UK ECONOMIC OUTLOOK
• The Office for Budget Responsibility (OBR) has slashed the growth forecasts it made in March.
• Its central forecast for 2011 has been revised down to 0.9 per cent from the 1.7 per cent March prediction. It expects 0.7 per cent year-on-year GDP growth in 2012, instead of 2.5 per cent.
• It now forecasts UK GDP to grow by 2.1 per cent in 2013, 2.7 per cent in 2014 and three per cent in 2015 and 2016.
• However, this central forecast “assumes that the euro area finds a way through the current crisis”.
• The OBR says that there are too many ways that a failure to resolve the euro crisis might play out to quantify the consequences in a meaningful way. However, it suggests that while it thinks there is an equal chance that growth might be better or worse than its central forecast, growth is more likely to be drastically worse than drastically better.
• The UK’s debt level as defined in the Maastricht treaty is estimated at 93.9 per cent of GDP in 2014-15. On the government’s favourite net debt definition it will hit 78 per cent of GDP.
• Public sector net borrowing will fall from 8.4 per cent of GDP in 2011-12 to 1.2 per cent in 2016-17.
• There will be two more years of cuts, by 1.1 per cent in 2015-16 and 0.9 per cent in 2016-17. The aim is now to cut spending by a total of 5.3 per cent.
• The state pension age will be raised to 67 between April 2026 and April 2028. This is expected to save around £60bn in today’s prices between 2026-2027 and 2035-2036.
• Public sector pay rises will be set at an average of one per cent for each of the two years after the current pay freeze ends (for most, in 2013). Health and education departments will get to keep the savings, other departments will have their budgets cut accordingly.
• Foreign aid spending will be 0.56 per cent of gross national income in 2012 and 0.7 per cent from 2013.
•l The bank levy will be increased to 0.088 per cent from 1 January 2012 to meet the government’s target to raise at least £2.5bn from this every year.
• Energy-intensive firms will be compensated for the higher costs of energy imposed by government policy. Beginning in 2013, it will be around £250m over the spending review period.
• The 3.02p per litre fuel duty increase planned for 1 January 2012 will be postponed to 1 August 2012. The fuel inflation increase planned for 1 August 2012 (approx. 1.92ppl) will be scrapped.
• For 2012, TfL and regulated rail fare rises will be capped at RPI + 1 per cent.
• The government will subsidise South West Water to cut household bills by £50.
• The government will freeze the annual exempt amount for capital gains tax at
£10,600 for 2012-13.
• Air Passenger Duty rises will go ahead as planned, including on private jets.
• A tax credit will be introduced in 2013 to encourage research and development.
• Some enterprise zones will be granted 100 per cent capital allowances.
• From January 2012, the Enterprise Finance Guarantee will be extended to businesses with up to £44m turnover.
• The small business rate relief holiday will be extended for another six months.
BENEFITS & PENSIONS
• Most working age and disability benefits will be uprated in line with the CPI measure of inflation in 2012-13, an increase of 5.2 per cent. The disability elements of tax credits will be uprated by CPI. The government will not uprate the couple and lone parent elements of the working tax credit in 2012-13.
• The child element of child tax credit will be uprated in line with CPI, and will rise by £135 per year in 2012-13. The £110 above-inflation increase that was planned for 2012-13 will not go ahead.
• Action will be taken to clamp down on tax relief to employers making asset-backed pension contributions.
• The basic state pension will increase by the triple guarantee, as announced in June 2010. The standard minimum income guarantee in pension credit will increase by 3.9 per cent in April 2012.
• £21bn will be spent helping small and medium-sized enterprises (SME) unable to get credit from commercial lenders.
• A National Loan Guarantee Scheme will make up to £20bn of state guarantees for bank funding so banks lend to businesses they consider too high risk.
• A Business Finance Partnership will provide £1bn to small businesses through non-bank channels.
• Despite the grim state of its finances, the government believes it can plan out a strategy for coordinating public and private investment in UK infrastructure, backing investment of £30bn.
• £6.3bn of notional savings generated over the Spending Review 2010 period will now be spent on infrastructure (£1.3bn of this was announced earlier in the autumn). A further £1bn of private sector investment will be guaranteed by the government. A commitment to £5bn of capital projects in the next spending review period is also being made.
• A memorandum of understanding has been signed with two groups of UK pension funds to invest in infrastructure.
• The government is working with the Association of British Insurers to establish an Insurers’ Infrastructure Investment Forum. These initiatives are targeting £20bn of investment.
• The Regional Growth Fund for England is being increased by more than £1bn, ironically to support the growth of the private sector in areas currently dependent on the public sector.
• A new build indemnity scheme will back high loan-to-value mortgages on new build houses, allowing buyers to put down just five per cent deposits.
• A right to buy initiative on council housing will offer discounts on state-owned properties of up to 50 per cent.
• A £400m investment fund will back firms with stalled development projects that have planning permission.
• The government will invite proposals from developers and local authorities for new developments, from modern garden cities to urban and village extensions, but only where there is clear local support.
• The government is spending £200m over 2012-13 and 2013-14 to encourage early uptake of its Green Deal initiative on energy efficient buildings.
• The stamp duty land tax relief for first-time buyers has not increased their numbers and will end on 24 March 2012 as planned.
• £600m will be spent on 100 new free schools by the end of this parliament.
• £600m will be spent on local authorities with high demographic pressures.
• £940m will be spent to get the young into work. The OBR warns this will displace older workers, not lower joblessness.
• There will be wage incentives for 160,000 employees, 40,000+ payments to small firms that take on apprentices and a work experience offer for every unemployed 18-24 year-old after three months on the jobseekers’ allowance.
• £50m will be spent on 16-17 year-olds in most need to get them into education, apprenticeship or on-the-job training.
• By 2014-2015, £380m a year will help 130,000 two-year-olds annually to get free weekly education and care.