2015 Budget streamlines public sector spending

In the Government’s latest budget (8 July), Chancellor George Osborne outlined plans to streamline public sector spending.

He set the goal of annually reducing the deficit by 1% of GDP, in keeping with the current pace of cuts in order to achieve a fiscal surplus (with Government income exceeding expenditure) by 2020.To meet this goal Mr Osborne said £37 billion of savings would have to be found, which would include taking £12 billion from welfare and making a further £5 billion from tax reform and dealing with tax evasion/avoidance. Details of the remaining savings, he said, would be outlined in the Autumn 2015 Spending Review.

NHS

Mr Osborne said the Government would continue the NHS Five Year Forward View, which seeks to cut £22 billion, via efficiencies, from NHS expenditure by 2020/21. He said these challenging levels of efficiencies would be made by improving the quality of care, staff productivity, and procurement.

He added that the Government will ensure the NHS becomes a 7-day service by 2020/21, with hospitals appropriately staffed at weekends to ensure people can obtain the care they need every day of the week.

To aid this productivity Mr Osborne said the Government would continue to spend more on the NHS – in real terms – every year.  He forecast that NHS England funding would have increased by £10 billion a year by 2020/21.

Mr Osborne also scheduled the delivery of Health North for autumn 2015. He said the programme would better connect experts and services in the region.

 

Housing

Efficiencies were also found in housing, as Mr Osborne said Local Housing Allowance, used to calculate housing benefit by local area, will be frozen for four years from 2016-17.

He added that social housing tenants with incomes of £40,000 and above in London, and £30,000 and above in the rest of England, will be required pay market or near market rent for their accommodation.

Local Authorities will repay the rent subsidy that they recover from high income tenants to the Exchequer, contributing to deficit reduction. Housing Associations will be able to use the rent subsidy that they recover to reinvest in new housing.

The Chancellor then said more tax would also be collected from wealthier landlords, whose tax relief would be cut from a top rate of 45% to 20% by April 2017.

Furthermore, he said (residential property) landlords’ maintenance relief would be cut, meaning that, from April 2016, landlords will only be able to deduct costs for which they actually have receipts.

However, the Chancellor moved to help small-time landlords by increasing the Rent-a-Room relief from £4,250 to £7,500 a year from April 2016, allowing individuals who rent a room in their main residence to do so tax-free on income up to £7,500.

Tenants also received a boost, as Mr Osborne said he would reduce social housing rent in England by 1% per annum, for four years.

The Chancellor encouraged Co-ownership Authorised Contractual Schemes investing in property, saying the schemes wouldn’t face Stamp Duty Land Tax on the transactions in units. He explained the change as part of the seeding relief for Property Authorised Investment Funds and Co-ownership Authorised Contractual Schemes).

This boost builds upon the Government’s earlier implementation of a Housing Growth Partnership, which supplies grants between £0.5 million and £5 million to residential developments with gross development value between £.75 million and £12 million.

 

Education

While money was pledged to housing, revenue was regained by the Department of Education; as Mr Osborne said (from 2016-17 academic years) maintenance grants will be abolished in favour of maintenance loans.

He explained that the level of financial support available in maintenance loans for low and middle income students studying away from home, outside London will rise to £8,200 a year. Osborne said repayment of these loans would become obligatory once graduates earn over £21,000 a year.

However, the Chancellor also said universities with ‘high-quality teaching’ will be allowed to increase their tuition fees in line with inflation from 2017/18. This high quality of teaching, Mr Osborne said, would be assessed and ensured as part of new regional science and innovation audits, covering LEPs, cities, businesses and universities.

Mr Osborne invited universities to support local collaborative partnership models, such as the N8, M6 and GW4. He said these partnerships would be funded by the £400 million Research Partnership Investment Fund, among other finance schemes.

Additionally, he said apprenticeship recruitment would be encouraged via a levy on large UK employers to support apprenticeships and training across the private sector. Mr Osborne said employers in England would be able to access this funding for apprenticeship training.

Further specialist training, Mr Osborne said, would be provided via the establishment of a National Colleges Network. He said that the National Colleges will provide high quality professional and technical routes into employment throughout the UK.

 

Central government

Education was one of many sectors in which Mr Osborne outlined reform plans for England, but deferred the rest of the UK’s plans to its devolved administrations.

Speaking of devolution, Mr Osborne forecast that the revised fiscal framework for the Scottish Government would be complete by autumn 2015.

He added that the St David’s Day agreement on new powers for the Welsh Assembly was expected to progress to the schedule in the Command Paper. This progress, he said, would include implementing a funding floor at the Spending Review, to pre-empt a Welsh referendum on income tax devolution.

The Chancellor added that devolution of Air Passenger Duty (APD) to the Welsh Assembly will continue to be considered alongside the review of options to mitigate the impacts of APD devolution on regional airports.

With reference to Northern Ireland, Mr Osborne committed to the objective of rebalancing the Northern Ireland economy with £2bn (total funds) from the 2013 Building a Prosperous and United Community pact and the Stormont House Agreement package.

While Mr Osborne recognised greater devolved powers, he also introduced ‘English votes for English laws’ allowing MPs representing English constituencies to ‘veto’ their Celtic counterparts when debating solely English matters.

 

Local government

Mr Osborne said local governments would be encouraged to take greater control of their procurement and will be invited to make saving plans. A consultation – to be published later this year – will outline criteria for these plans, as well as backstop legislation ensuring underachieving authorities pool their investments.

This forms part of the Government’s plans for regional devolution, highlighted in the Budget by announcements of further powers, for example over the fire service and a land commission, for Greater Manchester, a key element in the Northern Powerhouse that has been prominent in Government policy in recent months.

As further proof of the Government’s regional focus, Mr Osborne cited the Glasgow, Clyde Valley, Cardiff, Aberdeen and Inverness City Deals, and noted bids remain open for a new round of English Enterprise Zone funding.

As well as this, Mr Osborne said the Coastal Communities Fund would be extended by ‘at least £90 million until 2020/21’.

More widely, he said the Government would invest £23m in six Next Generation Digital Economy Centres (in London, Swansea, Newcastle, Nottingham, York and Bath).

 

Business

In a general announcement to businesses, the Chancellor said annual investment allowance, which has previously been increased temporarily, will be set permanently at £200,000 from January 2016.

The allowance means businesses can deduct the full value of certain items, including equipment and machinery, up to a total value of £200,000 from their profits before tax.

Mr Osborne then said corporation tax rate would be reduced from 20% to 19% in 2017 and 18% in 2020.

This drive for a ‘lower tax, higher wage and lower welfare economy’ is one that Mr Osborne enshrined in the 2015 Budget. To reach this goal the Chancellor increased regional and national spending autonomy, while forcing public sector authorities to become more commercially minded.