Commenting on the Budget, Ryan Shorthouse, director of Bright Blue, said:
“This was an exhaustive Budget with some welcome policies, especially the significant restoration of the two work allowances in the Universal Credit, which Bright Blue has long called for.”
“However, there is a danger of the Government, in announcing the end of austerity, trying to be too clever by half: in an attempt to appeal to everyone, they could ultimately appeal to no one.”
“Eliminating the structural budget deficit by the mid 2020s is necessary, for both economic and moral reasons. But these Budget forecasts suggest this fiscal target has now been abandoned. The Conservative Party should not shy away from stressing the need for and their commitment to fiscal discipline.”
“But there will still be fiscal retrenchment in the years ahead. Those on the lowest incomes are unlikely to feel that austerity is over: they will continue to experience deep and disproportionate cuts to their working-aged benefits, despite the welcome injection of cash for Universal Credit. The Chancellor was wrong to bring forward tax cuts for higher-paid workers whilst the poorest are still being squeezed.”
“The truth, of course, is that a new path for funding public services is contingent on getting a good deal with the European Union. Even if that did happen, the NHS will swallow a lot as the spending taps are turned on. A lot of other departments are likely to continue experiencing real-terms reductions in their funding.”
“The country is in a state of limbo. In part because of Brexit. But also because although there is no longer a genuine commitment to austerity, there is also no real plan to really depart from it.”
Universal Credit and welfare
- The Government is significantly restoring the two work allowances in Universal Credit by £1,000 from April 2019, meaning working parents and people with disabilities claiming Universal Credit will be £630 better off each year.
- The Government will enable claimants as they move from their existing benefits to Universal Credit to receive for a fortnight additional Income Support, JSA and ESA payments from July 2020.
- The Government will reduce the maximum rate at which deductions can be made from a Universal Credit award from 40% to 30% of the standard allowance.
Commenting, Jessica Prestidge, senior researcher at Bright Blue, said:
“Significantly restoring the Work Allowances in Universal Credit, which Bright Blue has long called for, will provide a welcome boost to the living standards of low-income, working families. The previous Chancellor’s harmful and disproportionate raid on Universal Credit – to compensate for his inability to cut tax credits in 2015 – harmed those that need and deserve the most support from a Conservative Government.”
“Universal Credit responds to clear failures in the legacy system and there are reasons to be optimistic about what it can deliver. But if it is to fulfil its potential the Government must do more to mitigate the hardship caused to a significant minority of claimants, especially in relation to the waiting period for receiving payments. And when the Minimum Income Floor applies to the calculation of Universal Credit for self-employed claimants, it is still the case that many could receive substantially less over a year than employees with the same gross income.”
“Despite these welcome changes to Universal Credit, many low-income families will continue to face a significant squeeze on their real incomes thanks to unnecessary and deep cuts to working-aged benefits. They will not feel that austerity is over.”
Housing
- The Government increased the Housing Infrastructure Fund by £500 million.
- The Government confirmed that it will remove the borrowing cap on local authorities for housebuilding.
- The Government announced an extension of Help to Buy Equity Loans from 2021 to 2023, but with tighter eligibility conditions on the home purchasers and the cost of the purchased home, before phasing the scheme out by 2023.
- The Government will extend first-time buyers relief so that all qualifying shared ownership property purchasers can benefit.
- The Government announced the launching of a new consultation into permitted development rights which would allow buildings to be extended upwards, and to allow commercial properties to be demolished and replaced with new homes.
Commenting, Ryan Shorthouse, director at Bright Blue said:
“Britain needs more homes, built in the places where they are demanded most. Enabling local authorities to borrow more than the current cap allows to build more housing is a welcome and overdue move, especially if the number of social homes built increases.”
“The Chancellor failed, yet again, to mention the green belt, which serves as a fundamental block on new housebuilding in more desirable parts of the country. The Government should allow development on the most marginal parts of the green belt, such as intensively farmed agricultural land, which offer little if any environmental benefits. To allay fears of ecological damage, new rights to develop these parts of the green belt could be contingent on housebuilders adhering to the principle of ‘net environmental gain’, whereby any losses to the natural environment are offset by improvements elsewhere – such as by creating a new park or forest.”
“Last year, the Chancellor adopted Bright Blue’s policy of cutting Stamp Duty for nearly all first-time buyers. The affordability of housing for first-time buyers is one of the most pressing problems in housing policy. So it is welcome the Chancellor has gone further this year by extending relief to all qualifying shared ownership property purchasers. Help to Buy was expensive and poorly targeted, but at least attempted to provide the necessary subsidy many first-time buyers needed.”
“Ultimately, tinkering alone won’t do. It is time for a more radical rethink of property taxation, moving away from taxing transactions and instead increasing the tax burden on higher-value properties.”
Personal taxation
- The Government will further reduce income tax by increasing the personal allowance to £12,500 and the higher rate threshold to £50,000 from April 2019, one year earlier than planned.
