Later today George Osborne will stand at the Despatch Box to deliver the final Budget of this Parliament. One question no one knows the answer to: will it be his last one?
Over the last few days newspapers have been full of the usual Budget speculation, leaks and trailed announcements. The Chancellor has said that this will not be a budget of pre-election gimmicks or giveaway. But lower inflation, failing oil prices and reasonable tax receipts have improved the medium-term outlook for the public finances, giving the Chancellor new flexibility. The suggestion that the OBR could shave around £20bn off the borrowing forecast over the next five years has added to the talk of election giveaways.
The government has already made several announcements running up to the Budget:
- Extension of pension freedoms to around 5 million people who have already purchased an annuity
- A full review of business rates, set to report back by the Budget 2016
- An increase in the National Minimum Wage by 3% to £6.70 an hour from October 2015, the NMW for apprentices will increase by 20% to £3.30
Other policies we might see announced include the personal allowance raised to £11,000, plans to build 45,000 new homes across the country and measures to boost the economy in the North – such as investment in road networks, High Speed 3 and an electronic ticketing system for public transport.
The media have also heavily speculated that the Chancellor is getting ready to announce Conservative plans to allow properties up to £1m to be passed on without paying inheritance tax – although this is unlikely to feature in the actual Budget Statement.
Invest in Growth
In today’s Budget – and the Budgets to come in the next Parliament – we would like to see:
- Industrial innovation funding doubled by 2020
The UK currently spends around 1.6% of GDP on R&D. But research by the former BIS Chief Economist, Tera Alla, found that we need to be investing closer to the average 2.9% of our competitors (like Germany, France and the US) in order to secure future economic success. The government will face some tough spending decisions over the next five years – but even small amounts of public funding for innovation can stimulate significant private investment. Just as important will be providing policy stability, focusing funding and creating the conditions for business to invest with confidence.
- R&D tax credits increased to the EU maximum
The Chancellor should extend the current R&D tax relief provisions. The UK could double the value of R&D tax relief for SMEs (costing £600m p.a.) and large companies (£1.5bn p.a.) which would provide longer-term certainty on innovation funding streams, strengthening the UKs reputation and encouraging longer-term investment – and go some way to filling the UK’s current £7.3bn innovation gap.
- Investment allowances reformed
We would like the Treasury to extend the raised level of Annual Investment Allowances (AIA) past 2015. Raising the AIA to £500,000 lowered the user cost of capital and spurred investment in additional ICT, plants and machinery. Changes to capital allowances signal that the UK is committed to attracting inward investment by capital-intensive companies.
We are clear that investing in long-term growth offers the best route to balancing the nation’s books, delivering national security and ensuring economic prosperity.
We would like to see the Chancellor and all political parties Invest in Growth.