Opinion: Slight shift in business rates reform makes for 'lopsided' Budget

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Before he had even posed for the photo outside Number 11, large elements of what Chancellor George Osborne would say were already clear.

With an economy worth £18bn less than he had previously expected, we knew that there would be further cuts taking £4bn out of Government spending by 2020; that there would be £300m plus in infrastructure spending; that there would be longer school days for some as academies take centre stage; we knew that there would be saving incentives for employees on in-work benefits; a change on rules for pensions contributions; and further upward shift on the basic tax threshold.

Alongside those certainties were strong indications of stealth tax hikes for insurance premium tax, fuel duty, and tobacco plus a ‘Paxman tax’ to close a loophole allowing TV presenters and public-sector bosses to avoid tax by being paid through personal service companies.

And against this pre-briefing he performed very well – all of them (with a slight margin here or there) being confirmed.

Shock sugar statement

But the big ‘shock’ of the statement was the sugar levy on soft drinks. Phased in over two years, it will allow the manufacturers to amend their basic formulas. But once the levy proceeds it will be hypothecated to double sports activities in primary schools. The income will also be added to the Barnett formula, so that school children in Scotland will benefit – and Scottish politicians will be unable to claim discrimination in the run-up to this year’s Holyrood elections.

The increase in costs will inevitably feed their way down to the consumer, with retailers once again being the means of levy collection. But the Chancellor did offer credit where credit was due to some retailers, commending Sainsbury’s, Tesco and the Co-op for the work they had done in reducing sugar in their products.

Osborne, of course, came to his Budget speech already bloodied from the Parliamentary defeat on Sunday Trading. Positioned by him as an economic boost for large format retailers, its loss made it difficult for the Chancellor to pull anything out of the hat that referred uniquely to retailers, or that recognised the dynamic importance that retailing has for the overall economic position.

“While not being the systemic shift in business rates the industry has called for, the move on business rates thresholds for small retail businesses is a further step in the right direction”

James Gurling, MHP Communications

While not being the systemic shift in business rates the industry has called for, the move from RPI to CPI is substantive and on business rates thresholds for small retail businesses is a further step in the right direction. In retail industry terms it left the Budget statement slightly lopsided, which is an imbalance the sector will need to address in the coming year, but the reduction in corporate taxation rates will have benefits across the sector.

Online impact

For those online retailers – characterised as not paying their fair share of tax – there will be changes. Osborne singled out the practice of companies storing their products in the UK while selling them online. But for micro entrepreneurs using online trading platforms there will be small tax-free allowances exempting them from the need to declare the first £1,000 they earn – which might in theory see a small uplift in users, but which is more likely to remove a tax burden most won’t have even considered declaring.

“This Budget was mostly about Osborne’s political future as Conservative leader and future Prime Minister”

James Gurling, MHP Communications

As economists pick through the associated Treasury papers with a fine-tooth comb – looking to see how the value of the giveaways match in practice with the income raisers – one thing is very clear: this Budget was mostly about Osborne’s political future as Conservative leader and future Prime Minister.

Pencilling in the impact of his cuts for the year before the next election will have been popular with his backbenches. Hypothecating the increases in insurance premium tax and the introduction of the sugar levy towards popular causes (flood defence and healthy children) will be popular externally. The Chancellor knows that beating Boris for the leadership will be a bigger task than beating Corbyn for the Premiership, and this Budget means he his intent on beating both.