Sugar tax surprise in Budget – but growth forecasts cut

George Osborne has unveiled a tax on sugary drinks in a wide ranging Budget dominated by gloomier growth forecasts.

The chancellor blamed the slowdown on a “dangerous cocktail” of global risks and said the UK had to “act now so we don’t have to pay later”.

He announced an extra £3.5bn in spending cuts – and sparked controversy by warning of the risks of EU exit.

He found cash to freeze fuel duty and cut some business taxes – but Labour said he could not hide his “failure”.

Key Budget announcements include:

Growth forecast cut for the next five years and £3.5bn in extra public spending cuts by 2020

A 2% increase in tax on cigarettes and 3% on rolling tobacco from 6pm, but beer and cider duty will be frozen as will the levy on whisky and other spirits

Plans for a longer school day in England

The rate at which workers start paying top rate tax is to be raised from £42,385 to £45,000, with the tax-free personal allowance raised to £11,500 and corporation tax to be cut to 17% by April 2020

On savings, the ISA limit will be increased to £20,000 a year for all savers, andlifetime ISAs will be introduced for young people

An extra £700m for flood defences – to be paid with a 0.5 percentage point increase on the tax on insurance premiums

The higher rate of Capital Gains Tax is being cut from 28% to 20%

Follow all the reaction with Budget 2016 Live

Full coverage in the BBC’s Budget special report

The £530m raised by a tax on the sugar content of soft drinks – the equivalent of about 18-24p per litre, the government says – will be spent on primary school sports in England, with the devolved administrations in Scotland, Wales and Northern Ireland free to decide how to spend their share.

Mr Osborne’s sugar tax announcement sparked a big fall in the share price of soft drinks makers but it was welcomed by TV chef Jamie Oliver, who has been campaigning for such a move. He told BBC News it was “a big moment in child health” and a “symbolic slap” to business rather than “anti-business”.

The tax will be levied on the volume of the sugar-sweetened drinks companies produce or import.

The Office for Budget Responsibility says it could result in a “pretty substantial price rise” on products – as much as 80% on, for example, a two-litre bottle of own-brand cola.

There will be two bands – one for total sugar content above 5 grams per 100 millilitres; a second, higher band for the most sugary drinks with more than 8 grams per 100 millilitres, with the levels yet to be set.

 

Examples of drinks which would currently fall under the higher rate of the sugar tax include full-strength Coca-Cola and Pepsi, Lucozade Energy and Irn-Bru, the Treasury said. The lower rate would catch drinks such as Dr Pepper, Fanta, Sprite, Schweppes Indian tonic water and alcohol-free shandy.

BBC Health Editor Hugh Pym said the tax had come as “a bolt from the blue” – particularly as Downing Street had opposed the idea last Autumn. It was attacked at the time by some Conservative MPs as “nannystate-ism”.

 

In his biggest Parliamentary test to date, Labour leader Jeremy Corbyn delivered the Opposition’s response, describing Mr Osborne’s Budget as “the culmination of six years of his failures” which had “unfairness at its core”.

The Labour leader said the financial proposals failed on productivity, investment and in tackling inequality – and gave tax cuts to the wealthy while disabled people lose more than £1bn.

But he welcomed Mr Osborne’s sugar tax, which will be introduced in two years’ time and will not apply to fruit juices or milk-based drinks.

Announcing the move, Mr Osborne said: “I am not prepared to look back at my time here in this Parliament, doing this job and say to my children’s generation: ‘I’m sorry – we knew there was a problem with sugary drinks. We knew it caused disease. But we ducked the difficult decisions and we did nothing’.”

 

Mr Osborne said the UK was still on course to clear its deficit by 2019/20 thanks to the extra spending cuts, and he hailed his package of measures as “a Budget that puts the next generation first” and made Britain more “secure” in the world.

But in a move that has angered Conservative colleagues who think the UK would be better off out of the European Union, he cited the Office for Budget Responsibility’s view that the UK would be “safer, stronger and more secure” if voters chose to remain in the EU in June’s referendum.

Mr Osborne said the OBR had made clear its forecasts were based on the assumption the UK would remain in the EU and had warned that “there appears to be a greater consensus that a vote to leave would result in a period of potentially disruptive uncertainty”.

In a statement, Conservative MP and Leave campaigner David Davis said: “The real risks for Britain lie in remaining within the EU.

“Many of the ‘cloudy skies’ and ‘cocktail of risks’ the chancellor speaks of originate from a failing, shrinking and unstable European economy.”

Mr Osborne’s package includes a £1.5bn plan to turn all state schools into academies and allow some to have longer days.

to a point from his chancellor

In other Budget announcements, Mr Osborne committed £300m for transport projects, with the government funding the start of work on the Crossrail 2 rail line and new High Speed 3 link across the north of England.

Almost half of the transport money committed was announced in the Autumn Statement.

