Gloomy growth, a big push into state support for risky mortgages and new central bank rules
- The Office for Budget Responsibility (OBR) has halved its growth forecast for 2013 to 0.6 per cent, with a 30 per cent chance that the economy will actually shrink this year. The OBR has also cut its growth forecast for 2014 from two per cent to 1.8 per cent. It has left its growth forecasts for 2015, 2016 and 2017 unchanged at 2.3 per cent, 2.7 per cent and 2.8 per cent respectively.
- The OBR’s latest figures suggest that the UK economy shrank in the final quarter of 2012 by 0.3 per cent: three times more than it forecast in December. It blames this fall on the London Olympics. The OBR is now predicting 0.1 per cent growth in the first quarter of 2013, but says the chance of a triple-dip recession is close to fifty-fifty.
- Private sector employment, excluding a one-off reclassification, is expected by the OBR to have risen by 2.4m between 2011 and 2018, more than compensating for the cuts to the public sector of 1m jobs over the same period.
- Real pay in the private sector fell in the last quarter of 2012, as average earnings growth was 1.3 per cent, a third lower than the OBR predicted in December and well below inflation, which was 2.7 per cent in the last quarter of 2012 on the CPI measure. The OBR now expects real wages to fall again in 2013 and only rise marginally in 2014, before picking up in 2015 and hitting two per cent growth in 2016.
- The OBR has raised its CPI inflation forecast for 2013, and assumes that the falling value of the pound will help keep CPI inflation high over the next few years. It is not expected to fall to its two per cent target until 2016. The RPI measure of inflation is also expected to be high in 2013 due to higher food prices.
- The OBR expects the government’s environmental policies to add two per cent to domestic electricity bills every year until 2020, and 0.5 per cent annually to domestic gas bills. Overall, domestic energy prices are expected to rise seven per cent in the winter of 2013 and three per cent in the winter of 2014.
- The OBR forecasts that the deficit will be unchanged in 2012-13 and 2013-14 from its 2011-12 level, excluding decisions by the government that flatter the numbers but only have a temporary effect. Leaving out the transfer of the Royal Mail pension plan and the Treasury’s raid on quantitative easing (QE) income, public sector net borrowing will be £120.9bn in 2012-13 and £119.8bn in 2013-14, a statistically and fiscally insignificant deviation from the 2011-12 borrowing figure of £121bn. The underlying deficit is expected to fall again in three years time, but will not be eliminated in five years: in 2017-18, the OBR estimates it will still be 2.3 per cent of GDP.
- Public sector net debt has been revised upwards from the OBR’s December forecasts for every one of the next six years. Government debt is now expected to keep growing until 2016-17, when it will peak at 85.6 per cent of GDP, falling to 84.8 per cent the following year, two years later than the government’s supplementary debt target. In last year’s Budget, debt was expected to peak in 2014-15 at 76.3 per cent of GDP.
- Public spending is expected to fall from 45.2 per cent of GDP next year to 40.5 per cent in 2017-18. Public sector receipts as a share of GDP are expected to stay roughly constant, falling from 38.4 per cent of GDP next year to 38.3 per cent in 2017-18.
- Central government departments, with certain exceptions, have had their departmental expenditure limits cut by roughly one per cent. This will raise £1.1bn in 2013-14 and £1.2bn in 2014-15. This money will not be spent on reducing the deficit but will be transferred to new schemes to support the housing sector. Schools and health budgets are ringfenced, as well as HMRC.
- The commitment to spend 0.7 per cent of UK gross national income through the Department for International Development (Dfid) on overseas aid has been reaffirmed, but the Dfid budget will be reduced by £135m this year and £165m in 2014-15 as the UK’s struggling economy has reduced the value of the pledge.
- Public sector pay increases in 2015-16 will be limited to one per cent on average. The armed forces will be excluded.
- The government will spend another £3bn a year on capital spending from 2015-16, and will set out a five year plan to 2020-21 for the areas of capital expenditure that it believes will be most economically valuable.
- The majority of the Heseltine review has been accepted. A single local growth fund will be created, with spending decisions devolved to local enterprise partnerships (LEP).
- The government will spend £1.6bn supporting its industrial strategy, with funds to be allocated over 2013, including the creation of an Aerospace Technology Institute, in partnership with industry.
- Government procurement from small businesses will be boosted from £40m in 2012-13 to over £100m in 2013-14 and £200m in 2014-15.
- The Bank of England’s Monetary Policy Committee (MPC) has had its remit adjusted so that it retains a flexible inflation targeting framework and its two per cent inflation target, but must set out more explicitly its reasons for allowing inflation to remain above the goal. The MPC has been asked to provide in August an assessment of the merits of using intermediate thresholds in the operation and communication of monetary policy.
- The government is creating a new, two-pronged help-to-buy scheme to support the housing market.
- From 1 April 2013, for three years, a help to buy equity loan scheme worth £3.5bn will be available to all those who want to buy a new build home worth up to £600,000. The government will provide a loan of 20 per cent of the property’s value, to be repaid when it is sold.
- From January 2014, for three years, the help to buy mortgage guarantee will give lenders a government guarantee to support buyers with a deposit of only 5-20 per cent. This guarantee is not just for first-time buyers and is not restricted to new build property. It is available on properties worth up to £600,000. The scheme will offer up to £12bn of government guarantees to support £130bn of risky mortgages.
