Today the Chancellor delivered his Budget statement. Called an ‘Emergency Budget’, this is the term given to a Budget delivered after an election which has resulted in a change in government. Thus, although George Osborne delivered a Budget statement in March (see blog), this is the first under a Conservative majority government and sets out this government’s priorities.

In his speech the Chancellor mentioned at several points the government’s ambition to move the UK from a low wage, high tax, high welfare economy; to a higher wage, lower tax and lower welfare country.

The Chancellor was keen to assert that the “plan was still working” and set out a projection to move to a surplus in 2019/20 before setting out a commitment to a new Fiscal Charter for a vote in Parliament later this year that would commit future governments to maintain a surplus in normal times.

The meat and drink of today’s Statement however was how the Chancellor planned to make £17billion in savings through welfare savings and from tackling tack evasion and avoidance. This is around half of the £37billion in savings the government intends to make across the course of this Parliament and we will learn more about how this second batch of savings will be made, largely from government departments, in the Spending Review in the Autumn.

In terms of welfare reform, the Chancellor set out various initiatives that would make a collective £12billion saving including a freeze on working age benefits for four years, reducing the benefits cap from £26,000 to £23,000 in London and £20,000 elsewhere, and from April 2017 limiting the support provided through tax credits and Universal Credit to two children families.

In terms of achieving savings through £5billion from tackling tax evasion, avoidance, planning and imbalances in the tax system, the Chancellor announced that the government will:

  • Boost HMRC’s capacity to go after tax fraud, offshore trusts and the business of the hidden economy through a £800m investment over the course of the Parliament – this will include the ability of HMRC to undertake triple the amount of investigations.
  • Change the law to stop the use of losses which abuse the current controlled foreign companies regime
  • Ensure that investment fund managers pay the full capital gains tax rate on their carried interest
  • Stop corporate artificially increasing the value of stock for tax purposes
  • Restrict employment allowance so that companies where the director is the sole employee cannot claim it
  • Consult on how to deal with the increasing abuse of the rules around disguised employment when working through a personal service company
  • Add new penalties to the General Anti-Abuse Rule
  • Name and shame serial users of failed tax avoidance schemes
  • Abolish permanent non-dom tax status

Backing business and improving productivity

The Chancellor was keen to make this a core theme of the Statement and there are several announcements to note.

The most significant is the move to reduce levels of corporation tax, first to 19% in 2017 and then to 18% in 2020.

The government will also reform corporation tax rules to stop companies claiming an annual deduction from their taxable profits for the acquisition cost of assets linked to the business’ reputation and customer relationships. From April 2017, rules will change in order that companies with profits in excess of £20million are required to make corporation tax payments in the third, ninth and twelfth months of their accounting period.

Other announcements of relevance include:

  • Amendments to the tax-advantaged venture capital schemes, taking forward proposals mooted at the previous Budget and then consulted on by HM Treasury to which the BIA responded. A new Finance Bill will legislate for several changes, including the move that BIA supported to incentivise investment in knowledge-intensive companies.
  • Correcting an anomaly in the R&D tax credits legislation so that universities and charities are unable to claim the R&D Expenditure Credit, in line with the original policy intention
  • Setting the level of the Annual Investment Allowance to £200,000 from January 2016
  • Raising the Employment Allowance to £3,000 a year from April 2016
  • Publishing a business tax roadmap by April 2016, setting out plans for business taxes over the rest of the Parliament
  • Further action to improve administration and operation of business rates
  • Establishing the Office of Tax Simplification on a statutory basis as a permanent office of HM Treasury

This suite of announcements were the other side of a coin to proposals announced today which would in theory match these business productivity measures with moves to support higher wages and further incentives to fuller employment.

Most notable was the announcement to introduce a new National Living Wage for workers aged 25 and above. This will be £7.20 from April 2016 with the aim to raise this to over £9 by 2020.

Other relevant announcements in this space were increasing the personal allowance to £11,000 for 2016/7 to rise to £12,500 by the end of the Parliament as well as the higher tax rate threshold to £43,000 for 2016/7 with the aim to rise to £50,000 by 2020.

The government also announced a new apprenticeship levy on large employers to find 3 million new apprenticeships by 2020.

Health, science and the wider political context

The NHS was mentioned as a key priority by the Chancellor and the Budget commits to increase NHS funding in England by £10 billion in real terms by 2020-21. This effectively backs the NHS Five Year Forward plan’s funding call.

We didn’t expect to see much on science and innovation here as that will be a focus instead in the Autumn Statement however there are a few things to note including a name-check for the Crick in the Chancellor’s speech and the following:

  • A welcome of the Dowling review and a commitment to respond in the Spending Review, including on how to deliver the central recommendation of making it easier for business to find support from universities and the government’s broad range of financial support.
  • A new set of Regius Professorships to be created in universities across the country to celebrate the Queen’s 90th
  • Government confirming industrial support for specific science investments, including £128 million in the UK Collaboration for Research in Infrastructure and Cities (UKCRIC) with its hub to be established in London.
  • That the government will invite universities, cities, LEPs and businesses to map strengths and identify potential areas of strategic focus for different regions through a series of science and innovation audits.
  • That Innovate UK will come forward with more proposal shortly on areas where future Catapults might be the right mechanism to ensure that the UK is at the forefront of commercialising technologies.

Devolution was an unsurprising theme throughout the Statement with various initiatives cited against the Northern Powerhouse and wider devolution measures including working towards new city deals with Sheffield, Liverpool and Leeds following the devolution agreement with Greater Manchester, creating Transport for the North and pushing for more devolved powers to the Midlands and the South West.

Today’s Budget Statement underlined the direction that the Conservative government wishes to take policy in this new Parliament. There is much to be welcomed for the sector, particularly the corporation tax announcements. However this is only one half of the story and we look to the Comprehensive Spending Review and Autumn Statement to underline a wider policy and funding environment that is optimal to the potential of UK bioscience.