Amid economic updates and spending cuts, the statements that garnered the most attention from this year’s budget speech to Parliament are the negative sentiments towards the possible British exit from the European Union and the surprise levying of tax on sugary drinks.
Osborne expressed discouragement towards a vote to leave the European Union in the upcoming referendum on June due to global financial turbulence and weak economic outlook. He cites that the country’s Office for Budget Responsibility (OBR) warns against leaving the bloc.
However, the official OBR document stated that at this stage it does not judge the impact of a Brexit vote on the economy and public finances. Nonetheless, the official budget forecasters lowered expected growth for 2016 from 2.4 per cent to 2 per cent. 2017’s growth is also reduced to 2.2 per cent from 2.5 per cent. These are pinned on subdued productivity expectations.
Despite not being able to hit the targeted pubic debt to GDP ratio this year and having to borrow more than anticipated in the following years, Osborne continues to believe that he will be able to turn the deficit to a surplus equal to 0.5 of GDP by 2020.
Going after this goal prompts stringent measures including a £3.5 billion cut in spending. Osborne justifies this by saying that something has to be done now to avoid regretting later. There is a countermeasure for hitting his budget surplus, though, a possible £5 billion for a single year by the end of the decade if the current steps come up short.
Osborne also hatched a plan for a new revenue source by taxing sugary drinks that is expected to bring in £500 million in revenues. This inflow will be dedicated to school sports, in line with the effort to alleviate childhood obesity. Osborne states that sugary drinks are one of the biggest contributors to the disease.
The new tax is expected to be implemented in two years and in tiers, differentiating between those with high sugar concentration and those in the category of tonic water and fizzy drinks. Pure fruit juices and those containing milk would be exempted. This caused eyebrows to rise as sweet coffee drinks and milkshakes can also contain high concentrations of sugar.
Soft drink manufacturers are not happy with the announcement as the tax can add up to 8p to a can of Coca-Cola. The stock price of Britvic also fell by 20p upon the announcement.
The director of the Food and Drink Federation, Ian Wright, said that the tax can have negative impacts that could lead to loss of jobs. He states that the company’s affected had engaged on a holistic strategy for tackling obesity and this new toll could undermine innovation and product reformulation.
Aside from these controversial statements, Osborne’s speech also revealed other initiatives including the increase of personal tax allowance to £11,500 next year, a new lifetime ISA with the Government adding £1 for every under 40 saving £4 and the 0.5 per cent increase to insurance premium tax. Beer taxes are shelved for the meantime.
Osborne would also continue to chase tax dodgers and another big plan is to exempt small shops and firms from paying local business tax.