The major rabbit pulled from George Osborne’s budget hat today was the shock announcement of a fizzy drinks sugar tax. The tax will be brought in in two years’ time and will be tiered – firstly targeting drinks with more than 5g of sugar per 100ml and a second tier of 8g per 100ml. Fruit juices and drinks will be excluded as will the “smallest” of producers. The £520m slated to be raised will help support school sport. Osborne said he was not prepared to look back and say “I’m sorry – we knew there was a problem, but ducked the difficult decisions”.
The share prices of UK-listed soft drinks manufacturers plunged on the news. Vimto owner Nichols dropped 10% to 1,174.5p, Irn-Bru maker AG Barr is down 4.5% to 528.9p and Britvic is down 2.5% to 691p.
Osborne announced a “fundamental” shake-up of business rates primarily designed to help smaller businesses and retailers. He pledged to more than doubled the threshold for small business rates from £6,000 to a maximum of £15,000 and said from next year 600,000 businesses will pay no business rates at all. To benefit SMEs, the higher rate of business rates will rise from £18,000 to £51,000.
The business rates changes were not the wholesale reform many of the UK’s larger retailers had hoped for. The multiples will benefit from the shift from RPI to CPI for the annual indexed increased in the tax – RPI is currently 1.3% and CPI 0.3%. However, the change will not come into effect until 2020.
There were a number of corporation tax measures announced in this budget, which Osborne said will raise £9bn from larger firms. The most notable change is a further cut to corporate tax to 17% from 2020. Other changes largely target multinational companies and include centre on the accounting treatment of balance sheet losses and restrictions in tax deductions.
Fuel duty freeze
Another surprise was Osborne’s freezing of fuel duty for the sixth year in a row despite the recent plunge in oil prices and the resultant lowering of prices at the pump. Fuel duty has remained at 57.95p per litre since March 2011 and there were widespread predictions Osborne could take advantage of the sliding oil price by raising duty.
Sugar tax apart, there were no huge surprises in the treatment of cigarettes and alcohol – though there will be some industry relief that Osborne pledged to freeze duty on beer, cider and whisky. Other alcohol duties will rise in line with inflation while cigarette duty will rise at inflation plus 2% and rolling tobacco by 3% tonight.
Wider economic concerns
Though Osborne found room to announce a further increase in personal tax thresholds as well as cuts to capital gains tax, the wider economic news in the budget was far from positive. He said a materially weaker” outlook for the global economy had caused the Office for Budget Responsibility had cut the UK’s growth projections. 2016 GDP growth was previously forecast at 2.4% but was cut to 2%. Growth in 2017 was cut to 2.2% from 2.5% and then 2.1% in subsequent years.
Osborne and Cameron have made no secret of their belief the UK should stay in the EU. This view appeared to be tacitly backed by statements from the OBR, which said a vote to leave the EU could “usher in uncertainty” and had “negative implications” for consumer activity and confidence.