1. To help energy-intensive industries, the government has provided for a £7 Billion package to help these industries augment generation of renewable energy. Further it has also capped the Carbon Price Support rate at £18 for two years from 2016-17. Existing compensation schemes have been extended till 2019-20 and new schemes have been introduced for industries in distress due to high electricity costs, resulting from renewable obligation and Feed-in tariffs for small-scale units to generate renewable energy from 2016-17. The government has also provided support to Combined Heat and Power plants by exempting the fuel costs used in the generation of electricity that is supplied to manufacturing units within the Carbon Price Floor(CPF) purview.
1. To support development of new carbon capture and storage facilities, the government has offered £60 Million and also introduced a capacity market for ensuring consistent and secure supply. This has been done with a special intention to maintain the advantage of buying power that the Levy Control Framework currently enjoys.
1. Measures undertaken to boost housing supply include creating a Builders Finance Fund of £500 Million to lend loans to housing developers (SME) to release 15,000 stalled housing units due to shortage of funds and creating a corporation of Urban Development to construct a garden city at Ebbsfleet. The government has also decided to provide £ 150 million for regeneration of large housing estates to boost housing supply.
1. The government has planned to invest £42 Million over the next 5 years in analysing and identifying useful ways of analyzing Big Data analysis by establishing a new Alan Turing Institute for helping in innovation in manufacturing processes, improved marketing techniques, etc. According to Bughin, Chui & Manyika (2010), the big data technology helps in capturing large quantities of data and in analysis, all at a much cheaper cost. Further, plans are also on way to invest £74 Million over 5 years to provide assistance in R&D of fresh graphene products and invest in developing cell therapies on a big scale for clinical trials that are on the last-stages of survival.
1. New allowances have been introduced for ultra high pressure and high temperature (HPHT) oil and gas projects; government is also working with these new agencies to ensure that competitiveness is maintained in the UK tax management.
1. Further, boosting lending by banks and building societies by providing them with incentives from the Funding for Lending Scheme (FLS) has greatly helped financing the SMEs in the economy.
. Impact on the service sector
All the above along with the change in business rates also impact the retail and wholesale sector and the social housing sector.
1. In the service sector, banking has become more competitive with better, faster and easier services provided to businesses. The government also implements financial and structural reforms to support foreign investments in the financial services sector.
1. For ensuring continued support by venture capitalists to SMEs, the government has removed the temporary tag from the Seed Enterprise Investment Scheme (SEIS) and capital gains tax reinvestment scheme of 50% (Great Britain OBR, 2014). Other structural forms like tax reliefs and eligibility criteria will also be relaxed. Outlay in social enterprises has been encouraged by providing 30% tax relief on the same. Introduction of the innovative Wholesale Guarantees Programme is likely to support more financing to SME. Government also aims to make the tax systems simpler and has introduced the self-assessment system for collecting NICs from the self-employed and is further looking to make tax systems for the benefits and expenses of employees simpler.
1. The Education sector contributes approximately £10 Billion (International Education, 2013) of UK revenue. Due to this the government is engaged in participating in more strategic partnerships with emerging markets like India by sharing values and respecting each other’s beliefs and initiatives. Student visa systems are undergoing reforms to attract foreign students to study in UK. This along with other changes like those in VAT rules with reference to construction and usage of student accommodation, tripling number of Chevening scholarships from 2015-16, taking out “Education is Great” campaigns, etc are likely to attract more students to come and study in UK.
1. The abolishment of the two highly priced Bands C & D of air-passenger duty (APD) for long-distance flights (above 4000 miles) will make the industry more attractive for tourists, business visitors, students, etc. This will bring business from emerging markets like India, China, etc from 1 April 2015. Band B rate will be applicable to South Asian and Caribbean visitors and private jets will pay 6 times more than the economy class. New routes from regional airports will be explored and scope of the Regional Air connectivity fund will be enhanced.
1. The government also plans to provide training to doctoral and other post-graduate students by entering into partnerships with universities and other institutions. According to Hagen (2002), there is a beneficial and intended reason for universities to link up with the government and that is to generate economies. Furthermore, according to Lambert, R. (2003), it is suggested that such partnerships are governed under a uniform code of conduct. For this purpose and also to promote science and innovation by conducting research on new technologies, it plans to invest £106 Million over the next 5 years
1. The Budget also announces tax reliefs for the entertainment industry from September 2014 which includes theatre production of plays & musicals, dances, opera, etc of 25% on productions which involve tours and of 20% for other productions.
1. Concentrating on the infrastructure of the country, The Great Britain OBR (2014) provides for £140 million to set right the damages done to the vital operations of the country due to flooding. It also plans to implement strategies that will save UK from the disasters of future flooding. An extra £200 Million has been assigned to get approx 3.2 Million potholes created by bad weather fixed in the next year. The government has welcomed the UK’s Regulators’ Network which will help infrastructure projects in various sectors and regulate customer switching and engagement in controlled markets. It has also been planned to provide guarantee schemes to guarantee the timely deliveries of the infrastructure projects to the financiers like £ 270 million for Mersey Gateway Bridge. It also plans to provide £20 Million to cathedrals so as to maintain their heritage value. All these measures in the infrastructure segment will result in lot of job creations and thus employment opportunities; encourage investors to invest in the service sector, increase number of contractual alliances, partnerships, etc for completion of projects and thus result in an overall good growth in the UK economy. Further, services like air ambulances have secured grants of £65,000 annually and a grant for 5 years for charities related to inland safety boat, amounting to £1 Million per year.
