George Osborne has unveiled a new tax on sugary drinks, such as Coca-Cola, Red Bull and Irn Bru, pledging to use the takings to provide more sports funding for schools.
The policy, described by Conservative colleagues as “nanny statism at its worst”, was a centrepiece of a wide-ranging budget in which Osborne cut key taxes but warned of slower economic growth.
Delivering his eighth budget to a packed House of Commons, the chancellor touted record employment and a falling deficit in the public finances but warned of a “dangerous cocktail of risks” from turbulent financial markets, a weaker global economic outlook and sluggish productivity growth.
He sought to woo employers with a cut to business rates and corporation tax, while offering fresh support for the embattled North Sea oil industry.
Under the catchphrase “a budget that puts the next generation first”, Osborne confirmed widely trailed changes to the education system to turn schools in England into academies and introduced the sugar tax on the soft drinks industry.
The chancellor also introduced a savings scheme for those under 40, to help with their retirement or buying a home.
The budget contained some eye-catching tax changes, but they are unlikely to distract from the gloomier economic picture painted by Osborne.
Despite his insistence that there was “solid, steady growth”, the chancellor was forced to admit the UK economy is expected to grow 2% this year, down sharply from a previous expectation for 2.4%. That was the conclusion of the government’s independent forecasters, the Office for Budget Responsibility(OBR).
The downgrade to the growth outlook for this year and the following four years reflects a weaker global economy and lower OBR forecasts for potential UK productivity growth.
Osborne, as expected, insisted that he would press on with spending cuts or, as he put it, act now so as not to “pay later”. He renewed his promise of a surplus on the public finances by the end of the decade as he set out a path for deficit-cutting that appeared to backload cuts to the end of the parliament.
“The British economy is stronger because we confronted our problems and took the difficult decisions,” Osborne told parliament.
But the outlook was challenging, he said. “Financial markets are turbulent. Productivity growth across the west is too low. And the outlook for the global economy is weak. It makes for a dangerous cocktail of risks. But one that Britain is well prepared to handle, if we act now so we don’t pay later.
“In this budget we choose to put stability first ... we choose to put the next generation first,” he said.
Under the sugar tax plans, soft drinks companies will pay a levy on drinks with added sugar from April 2018, with the proceeds used to double sports funding for primary schools. It will not be levied on milk-based drinks or fruit juices.
Quince said he was “disappointed” by the budget, pointing out that the OBR said the price would be passed on to the consumer. He said that would “hit the poorest hardest”. Another Tory critic, Andrew Percy, called it “deeply unConservative”.The sugar tax has been a controversial issue for the Conservative party, which has previously resisted pressure to introduce it. In January, the Tory MPWill Quince told the Commons that the idea would be “illiberal and patronising – in my view, nanny statism at its worst”.
The eye-catching policy represents a change of position for David Cameron, who ruled it out as an option in October, arguing that there were “more effective ways of tackling this issue than putting a tax on sugar”. He later said he was being persuaded despite his resistance to the idea of new taxes.
Dr Sarah Wollaston, the Tory chair of the health select committee, who has previously accused ministers of suppressing the findings of a scientific review on the issue, welcomed the move.
Jamie Oliver, the campaigning TV chef who introduced a sugar tax on fizzy drinks in his own restaurants, said that when he woke up on Wednesday he did not know this was coming. “I never thought they’d do it,” he said, adding that a few months ago it was not on the cards.
After growing pressure from companies over the burden of business rates, the chancellor doubled the threshold beneath which firms qualify for small business rate relief and raised the threshold for higher rates. As a result, 600,000 small businesses would pay no business rates at all and 250,000 would see their rates cut, Osborne said.
“Today I am more than doubling small business rate relief, and I’m more than doubling it permanently,” he said.
The chancellor also extended more help to the oil and gas industry, which has been hit hard by plunging global crude prices.
Corporation tax, currently at 20%, would be cut to 17% by 2020, lower than the previously planned 18% rate, Osborne said. He added: “Britain is blazing a trail – let the rest of the world catch up.”
The headline rate of capital gains tax is being cut from 28% to 20%.
In a budget influenced by the impending referendum on EU membership, when Osborne wants the UK to vote to stay in, there were a few voter-wooing measures. Fuel duty was frozen for a sixth year in a row, and beer and cider duty also remained the same. There will be increases in the personal allowance, the amount someone can earn before they start paying income tax. It is currently £10,600 – it was already rising to £11,000 in 2016, and will now increase further to £11,500 in April 2017.
Osborne also announced plans to increase flood-defence spending, changes to stamp duty for small businesses, support for entrepreneurs, funds for a new air ambulance service in Northern Ireland, and lower tolls on the Severn crossing.
The budget comes against the backdrop of a slowdown in the global economy, including a downturn in China that has spooked financial markets. Osborne had already warned he would continue with spending cuts as “storm clouds” roll in and hit economic growth.