The U.K. would benefit from staying in the European Union as there will be prolonged negative impact on the economy, if the country chooses to leave, Chancellor of the Exchequer George Osborne said Wednesday, as the growth forecasts were reduced drastically.
In the Budget 2016, Osborne also announced a new sugar levy on the soft drinks industry and the GBP 520 million estimated proceeds will be used to double funding for sport in every primary school.
The British economy is stronger with productivity growth, but faces “a dangerous cocktail of risks” from the weak global economic outlook, Osborne said in his budget speech, which was his the eighth major budget presentation.
Citing the forecasts from the Office for Budget Responsibility, Osborne said the global economic outlook is “materially weak”, mainly due to slowdown in the emerging markets, especially China, and weak growth in the developed economies.
Consequently, the growth forecasts for the U.K. economy were cut sharply as OBR assessed that the drag from the financial crisis on UK productivity have not eased yet.
The growth projection for this year was slashed to 2 percent from 2.4 percent seen in November. The outlook for next year was cut to 2.2 percent from 2.5 percent.
The forecasts for the three years thereafter were also reduced to 2.1 percent each.
The projections are based on the assumption that the U.K. remains a member of the European Union.
Quoting OBR, Osborne said, “a vote to leave in the forthcoming referendum could usher in an extended period of uncertainty regarding the precise terms of the UK’s future relationship with the EU.”
“This could have negative implications for activity via business and consumer confidence and might result in greater volatility in financial and other asset markets”.
According to Osborne, “Britain will be stronger, safer and better off inside a reformed European Union.”
“I believe we should not put at risk all the hard work that the British people have done to make our country strong again,” he added.
The OBR also lowered the inflation forecast for this year and next to 0.7 percent and 1.6 percent, respectively.
Osborne said that the government aims to save a further GBP 3.5 billion in the year 2019-20.
Meanwhile, the Chancellor missed his target of reducing public debt and debt as a percentage of GDP will be above target and rise from the previous year.
The debt-to-GDP ratio is set to fall to 82.6 percent next year, to 81.3 percent in 2017-18, and to 79.9 percent the year after, he said. The ratio is seen to drop to 74.7 percent by 2020-21.
The Chancellor retained his aim to reach a budget surplus by 2019-20, which was forecast at 0.5 percent to GDP. The budget deficit is forecast to fall to 2.9 percent next year, to 1.9 percent in 2017-18, and to 10 percent in 2018-19.
The government borrowing was forecast to be GBP 72.2 billion this year and to drop to GBP 21.4 billion in 2018-19. The country will have a surplus of GBP 10.4 billion in 2019-20, Osborne said.
“We act now, so we don’t pay later,” the Chancellor said. “We put the next generation first.”
In other measures, the corporation tax was lowered to 20 percent from 28 percent. The levy is forecast to reach 17 percent by 2020.
Two new tax-free allowances, each worth ?1,000 a year, were announced for both trading and property income of small businesses and women entrepreneurs.
The small business rate relief threshold was raised to GBP 15,000 from GBP 6,000. Osborne also announced changes to the commercial stamp duty, which will have a zero rate band on purchases up to GBP 150,000.
In the backdrop of falling oil prices, the Supplementary Charge on oil and gas was lowered from 20 percent to 10 percent, effectively abolishing the Petroleum Revenue Tax.
The Chancellor also announced reforms to the education sector that included converting every primary and secondary school in England to an academy by 2020, thus freeing them from the control of local education authorities.
The freeze on fuel duty was maintained for a sixth year running, while the tobacco tax will rise by 2 percent above inflation. The levies on beer and cider were also frozen.
The capital gains tax was cut to 20 percent from 28 percent.
The material has been provided by InstaForex Company – www.instaforex.com