1. In the field of charities, special tax reliefs have been given apart from the Stamp Duty land tax relief on purchase of property, jointly by a charitable and non-charitable organization, where the relief pertains to the portion purchased by the charity. Further charities have also been relieved from the annual tax on Enveloped dwellings (ATED). VAT thresholds will also undergo an incremental change from 1 April 2014. All these will affect the financing towards the sector as also have a positive impact on tax avoidance issues.
1. The Real Estate, Construction and the leisure and hospitality sector could bear a negative impact due to the decrease in the threshold of stamp duty levy on residential properties purchased by companies from £2 Million to £500,000. In furtherance, the threshold for Annual Tax on Enveloped Dwellings (ATED) has also undergone a change whereby now taxes will be levied based on the value of the property starting at £500,000. Charities are exempted and relief is provided to social housing providers, property developers and property rental businesses (BDO UK, 2014). However, allowances like Business Premises Renovation Allowance (BPRA), AIA and enhanced capital allowances would increase investment in these sectors.
. Impact on household spending and consequential impact on businesses
The full-time gross earning to all employees and to those in continuous employment has been continuously growing since 2008. Further as per Great Britian OBR (2014) forecast, growth in real household disposable income per capita is supposed to turn positive this year, growing at 0.5% in 2014 and 1.2% in 2015. The forecast also talks about a growth in the average earnings from 2.5% in 2014 to 3.2% in 2015, the growth being at a pace much quicker than the inflation rate through the period. The savings ratio has declined from 8.5% in 2009 (second quarter) to 5.5% in 2013 (third quarter), thus showing that belief in the UK economy is increasing. Further, carbon price support rate capping would result in a normal domestic energy bill reducing by £15 in the year 2018-2019.
This budget supports savers and private pensioners. This budget removes the obligation to buy an annuity for covering defined contribution pensions. Due to this, people now enjoy greater freedom levels in terms of their investment and use that they put their money and access their pension. Tax rules with respect to defined contribution plans for pensions on retirement will now be charged at marginal income tax rates instead of the flat 55%. Since these people will now have options to choose, the government has also offered them with free face-to-face impartial assistance to guide them on their options at the time of retirement from April 2015. However, due to this, the government has now levied a ban on transfer or shifting of public sector employees from defined benefit schemes to defined contribution schemes, fearing a mass exit from defined benefit schemes (Selby, 2014).
Introduction of the new ISA (NISA) rules have also provided for uncomplicated products which provide limits of equal value for cash, stocks and shares. Previous year funds in stocks and shares can be converted into cash and from 2014, people can choose how to accumulate and invest within the set limits. Further, the investment limits in NISA from 1 July 2014 will be increased by a triple to £15,000 and stocks and shares by one-third. Limits for Junior ISA and Child Trust funds increased to £4,000. This will bring in increased savings in the tax payers hands. New products have been introduced consisting of NS&I’s fixed-rate, market-leading savings bonds for people aged 65 or above, new voluntary NIC scheme, etc. Further, the cap on investing in premium bonds has been lifted from £30,000 to £40,000 after a gap of 11 years from 1 June 2014 and by another £10,000 in 2015-16.
With respect to personal taxation, the limit of first band which was charged at 10% is now being abolished and taxed at 0% and further, the limit being increased to £5,000. Further, personal allowances that are tax-free have been enhanced to £10,000 in 2014 and £10,500 in 2015 and transferrable allowance will be set at 10% from 2015-16. Thus, people with annual income of £15,000 or less will profit from this change.
Other incentives include increase in tax-free child care costs cap, continuance of support for mortgage interest schemes, increase in minimum wages by 3% from October 2014 etc also raise the amount of disposable income in the hands of the consumers.
The reduction in taxes on beer, the frozen duty on cider and Scotch whisky makes it cheaper for consumers, thus boosting the pub industry. Also, reduction in bingo duty rates by 10% and increase by 25% on other machine games, ensure enhanced rates of gambling. Therefore it is rightly summarised in the words of Brockwell (2013), that in order to control commodities that have a negative effect on people, the best solution is to change the tax policy.
With respect to home ownerships, the equity loan scheme has been extended till March 2020. This has given an option to around 120,000 households to either purchase or build a new home for themselves. This will result in fall in the rentals that are paid by the households, thus entitling them to make better use of their money in the options that they choose to invest. For the housing supply sector, the government also plans to create a “Right to Build” right to give the households, who plan to build homes for themselves, a right to a plot of land from the councils. It also plans to establish a repayable fund of £150 Million to help 10,000 serviced plots for custom build.
Apart from the above, other policies relating to avoidance and tax planning have also been introduced to combat tax avoidances through introduction of General Anti-Abuse Rule (GAAR)
In the above scenario, it is recommended that manufacturing and service sectors focus on meeting increasing demands for products in the emerging markets through product innovation and attaining cost competitiveness. The budget is aiming at boosting growth in the sectors by providing tax breaks, export financing, supporting science and innovation, etc. These benefits should be properly utilized to diversify into new supply chains and new markets. Though challenges do exist in terms of rising input costs, volatility in forex rates, shortage in raw material supply and supply chain capacity, etc, the firms will be able to take advantage of the opportunities and achieve growth rates that are expected.
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3. Brockwell, E. (2013). The Signaling Effect of Environmental and Health-Based Taxation and Legislation for Public Policy: An Empirical Analysis.
4. EEF (2014), ‘Executive Survey 2014’, EEF – The manufacturers’ organization [Online] Available at http://www.eef.org.uk/NR/rdonlyres/F9C06394-ADBE-40B6-83C4-A71C36ECB414/23390/ExecutiveSurveyJanuary2014.pdf [Accessed on 4 May 2014]
5. Great Britain Office of Budget Responsibility (2014) The Budget London: HM Stationary office [Online] Available at https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/293759/37630_Budget_2014_Web_Accessible.pdf [Accessed on 4 May 2014]
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