- The Government will shift responsibility for operating off-payroll working rules away from individuals to organisations (except small businesses) in the private sector from April 2020.
- The Government confirms that it will not abolish Class 2 National Insurance contributions, which are paid by the self-employed, in this Parliament.
Commenting, Ryan Shorthouse, director of Bright Blue said:
“Bringing forward the increase in the starting salary for the basic and higher rate of income tax to next year is expensive and poorly targeted. Those on the very lowest incomes should have been the priority for tax cuts. The Chancellor should have prioritised raising the starting salary for employees National Insurance, so it was more aligned with that for Income Tax.”
“The Chancellor clearly has his eye on the inequity in the total tax paid by those who are self-employed, employees and company owners, even if they are on the same gross income. For the sake of fiscal fairness and sustainability, this tax gap really does needs to be boldly addressed. Suspending the abolition of Class 2 National Insurance contributions is a welcome and necessary first step, as is shifting the responsibility for operating off-payroll working rules away from individuals to medium and large-sized organisations in the private sector.”
Pensions and savings
- The Government will increase the lifetime allowance for pension savings in line with CPI for 2019-20, rising to £1,055,000.
- The adult ISA annual subscription limit for 2019-20 will remain unchanged at £20,000. For junior ISAs, it will be uprated in line with CPI for 2019-20 to £4,368.
Commenting, Ryan Shorthouse, director of Bright Blue said:
“The Chancellor should have chipped away at the regressive and expensive higher-rate pensions tax relief on private pension contributions. Yet another Chancellor has lacked the courage to reform this relief.”
“The Chancellor could have been bolder on savings. He could have reformed Lifetime ISAs, by permitting contributions from birth and providing a £500 starter bonus for all new child applicants. He should have enabled penalty-free access to Lifetime ISAs. And he should have allowed people to divert some of their auto-enrolment employee contributions into this reformed Lifetime ISA.”
Enterprise taxation
- The Government will increase the Annual Investment Allowance to £1 million between 2019 and 2020.
- The Government will extend the minimum qualifying period for Entrepreneurs Relief to 24 months from April 2019.
- The Government is cutting Business Rates by one third for retail properties with a rateable value below £51,000 between 2019 and 2020.
- The Government is considering introducing a 2% Digital Sales Tax on the revenues of large digital businesses from April 2020.
Commenting, Ryan Shorthouse, director of Bright Blue said:
“It is vital that the UK Government has bold policies to incentivise investment and business activity post-Brexit. Increasing the Annual Investment Allowance was a surprisingly strong policy.”
“The progressive lowering of Corporation Tax this decade is associated with higher tax receipts and employment. So, in the next Spending Review, the Government should consider charting further reductions to Corporation Tax below 17%, if it can further improve the UK’s international competitiveness.”
“This Budget rightly worked towards better balancing the tax system through lowering the tax burden on micro and small businesses, and attempting to increase the tax take from large multinationals. Having taxes on revenues rather than profits is an idea that merits further exploration.”
Education and training
- The Government invested £690 million to support apprenticeship training.
- The Government allocated £100 million for the first phase of the National Retraining Scheme.
Commenting, Ryan Shorthouse, director of Bright Blue said:
“Lifelong learning is critical to Britain’s economy: workers will increasingly need to reskill and upskill to access the new jobs and industries of the future. The Government should establish lifelong individual loan accounts for learners, so adults can afford the fees for any type or number of reputable courses they take throughout their lives.”
Roads
- The Government has frozen Fuel Duty for the ninth consecutive year, saving the average driver a cumulative £1,000 by 2020.
- The Government announced significant investment in roads, including the National Roads Fund totalling nearly £30 billion between 2020-2025, the Roads Investment Strategy totalling roughly £25 million between 2020-2025, approximately half a million pounds for local roads in 2018-19, and an extension and expansion of Transforming Cities Funds for metro mayors.
- The Government is providing an additional £20 million to support more local authorities to meet their air quality obligations.
Commenting, Eamonn Ives, researcher at Bright Blue said:
“This was a good Budget for motorists. But it was not so good for the environment. Though it is important that individuals and businesses are not excessively burdened at the pumps, the freezing of fuel duty for the ninth consecutive year is a very expensive mistake.”
“The Chancellor should have include new policies alongside his generous investment in roads to ensure motorists of fossil fuelled vehicles fairly pay for the externalities they cause, especially to human health. A growing evidence base shows that poor air quality – caused in large part by fossil fuelled vehicles – is having severe impacts on public health. Alongside the new funding for local authorities to meet air quality obligations, the Government should have announced that they will change legislation to enable local and combined governments to strive for reasonable profits from the administration of their Clean Air Zones, to help fund local diesel scrappage schemes and the installation of charging points for Electric Vehicles.”
