U.K. budget sweetened deal for business, while taxing sugary drinks

British chancellor George Osborne had a sweet deal for corporations and small businesses in his budget delivered today, but in a surprise move will create a new tax to discourage consumption of sugary drinks.

Chancellor George Osborne warns U.K. economy will grow at just 2% in 2016

Britain's Chancellor of the Exchequer George Osborne carries the traditional red dispatch box with the budget outside 11 Downing Street in London. 11 Downing Street, right next door to the prime minister, is the official residence of the chancellor. ( Frank Augstein/Associated Press)

British chancellor George Osborne had a sweet deal for corporations and small businesses in his budget delivered Wednesday, but will create a new tax to discourage consumption of sugary drinks.

The corporate tax rate is to be reduced to 17 per cent and he has promised tax relief to oil companies operating in the North Sea, who have been hard hit by the fall in world oil prices.

Small business and capital gains taxes are to be cut, but the news was not so sweet for makers of pop and energy drinks.  

Osborne has proposed a £520 million ($980 million Cdn) a year sugar tax that will be used to fund school sports and efforts to fight obesity. The levy will apply to drinks with sugar content above 5 g per 100 millilitres, with a higher tax for drinks with more than 8 g of sugar per 100 millilitres. 

Health campaigners welcomed the surprise development, but the Food and Drink Federation spoke out against the tax.

"For nearly a year we have waited for an holistic strategy to tackle obesity. What we've got today instead is a piece of political theatre," said its director-general Ian Wright.

Slowdown in GDP growth

There was no sugar coating the outlook for the British economy, which Osborne now forecasts to grow at two per cent in 2016, down from the previous estimate of 2.4 per cent.

"Britain is not immune to slowdowns and shocks," he said. "Nor as a nation are we powerless. We have a choice. We can choose to add to the risk and uncertainty, or we can be a force for stability."

The chancellor was forced to back down on his debt promises because of the slowdown in growth. The 2016-17 deficit is forecast at £72.2 billion ($136 billion) and Osborne has had to acknowledge the debt to GDP ratio will rise this year, though he expects it to fall in the years ahead.

"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.

Cuts planned

He offered 3.5 billion pounds ($6.6 billion) in cuts by 2020, including $1.8 billion out of supports to the disabled,  to achieve his target of balancing the books in the face of weaker global economic growth.

Among the other measures put forward:

  • A new savings vehicle with a government top-up for people under age 40 who save.
  • Plans for a longer school day.
  • Raising the person exemption so anyone earning under £45,000 pays less tax.
  • Investments in rail and other infrastructure.

Osborne warned the threat of "Brexit," a withdrawal of Britain from the European Union, threatens any forecasts he made in the budget.


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