Budget 2016: what it means for you

What George Osborne’s major announcements mean for your finances

Updated: 
Britain Budget

This was always going to be a tricky Budget for George Osborne, because the 'so-called' lucky Chancellor has seen his luck run out. New growth and revenue calculations have opened up another hole in his finances, so in order to meet his own self-imposed rules, he had to make huge cuts and compromises to fill it. Meanwhile, however, he needed enough in it to keep the voters sweet.

As a result, it's a Budget with some bad news - and some interesting surprises.

The economy
Osborne opened with his economic outlook - which wasn't cheery. He admitted the growth forecast had fallen to 2% this year, then 2.2% in 2017, and 2.1% a year for the following three years. As expected, he blamed slowing global growth.

He said borrowing will fall to £72.2 billion this year, and while he admits he missed his borrowing target, he insists that in 2019/20 there will be a surplus - which will rise the following year. There has already been plenty of talk about how he came up with these figures.

He also did his best to position £4 billion more of spending cuts - which he says he needs in order to get things back on track - as a positive. He claims it means that Britain is among the countries that are best prepared for the challenges ahead.

For a more positive picture, he spent some time on the recent employment figures - which show employment is at a record high, and the OBR is forecasting a million more jobs over the course of the parliament.

Cuts
Before the Budget, Osborne admitted he was going to cut further, and he added in his speech that he would reject 'dangerous' calls for more spending.

He committed to cutting £3.5 billion a year by 2019/20. This includes the controversial disability benefit cuts that will see recipients of the Personal Independence Payments lose up to £150 a week.

He also announced a freezing of international aid, and that employer contributions to public sector pensions will have to increase - which each affected department is going to have to fund from money they've somehow got stashed away.

Taxes
The tax-free personal allowance will be raised further. From April next year it will rise to £11,500 - a tax cut for 31 million people, lifting 1.3 million of the lowest paid out of tax altogether. On higher rate tax, from April 2017, the threshold will rise to £45,000 - and lift over half a million people out of the band.

For the self-employed he has scrapped Class 2 NIC, and for investors Capital Gains Tax will be cut from 28% to 20% for higher rate taxpayers and from 18% to 10% for basic rate taxpayers - which will come into effect in three weeks.

Savings
There will be a new ISA limit of £20,000 a year for everyone from April next year.

To help people invest and save, Osborne mentioned the Help to Save plan announced by David Cameron this week. This is a new savings scheme available to those on Universal Credit or working tax credits. The idea is that if people on low incomes can somehow manage to put money aside, the government will add 50% to every penny they save - up to £300 a year.

Pensions
After much debate and discussion before the Budget, Osborne announced he wouldn't be tinkering with pensions. Instead he is setting up an entirely new regime alongside the pensions regime - for people under the age of 40.

This is a lifetime ISA. They can put money in, get a 25% bonus from the government, and save up to £4,000 a year. They can spend it on a house or a pension. And they won't pay tax when they take the money out.

There will be consultation on whether people will be able to take the cash out and then put it back in while retaining the benefits of the savings vehicle - or borrow against the value of their savings - but at the moment, anyone spending their cash on anything other than a house or retirement will have to repay the government bonus, and a 5% early access penalty.

Osborne's plan is to make long-term savings more attractive for young people - by making it easier for them to see an immediate benefit. The question is whether this will work - and whether it will come at a cost to the existing private pensions regime.

Families
There were a couple of major announcements. The first was one highlighted before the Budget - the plan to stop making the shift to Academy status voluntary for schools, and make it compulsory by 2020. This will particularly affect primary schools - which haven't shown much enthusiasm for becoming Academies so far.

He also said there will be fair funding for all, there will be a focus on schools in the North, and there will be a consultation on whether everyone should be taught maths to the age of 18.

One of his big headline-grabbing announcements was a sugar tax on soft drinks. It will be levied on companies and introduced in two year's time (2018). There will be two bands, depending on the sugar level, and pure fruit drinks and the smallest producers will be excluded.

Osborne said the delayed introduction was to give manufacturers a chance to reduce sugar levels. However, he admitted that some would just pay the tax, and pass the cost onto families.

To sugar this pill, he added that the tax will raise £520 million. That money will be used to double the funding of sport in primary schools, and for secondary schools the government will offer money to lengthen the school day to include sports activities (as part of education funding changes).

Motorists
As the AA had warned, insurance premium tax has gone up another 0.5%, which will make motor insurance, home insurance and breakdown cover more expensive. Osborne said he would spend the cash on flood defences, but it's scant cancellation when you're trying to find the cash to insure your car.

On the plus side, despite giving lots of hints that fuel duty may rise, Osborne froze it again - presumably in an effort to puncture the anger of motorists infuriated by the rise in insurance tax.

Sin taxes
Tobacco duty will continue to rise at 2% above inflation, but Osborne said the government would also look into reforms for the tobacco regime, to introduce an effective floor in the price of cigarettes. Beer and cider duty, whisky and spirits duty will be frozen - all other alcohol duty will rise as planned.

Housing
Osborne pledged to spend the extra stamp duty from second home owners to support community housing trusts, and announced £150 million to support homeless people and reduce rough sleeping.

Infrastructure
Osborne announced the Northern transport infrastructure investment of £150 million before the Budget - including HS3 between Manchester and Leeds. He has also committed to CrossRail 2 linking North and South London.

He announced investment in cultural infrastructure - including extending the support for Cathedrals, a new Shakespeare North Theatre, and a tax break for touring theatre productions.

And he announced more spending on flood defences - including for Cumbria.

The regions
There was lots of talk of the devolution of power, including agreements with Scotland, Wales (including halving the tolls of the Severn crossings by 2018) and Northern Ireland, new powers for English cities, and new mayors in East Anglia, the West of England and Greater Lincolnshire. He is also transferring new powers over the criminal justice system to Greater Manchester

Overall, his big claim was a devolution of taxation and spending power to local government - so that by the end of the parliament, 100% of local government resources will come from local government - raised and spent in the area.

Tax crackdown
As expected he confirmed a tax crackdown - which he says will save £12 billion. He outlined new rules to stop public sector staff being paid through personal service companies - which is a way of avoiding tax.

He also announced new rules on the tax on multinationals that will make it harder for them to avoid paying tax in the UK - including restricting the historic losses that can be offset against profit for tax purposes.

Businesses
He says the money raised from larger firms will be used to help smaller businesses pay less tax - and that by 2020 Corporation Tax will fall even further than previously proposed - to 17%.

He is going to help micro entrepreneurs, with two new tax allowances - one for people trading online and another for those renting their homes out online.

Small business rate relief will also be increased, so the threshold of £6,000 will rise to £15,000 - and the threshold of the higher rate will be raised too. It means a huge number of small businesses will pay no business rates.

Stamp duty for business will also be reformed, so there will be a zero rate on properties worth up to £150,00, 2% on the next £100,000 and a 5% top rate. 90% of businesses will pay the same or less.

He will take steps to simplify climate charges on businesses, and to help the oil and gas sector, he is cutting the supplementary charge on the industry from 20% to 10%, and effectively axing the petroleum revenue tax - backdated to January.



George Osborne Begins His Budget 2016 Speech

Where are Britain's highest tax bills?

Where are Britain's highest tax bills?