- From 25 March the maximum discount cash cap in London for right to buy on council housing will be £100,000.
- The £200m build to rent fund announced in the 2012 Autumn Statement will be expanded to £1bn.
- The affordable homes guarantee will be doubled, providing another £225m.
- From 1 April 2013, the annual tax on enveloped dwellings will place a recurring charge on residential properties owned by certain non-natural persons such as companies and valued at over £2m.
- Capital gains tax (CGT) will apply at 28 per cent on gains after 6 April 2013 on disposals by certain non-natural persons of UK residential property worth over £2m that has been subject to the annual tax on enveloped dwellings.
- The personal allowance for income tax will be increased in 2014-15 to £10,000, and in line with CPI in future years. In line with last year’s Autumn Statement, the 40p rate of tax will hit incomes above £41,865 from 2014-15, bringing more into the higher rate tax band.
- All businesses and charities will have a £2,000 allowance to be offset against their employers’ national insurance contributions from April 2014. But not employers of nannies.
- The main rate of corporation tax will be cut from 21 per cent in April 2014 to 20 per cent from April 2015. At this time, the small profits rate will be unified with the main rate.
- General duty on beer will be cut by two per cent from 25 March. Duty on low strength beer will fall by six per cent and strong beer by 0.75 per cent. Beer duty will then increase by the RPI inflation measure. Duty on cider, wine and spirits will increase by two per cent above RPI from 25 March.
- Tobacco duty increased by two per cent above RPI from 6pm on 20 March. From 1 January 2014, legally available herbal smoking products will also be liable to tobacco duty.
- The 1.89p per litre fuel duty increase on 1 September has been cancelled.
- Air passenger duty in 2014-15 will rise in line with RPI on 1 April 2014.
- There will be a consultation by the summer on a new tax relief for investment into social enterprises, with the outcome confirmed in this year’s Autumn Statement.
- The government will also consult on ways to allow the transfer of savings from child trust funds to the new junior Isas.
- A CGT relief of 50 per cent will apply to gains realised in 2013-14 reinvested in the seed enterprise investment scheme (SEIS) in 2013-14 or 2014-15.
- As announced in April, the nil-rate band for inheritance tax (IHT) will be frozen at £325,000 until 2017-18. This will increase the number of estates that inflation brings within the scope of the tax and the government will spend the money part-funding its new social care plans.
- The IHT-exempt amount that someone who is UK-domiciled can transfer to a non-domiciled spouse or civil partner will be increased. Non-doms with UK-domiciled spouses or partners will also be able to elect to be treated as UK-domiciled for IHT purposes.
- The existing IHT rule that allows a deduction from the value of an estate for an outstanding debt will be closed, affecting small business owners that borrow against their property.
- The government will consult on making gift aid easier to claim.
- The government is introducing a raft of measures to reduce the legal avoidance of tax, including consultation to remove the presumption of self-employment for limited liability partnership partners and countering the allocation of profits to partners to achieve a tax advantage. New proposals will be considered to tackle the promoters of tax avoidance schemes.
- The first £2,000 of shares received by employees from their firms under the new so-called rights-for-shares arrangements will be free from income tax and national insurance. This will apply from 1 September, when the new status comes into force. Gains on up to £50,000 of such shares will be exempt from CGT. However, the plan is in jeopardy after the House of Lords voted it down yesterday.
- The above the line tax credit (ATL) for research and development will be increased to 10 per cent before tax. Firms with no corporation tax liability will be able to claims a payable credit. The ATL credit will be introduced from April 2013, fully replacing the existing super-deduction from April 2016.
- The finance bill 2014 will introduce legislation to increase the small loans exemption limit from £5,000 to £10,000 for employers to provide beneficial loans to their employees for items such as for rail season tickets.
- From 1 February 2014 the bank levy will be increased from 0.130 per cent to 0.142 per cent.
- Stamp tax will be abolished on shares in companies quoted on growth markets such as the Alternative Investment Market (Aim).
- There will be a marketing strategy to promote the UK as a centre of fund management and domicile.
- The government will abolish the schedule 19 tax on surrenders of units in collective investment schemes from 1 April 2014.
- The government is considering the case for real estate investment trusts (REITs) being included within the definition of institutional investor.
- Policyholders who bought an Equitable Life With-Profits Annuity before 1 September 1992, and are still alive, will get £5,000. A further £5,000 will go to policyholders also in receipt of pension credit.
- A new field allowance for shale gas will be introduced and the ringfence expenditure supplement will be extended for shale gas projects from six to 10 years. The Budget also sets out the scope, responsibilities and objectives of the Office for Unconventional Gas and Oil.
- Two carbon capture and storage (CCS) projects will move to the planning and design stage.
- Exemptions to the climate change levy (CCL) for energy used in some industrial processes will be granted from 1 April 2014.
CHILD & SOCIAL CARE
- A new tax-free childcare scheme for working families will provide 20 per cent of childcare costs, up to £1,200 per child, so long as both parents are in work and do not receive support through tax credits, if neither earns over £150,000 a year.
- An additional £200m will be provided to increase childcare support in universal credit.
- The new single-tier state pension will begin in 2016-17. From 2016-17 the ability for members of a defined benefit occupational pension scheme to contract out of the state second pension will end, denying them the option of paying a lower rate of national insurance.
- There will be a £72,000 cap on reasonable care costs, extending the means test from April 2016.