Budget 2016

Budget 2016: Hypothecation - or how to justify more tax

The Budget on 16 March saw further use by the Chancellor of hypothecation – announcing taxes and directing them towards specific aims and objectives.  The Chancellor has form in this regard. 

This Budget saw increased tax in the form of Insurance Premium Tax (IPT), raising around £700m, the use of LIBOR fines, a new Sugar Levy (to be introduced from 2018) and a shift in taxation from small sized businesses to large multinationals. 

Commenting on these changes, Jonathan Riley, Head of Tax at Grant Thornton UK LLP said ”George Osborne has form in this area.  He knew he had to raise taxes due to slowing GDP but has presented some of these increases as raising funds to address wider public policy issues.  For example, the increase to IPT, another half a percent on the back of a substantial increase in last year’s Autumn Statement, means that the £700m raised is going to fund flood defence policies; ironic as premiums will have already risen for those hard hit by the flooding." 

The same is true of the new Sugar Levy.  Riley said: “This new regime will be effective from 2018 giving the industry the opportunity to prepare.  Any amounts raised are to go to fund additional school activities.  It is unclear as to whether this money will be added to local government budgets or paid directly to schools.  But again, we see taxes justified on the grounds that they are funding a specific policy”. 

A concern from this Budget centres around the hard pressed, often very dynamic business in the UK. “We heard a lot about large companies’ tax compliance being addressed, by closing down loopholes and introducing actions arising from the OECD’s work on Base Erosion and Profit Shifting.  Osborne explained that these additional revenues would help small, sometimes micro businesses, taking some out of tax altogether. But what about the hard pressed middle? As usual, they tend to be lumped in as ‘large’ even though their characteristics are unique and the burdens they face, especially compliance, demand a specific attention.”