Budget 2016: Talking about the next generation. But where's the money coming from?

Perhaps the Autumn Statement is what we should be holding tight for and when we might really be given the detail of the long-term environment in which we should plan

Chancellor of the Exchequer George Osborne delivers his Budget statement to the House of Commons (PA)

In slowing economic circumstances the Chancellor was always going to have to pull various rabbits from hats to keep at least most parties happy. It was never going to be easy to deliver a Budget from which the most significant benefits are intended for the future, especially when they come with a steep price tag of short term pain.

George Osborne set out his stall from the outset. OBR forecasts, so strong only four months ago, were to be revised down. He was quick to add that this would result in short-term pain, the benefit of which would be entirely justified as measures taken now will provide the next generation with the opportunity it deserves.

Hypothecated taxes are somewhat of a theme for this Chancellor. He is keen at every pain point to provide a tangible reason or outcome for that pain, which seems logical, but more often than not is lacking in comprehensive detail about how new measures will work in practise.

Examples of this include the increase to Insurance Premium Tax (IPT), raised by another half a percent on the back of a substantial increase from last year’s Autumn Statement, means that the £700m raised is going to fund flood defence policies; ironic as premiums will have already risen for those hard hit by the flooding.

The same is true of the new Sugar Levy. The regime will be effective from 2018 giving the industry the opportunity to prepare. Any amounts raised are to go to fund additional school activities. However it is unclear as to whether this money will be added to local government budgets or paid directly to schools.

We also heard a lot about large companies’ tax compliance being addressed, by closing down loopholes and introducing actions arising from the OECD’s work on Base Erosion and Profit Shifting. Mr Osborne explained that these additional revenues would help small, sometimes micro businesses, taking some out of tax altogether. That can be good for those setting out into start up and scale up ventures.

There is a hidden dark side to all of this seemingly logical cause and effect approach. We know from our recent survey of over 1,000 business leaders that businesses of all sizes overwhelmingly believed that the Chancellor should prioritise measures to simplify the business tax system.

These new taxes, together with a raft of others, all add to the current complexity of our outdated tax system. Ironically, the Chancellor referenced this complexity and the need for modernising codes to make the system fit for the 21^st century. At 20,000 pages, the UK's tax code remains one of the most complex globally and at times, totally out of kilter with what a modern, vibrant economy requires.

Complexity has serious commercial implications for business. We know, for instance, that more than half (54 per cent) of businesses say the current tax system slows down commercial decisions – with mid-sized businesses the most affected by this. It’s therefore disappointing that the Chancellor did not use the opportunity to push for real and material change to simplify the system.

A lot of these measures will require more rules and regulations. Radical simplification and greater transparency and understanding would increase productivity and compliance – a win-win for the economy and society more wholly.

So in considering the Budget overall, we need to go back to the economic basics.

It could be argued Mr Osborne's opening gambit, while nodding towards to the strong recent growth for the UK, massively underplayed the huge future uncertainties that the UK faces, both nationally, globally and economically. OBR forecasts are bleaker, with slowing growth and the debt to GDP ratio actually rising.

Lots of grand promises, and cost cutting policies were announced as well as a continued commitment to balancing the UK’s books by 2020. Mr Osborne went so far to promise that by next year only £1 in every £14 will be debt funded, against £1 in every £4 when he took the reins at the Treasury.

The conundrum is where is all this money coming from the fund these policies? Business rate reductions, cut in Capital Gains Tax, further reduction in corporation tax and so on, none of which will come cheap.

Overall this Budget should be well received by the majority of individuals and businesses alike. However one could perhaps be bold enough to suggest that Mr Osborne has merely deferred the announcement of any painful cuts to post the EU referendum.

So perhaps this Budget, although aimed at the Next Generation, may be shorter term than we imagine? Perhaps the Autumn Statement is what we should be holding tight for and when we might really be given the detail of the long-term environment in which we should plan.

Jonathan Riley is head of tax at Grant Thornton UK