Chancellor Osborne's 2015 UK Budget cuts oil tax, raises bank levy

Chancellor George Osborne on Wednesday delivered the 2015 UK Budget which included tax cuts for the North Sea oil and gas industry and an increase in the rate of the bank levy.

In an effort to stimulate investment in the North Sea oil and gas amid a slump in crude, tax cuts worth £1.3bn will be introduced, along with a generous tax allowance to stimulate investment.

The petroleum revenue tax will be slashed from 50% to 35% to support investment in older fields and the supplementary charge will be cut from 30% to 20% and backdated.

Osborne said this, along with new government investment seismic surveys, was expected to lead to over £4bn of additional investment and at least 120m barrels of oil equivalent of additional production in the next five years.

The Budget will also include a 0.21% rise in the rate of the bank levy, raising £900m. Banks will also be stopped from deducting PPI compensation payments from corporation tax.

The Chancellor revealed a new "fully flexible ISA", allowing people to take money out of their ISA and put back within year without losing their allowanced. The new ISA will be available from the autumn.

As existing help-to-buy schemes tail off, a 'Help to Buy ISA' will also be introduced, which applies to first-time home buyers. For every £200 they save, the government will add £50.

Another surprise was a new personal savings allowance will also be introduced under which people will be able to save £1,000 without having to pay tax.

As expected, the government has raised its economic growth forecasts for this year and next. Gross domestic product is expected to increase 2.5% this year, compared to the 2.4% estimate in last December’s Autumn Statement. In 2016, GDP is projected to climb 2.3%, up from an earlier prediction of 2.2%.

HSBC had expected the Office for Budget Responsibility to revise growth forecast for 2015 to 2.7% and for 2016 to 2.5%.
Inflation was forecast at 0.2% this year after hitting a record low of 0.3% in January amid a drop in oil prices.

The personal tax free allowance will rise to £10,800 next year, and £11,000 the year after. In 2015-16 the allowance is £10,600.

The UK Budget came under close scrutiny as the 7 May general election approaches, but economists largely hailed Osborne's plans as sensible and balanced.

“The Chancellor has taken a gamble that fiscal responsibility, rather than pre-election largesse, will be a vote-winner,” said BNP Parabis analyst Dominic Bryant.

“Clearly raising the tax-free allowance and reducing taxation on savings will help at the margin, but there is little in the Budget to take the sting out of Labour’s criticism on health service funding or public spending cuts generally.”

Capital Economics chief UK economist Vicky Redwood added: “Chancellor George Osborne has stuck to his word and delivered a fully-funded budget despite the fact that an election is just around the corner. Clearly he decided that it would play better with the electorate to emphasise his fiscal prudence rather than resort to some blatant pre-election bribery.”

But she warned that it would take four years of "deep spending cuts" and "very low" interest rates throughout most of the next parliament in order to reach the chancellor's intended budget surplus by 2019.