“Company car taxation on electric vehicles will rise to 16% in 2019-20. Reducing this should have been a priority for the Chancellor. It would have helped in part to support the UK’s burgeoning electric vehicles industry and to enable the UK’s most polluted cities to achieve compliance with legal air quality limits.”
Aviation
- The Government has frozen air passenger duty at 2012 levels for short-haul flights for 2020-21. Long-haul air passenger duty rates will rise in line with the Retail Price Index.
Commenting, Wilf Lytton, senior researcher at Bright Blue said:
“Extending tax breaks for short-haul air travel will make it harder to meet the UK’s carbon budgets, which emissions from aviation account for an increasing share of. There desperately needs to be greater technological innovation in reducing air transport emissions. The Budget was a missed opportunity to build on the new Research and Development funding for the electrification of planes announced earlier in the year.”
Plastics
- The Government will introduce from April 2022 a new tax on the manufacture and import of plastic packaging containing less than 30% recycled content.
- The Government will reform the Packaging Producer Responsibility System to increase producer responsibility for the costs of packaging waste, including plastic packaging.
- The Government announced £10 million of innovation funding for plastic research and development.
Commenting, Eamonn Ives, researcher at Bright Blue said:
“In theory, the announcement of a tax on plastic packaging containing less than 30% recycled content will increase the value of plastic waste, and thus incentivise its collection.”
“The so-called ‘latte levy’ – a tax on disposable cups – was not announced by the Chancellor, attracting criticism from some quarters. But he correctly recognised that this is a problem which the industry is already seeking to address itself, and has made significant steps forward with in recent months. The Government should continue to observe what rates of progress are being made before taking further action.”
“Whilst the Government is right to want to take action on plastic waste, particularly from single-use plastics, it should also acknowledge that plastic has a number of key benefits – not least for carbon emissions – and that this is a problem felt most acutely in less developed economies of the world. It is time to examine whether a greater proportion of the UK’s international development funding could support global nature conservation, especially on plastic waste, which blights the livelihoods of the poorest people the most.”
Energy tax and carbon pricing
- The Government has frozen the Carbon Price Support at £18 per tonne of CO2 through 2020-21 with a view to reducing this additional levy from 2021-22 if underlying carbon prices remain high.
- The Government will establish a Carbon Emissions Tax of £16 per tonne of CO2 in the event of the UK leaving the EU without a deal in 2019. This rate would only apply to emissions above an installation’s emissions allowances – a mechanism that mirrors free allocation under the EU Emissions Trading System.
Commenting, Wilf Lytton, senior researcher at Bright Blue said:
“The announcement that Carbon Price Support will continue through to at least 2021, when the UK is expected to leave the European Emissions Trading System, is welcome news. The UK’s carbon pricing strategy continues to deliver a cleaner and cheaper energy system to the benefit of energy consumers and economic growth.”
“The proposal to set a £16 per tonne Carbon Emissions Tax for stationary installations if the UK leaves the EU without a deal means there will be some continuity of incentives to reduce emissions. The rate is broadly in line with current EU-wide carbon prices, but there is no guarantee that these will remain the same by March next year.”
Flood management and tree planting
- The Government announced it will allocate £50 million of funding to establish a Woodland Carbon Guarantee scheme. An additional £10 million of funding was also announced for tree planting in urban areas. The Government also announced £13 million to fund pilot projects aimed at mitigating the risks from floods and climate change.
Commenting, Eamonn Ives, researcher at Bright Blue said:
“The planting of trees will help bolster British wildlife, mitigate climate change, tackle emissions from transport, and provide mental health co-benefits. It will be important that these funds are allocated in the most cost-effective way. This could be done by adopting a market-based commissioning approach whereby ‘suppliers’ of trees such as farmers and land owners and land managers bid for this new funding at the lowest possible price through competitive, online markets.”
“This approach could also be adopted in natural flood management, which the Budget committed an additional £13 million for. Farmers, land managers and land owners could all bid for public money to help deliver natural flood defences, again, via an online, market-based commissioning scheme.”
Energy efficiency
- The Government established a new £315m Industrial Energy Transformation Fund to help energy-intensive business invest in energy efficiency measures. The Fund will be paid for by scrapping elements of the Enhanced Capital Allowances Scheme which served a similar purpose.
Commenting, Wilf Lytton, senior researcher at Bright Blue, said:
“The additional funding available to help UK businesses and industries reduce energy consumption should yield substantial greenhouse gas emission reductions. However, energy efficiency of residential buildings has, lamentably, been overlooked. This is of some concern given they represent a large share of total energy consumption. There has been a notable absence of policies since 2015 that encourage homeowners to improve the energy efficiency of their homes. New ‘Help to Improve’ government-backed loans and ISAs should have been introduced, alongside the mandation that homes can only be sold if they meet minimum Energy Performance Certificate (EPC) ratings.”
Photo copryight UK Parliament/Jessica Taylor
