George Osborne has announced big downgrades to the UK growth outlook and substantially higher borrowing as he delivered a tight Budget against the backdrop of weakening public finances.
The latest forecasts from the office for budget responsibility showed that the world economic “outlook is materially weaker”, the UK chancellor told parliament.
Crucially, the OBR has revised down potential UK productivity growth, meaning growth will be slower in all years into the forecast.
Gross domestic product growth for this year has been revised down to 2 per cent for 2016 from 2.4 per cent; 2.2 per cent for 2017 down from 2.5 per cent; and then 2.1 per cent in subsequent years down from 2.3 per cent.
On the taxation front, Mr Osborne said he would clamp down on multi-national tax avoidance by tightening the rules on deductability of interest and carrying forward losses for large businesses.
But he said that the rate of corporation tax would be reduced further to 17 per cent by April 2020.
In a series of measures designed to appeal to small firms, Mr Osborne said he would more than double the business rate allowance for small business from £6,000 to £15,000.
The threshold for the higher rate will also be raised from £18,000 to £51,000, meaning from April next year 600,000 small firms will pay no business rates at all, Mr Osborne told MPs. The slab structure of commercial stamp duty will also be reformed, he said.
The pound fell as low as $1.4057 after the growth forecasts were cut, a drop of 0.6 per cent on the day.
Mr Osborne admitted he has broken his fiscal rule that debt as a share of GDP would fall this year, and said there would be a higher debt burden in every year of the forecast.
Debt promise
The debt-cutting promise became untenable after the treasury put on ice plans to sell the remaining state owned shares in Lloyds and official figures show the economy was £18 billion smaller in 2015 than expected a few months ago.
While there will be big increases in borrowing for the next three years, Mr Osborne still expects to achieve his target of a surplus by 2019-20.
The country now expects to borrow £55.5 billion in 2016-17 compared with £49.9 billion that was forecast in November.
Similarly, borrowings are expected to be £38.8 billion in 2017-18, up from the £24.8 billion forecast earlier. For 2018-19, borrowings of £21.4 billion are expected, up from the £4.6 billion originally forecast.
By 2019-20 though, Mr Osborne said the country’s finances would be in surplus by £10.4 billion – slightly more than expected in the autumn statement.
Mr Osborne said this was a budget that “puts stability first” and would make Britain “fit for the future.”
With tax revenues hit by lower wage growth and the economy smaller than hoped, Mr Osborne announced further spending cuts of £3.5bn by 2019-20 and a further efficiency drive.
“This is a Budget for the next generation,” he said.
Mr Osborne announced a new “sugar levy” on the soft-drink industry to help tackle childhood obesity, which is estimated to raise £520 million. This money will be put towards increasing sport in schools.
The standard rate of insurance premium tax will be increased to 10 per cent from 9.5 per cent, with the money earmarked for flood relief spending.
Main points
Growth forecast for 2016 cut from 2.4 per cent to 2 per cent.
Rate of corporation tax to be reduced further to 17 per cent by April 2020
New threshold for small business rate relief raised from £6,000 to £15,000
New “sugar levy” on the soft-drink industry
Commercial stamp duty of 0 per cent on property purchases up to £150,000
Deficit forecast revised up from £49.9 billion to £55.5 billion for 2016-17
