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EY analyses George Osborne’s Summer Budget

EY

5 min read Partner content

Giving expert insight into the business community’s take on the Chancellor’s Summer Budget, EY reacts to the announcements. 

As a leading voice on UK infrastructure investment, the company welcomed plans to devolve spending powers to the North of the England and update travel payment methods.

Nathan Marsh, Director in EY’s Government team in the North of England said:  

“The Budget has signalled a clear statement of intent around the Government’s commitment to devolution. The £30m of funding for integrated transport is money that hasn’t been made available in previous Budgets but is now going to be ring-fenced and will form part of a wider funding path for infrastructure investment in the North of England.

“A key area of investment is the development of the ‘Oyster of the North’, which is designed to help drive mobility, a consistent customer experience and create the conditions for economic growth across the North.”

EY was equally pleased with George Osborne’s commitment to an extra £8bn for the NHS, but warned that there will still be pressure on services as they try to make savings.

According to Joe Stringer, EY Health Partner, “in the short-term, savings will be made through measures that are already being pushed, such as reducing hiring of temporary staff, but also through getting better value for money from buying hospital supplies. Many of these measures have been tried before and at best, will be mixed in terms of their impact. In the main, they will also fail to tackle the more fundamental issues set out in the NHS Five Year Forward View.

“We are now seeing many hospitals and wider health economies react by looking at how they can divert demand away from costly A&E, and towards other forms of care such as GPs. This will go a long way to meet the £22bn efficiency target, but more importantly should also give patients better quality of care and greater control over where they are treated."                                                                                   

Reacting to the announcement that the bank levy will be gradually reduced

Anna Anthony, EMEIA Head of Financial Services Tax at EY described it as “very welcome news for the sector.”

The 8% surcharge was met with a little more scepticism, however, with Ms Antahony saying it “sounds high, but is likely to be more acceptable than the levy because it at least has a direct link to the profitability of an institution.”

Giving his view on the tax changes Chris Sanger, Head of Tax Policy at EY said the Chancellor had “re-sculpted the UK tax system, taxing dividends, proposing changes to pensions, adding a new tax on banks, cutting corporate tax rates and restricting interest relief on buy-to-let investments.”

On pension tax relief Jason Whyte, Director in Insurance at EY, said the changes were “as expected,” but expressed concern about the impact they might have.

“There’s also a big question about whether these changes, which bring tax revenue forward, will create a revenue hole for a later government,” he added.

Mr Whyte was equally hesitant about the suggestion that pensions could be remodelled along the lines of ISAs, saying “if it goes through, he will receive a huge short-term windfall - unless consumers start saving less. But how much more change can savers take before they lose confidence in the system altogether? Can the industry and employers adapt when they are still reeling from the Chancellor’s 2014 changes?

“Perhaps most importantly, there could be a risk to the future economy. A generation who save through Pension ISAs will pay no further tax once they retire, while making ever increasing demands on the healthcare system. The tax revenue from their contributions will have been long spent. The scale of change contemplated is on a par with the Thatcher government’s reform of the housing market, so it is important that the government is going to consult through a Green Paper rather than just driving the change through.”

Another of the tax changes focusses on Inheritance tax, which David Kilshaw, EY's head of private client tax, described as “complex.”

“The present system is simple and works – the changes mark an unnecessary level of complexity. A straight forward £1 million inheritance tax exemption would have been preferable.

“The key message to homeowners in the £1million band is make a Will today if you want to ensure your home passes tax efficiently upon your death,” he said.

Mr Kilshaw went on to criticise non-dom status reform, saying the changes would “drive new behavior. We may see an upsurge in ‘boomerang non-doms’ such as those who go overseas for five years to refresh their domicile status and then return to the UK.

“For those born to British parents the Chancellor has made domicile part of your DNA. A person born to a British father can no longer go offshore for a few years to acquire non-dom status.”

Adding his expertise to the analysis Mark Gregory, EY’s chief economist, said: “The OBR's forecasts show the gamble implicit in the Chancellor's Budget. With a fiscal squeeze - albeit slower than forecast in March - no expectations of a boost from trade, and a slowdown in consumer spending growth as welfare cuts bite, the Chancellor needs productivity to accelerate to drive growth. The OBR's scenarios show that if productivity remains at the level of recent history, GDP will grow a third more slowly than under the base case of improving productivity.”

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