Budget 2015: The impact on Northern Ireland
Michael Blair, partner, RSM McClure Watters, explores the impact Budget 2015 could have on Northern Ireland.
The Chancellor promised to get Britain “walking tall” again in his last Budget and he has followed up with the first purely conservative budget in 19 years set against a backdrop of a potential Eurozone crisis following the Greek rejection of further bailout plans. With a prediction of a budget surplus by 2019/20, the Chancellor produced one of the most radical budgets in recent years focusing on welfare cuts and rewarding people in work with the promise of a new living wage of £9 per hour. He delivered what he promised would be a budget that “recognises the hard work and sacrifices of the British people”.
Cuts to the welfare system will dominate the headlines, no more so than in Northern Ireland. The Government has committed to reduce the benefit cap from £26,000 to £23,000 in London, and £20,000 in other regions of the UK. Increased rates of rents will also become due on social housing. Benefits will also be cut for under 21s and under 25s.
This will have a greater impact in Northern Ireland than other areas of the UK simply due to a proportionately higher number of claimants. And of course this presupposes that the Executive at Stormont can agree a budget which deals with the Welfare Reform impasse. These cuts will drive a wider wedge between the UK government and Local Assembly members who seek to resist one of the Governments main manifesto policies. The elixir of a reduced corporate tax rate for Northern Ireland seems yet further away, despite it being on the statute book.
And for Northern Ireland there is secondary blow with restrictions to be introduced on tax credits. Tax Credits are a vital tool to prevent people’s incomes slipping so low that their health, education and prospects are damaged. Child tax credits will be restricted to two children for new claimants after 2017.
Northern Ireland as a geographic region in the UK is more dependant on tax credits that any other region in the UK due principally to our low remuneration base. The impact of these cuts will be felt quicker and deeper in Northern Ireland and will be outside the remit of the local assembly.
Lower income families will again suffer with an abolition maintenance grants for students to be replaced by loans.
The Government maintains its commitment to align the personal allowance with the National Minimum Wage to show commitment to workers outside the tax credit system. Moving towards this there is an increase in tax free allowances of £400 and an increase in the 40% tax threshold by £615 worth up to £280 a year.
Corporation tax headline rate is to be reduced to 18% and this is most welcome for attracting business to the UK. However larger corporates will be required to make payments on account of their tax liabilities earlier than they do currently. This is partly to offset the introduction of the new national living wage which aims to deliver £9 per hour by 2020.
Tax allowances for businesses investing in plant and machinery was due to be reduced from £500,000 to £25,000 at the end of the year, but the Chancellor has indicated that this will be maintained at £200,000 per annum on a permanent basis.
Taxation of dividends is being reformed in a way that will hit higher earners who have structured their remuneration away from salaries while having minimal impact on the bulk of the population receiving dividends.
In keeping with previous budgets, further clampdowns on tax avoidance were announced with the Government pledging to recoup over £7bn through advanced payment notices, litigation and reforms to tax rules on non-domiciles together with ongoing international pressure on multi-nationals paying corporation tax where profits are earned. An additional £750m pa is to be invested in HMRC to deliver a further crackdown on tax avoidance, tax evasion and offshore structures. New penalties are being introduced and naming and shaming powers for serial tax avoiders. Non-domicile tax rules are being amended to ensure long term residents in the UK pay the same tax on their worldwide income and gains as everyone else.
The manifesto pledge increase the inheritance tax threshold to £1m for couples from 2017 was introduced. This new “family home allowance” will be worth £175,000 per person and will come on top of the existing £325,000 tax free allowance.
Much speculation has been made about capital gains tax as it is outside the triple tax lock, but there has been no move to tax private dwellings and entrepreneurs are still incentivised by low tax on business gains.
We have seen over recent years, Northern Ireland become one of the most innovative regions in the UK. As anticipated, the government is helping UK firms break into fast growing markets. Innovation in Northern Ireland drives research and development, which goes hand in hand with local economic growth.
The Government continues to offer strong support for science and research. The Chancellor has announced a long term commitment to investment in science infrastructure of £1.1bn in real terms to 2021 and increased investment for science with funding for Quantum Technologies and collaboration with emerging powers. This brings the overall investment in science and research to £5.8bn in 15/16 ‐ an increase in overall spending compared to recent years.
The surprise announcement that Sunday Trading laws are to be reformed to permit larger shops to open in England and Wales is a welcome shot in the arm for retailers who are increasingly under pressure from online sales, but time will tell whether this will be extended in due course to Northern Ireland.
Interest relief on buy to let mortgages will be reduced to basic rate while rent a room relief is increased to £7250.
Vehicle excise tax is to be reformed into three single bands form 2017 with all revenues being directed to investment in the road network.
The central pillars of this Budget appear to be the protection of key front-line public services, investments that underpin economic growth in Northern Ireland and putting in place the foundations for the reform and restructuring of our public sector. Is there improved economic growth and sustainability ahead?