announced a further £3.5 billion in public spending cuts.