According to the Office for Budget Responsibility the reduction in the UK’s growth forecast from 2.4% to 2% in 2016 has been driven by a lower forecast for potential productivity growth – the amount of output growth per hour worked the economy is capable of producing sustainably.

The OBR also said the government is going to breach its own welfare cap in every remaining year of this Parliament.

The additional spending is mainly caused by more people than expected being eligible for disability benefits, said BBC social affairs Correspondent Michael Buchanan, despite cuts announced last week to the Personal Independence Payment aimed at saving £1.3bn.

There will be new action to tackle overseas retailers who who store goods in Britain and sell them online without paying VAT – and new tax free allowances for “micro entrepreneurs” who rent their homes or sell services through the internet.

Reforms to business rates will mean 6,000 small businesses pay no rates and 250,000 have their rates cuts from April 2017, said Mr Osborne.

Mr Osborne announced a major overhaul of the North Sea tax regime aimed at helping the UK’s oil and gas industry, effectively abolishing the Petroleum Revenue Tax.

The SNP’s deputy leader Stewart Hosie welcomed the move – but criticised the overall Budget package, saying Mr Osborne had “failed to tackle the debt, the deficit and the borrowing as he promised” and urging him to abandon austerity and invest more in growth.

 

A ‘budget for the next generation’ can’t ignore climate change

Despite rising global temperatures now shattering all records, the issue of climate change did not get a single mention in George Osborne’s speech.

“Doing the right thing for the next generation is what the government and this budget is about,” chancellor George Osborne told parliament on Wednesday. “I am not prepared to look back at my time here in this parliament, doing this job and say to my children’s generation: I’m sorry. We knew there was a problem … but we ducked the difficult decisions and we did nothing.”

However, despite rising global temperatures now shattering all records, the issue of climate change did not get a single mention in his speech. Worse than the missing words, the budget did almost nothing to support the clean energy economy the UK needs to develop for the 21st century, and did a lot to block it.

Osborne and David Cameron talk tough on climate change, citing it as “one of the most serious threats facing our world … a threat to our national security and economic prosperity” and promising a zero-carbon Britain . So to ignore the climate crisis, in a speech centred on “doing the right thing for the next generation”, is bewildering. Or, as Green MP Caroline Lucas bluntly puts it, “sheer hypocrisy”.

Let’s start with the one unalloyed piece of good news: the £700m more for flood defences. Flooding is the UK’s number one threat from global warming and Cameron and Osborne had — until now — ignored a torrent of warnings about the idiocy of earlier budget cuts. But finally realising this folly doesn’t really warrant huge praise.

Nonetheless, common sense prevailed, unlike elsewhere. After Wednesday’s budget, renewable energy faces an even higher “climate change levy”, despite being part of the solution not the problem.

Live coverage, latest news, reaction and analysis of George Osborne’s 2016 Budget

 

Most fossil fuels must be kept in the ground if global warming is to be tamed, but Osborne renewed his zeal to squeeze every last drop out of the North Sea. The oil and gas industry’s pleading was rewarded with a £1bn tax break handout: it got the same in 2015 too. Overall, the Treasury looks likely to be paying the oil industry in the next five years, not the other way around, as crazy as that sounds.

The UK is struggling to meet green targets, particularly in cutting emissions from transport. The answer, according to this budget, is to build more roads and freeze fuel duty as petrol prices plummet. Meanwhile, illegal levels air pollution will continue to cause tens of thousands of premature deaths a year.

Osborne did announce “up to” £730m of support for offshore wind and other “less established” renewables, to be delivered from 2021-22 onwards via auctions. But there will have to be far, far more investment to keep the lights on in a sustainable, affordable way in the 2020s. At the moment, the uncertainty for investors means consumers will pay more.

There was no support at all for the established, cost-effective renewables that the government has slashed: solar power and onshore wind. It admits thousands of jobs are being lost in this sector but, unlike oil and gas jobs, these seem not to matter. Energyefficiency programmes, which should always be the first choice in tackling energy and climate problems, are being cut 80% by Osborne.

Small modular nuclear reactors got a modest £30m boost, which might bear useful fruit in 2030 or so. But the UK needs clean energy now. Perhaps the most intriguing of Osborne’s words were the blink-and-you-missed-it reference to National Infrastructure Commission: “I am also accepting [its] recommendations on energy.”

The NIC backed a smart and flexible vision of energy supply — saving consumers £8bn a year by 2030 — that contrasts starkly with Osborne’s current plans, which are founded on fossil fuels and massive “white elephant” nuclear plants. Perhaps Osborne hasn’t actually read the NIC report. Nonetheless, there’s £50m for storage and other smart energy technologies over the next five years.

Richard Black, director of the Energy and Climate Intelligence Unit, sums up Osborne’s doublethink budget: “The chancellor said several times that this was a budget for future generations, [but] it’s not evident that he has internalised the implications of the recent Paris climate summit. The concrete measures he’s announced barely make a difference to this generation.”

“We’re not afraid to put the next generation first,” Osborne said. We are fast running out of time for him to prove it.