THE ECONOMY/PUBLIC FINANCES
• The Office for Budget Responsibility (OBR) published fresh forecasts in light of the measures announced yesterday by chancellor George Osborne.
• GDP growth will be 1.2 per cent in 2010, accelerating to 2.3 per cent in 2011, 2.8 per cent in 2012 and 2.9 per cent in 2013. The pace of growth will ease slightly to 2.7 per cent in 2014 and 2015.
• The OBR says the projection for trend growth is lower than assumed in the March Budget. For the next three years, it will be 2.25 per cent, slowing to just over two per cent from 2014. A trend growth rate of 2.5 per cent underpinned Alistair Darling’s March forecasts for the public finances. The output gap is estimated to have been -4 per cent at the end of 2009, less than the -6 per cent forecast by the March Budget.
• CPI inflation will fall to 2.7 per cent in the last quarter of 2010. It will then fall to 2.4 per cent in 2011, 1.9 per cent in 2012 and then return to the two per cent target from 2013 to 2015. The Bank of England’s inflation target remains at two per cent.
• Public sector net borrowing will be £149bn this year, £116bn in 2011-12, £89bn in 2012-13, £60bn in 2013-14, £37bn in 2014-15 (half what was forecast in the March Budget) and £20bn by 2015-16.
• Cyclically-adjusted public sector net borrowing will be reduced by 8.4 percentage points, from 8.7 per cent of GDP in 2009-10 to 0.3 per cent of GDP in 2015-16.
• As a share of GDP, borrowing will be 10.1 per cent in 2010-11. It will fall to 7.5 per cent in 2011-12, 5.5 per cent in 2012-13, 3.5 per cent in 2013-14, 2.1 per cent in 2014-15 and 1.1 per cent in 2015-16.
• The cyclically-adjusted deficit on the current budget will be 4.8 per cent this year, 3.2 per cent in 2011-12, 1.9 per cent in 2012-13 and 0.7 per cent in 2013-14. It will then return to a surplus of 0.3 per cent in 2014-15 and 0.8 per cent in 2015-16.
• Public sector net debt as a share of GDP to be 61.9 per cent in 2010-11, rising to 67.2 per cent in 2011-12, 69.8 per cent in 2012-13 and 70.3 per cent in 2013-14. It will then start falling to 69.4 per cent in 2014-15 and 67.4 per cent in 2015-16.
• Gordon Brown’s golden rule has been abandoned. In its place comes a forward-looking fiscal mandate to achieve a cyclically-adjusted budget balance by the end of the rolling five-year forecast period, which is 2015-16.
• The mandate will be supplemented by a target for public sector net debt as a percentage of GDP to be falling at a fixed date in 2015-16. The OBR’s forecasts show both the mandate and debt target being met a year early in 2014-15.
• The UK won’t join the euro this parliament.
• Public sector current expenditure will be £637.3bn this year, rising every year to reach £711.4bn by 2015-16. Capital annually managed expenditure will be £7.8bn in 2010-11, falling to £5.2bn by 2015-16.
• Total Managed Expenditure (TME) will fall in real terms by four per cent over the forecast period.
• Spending is projected to fall from 48 per cent of GDP to 40 per cent by 2015-16 and receipts are projected to rise from 37 to 39 per cent.
• Public spending will be £83bn a year lower by 2014-15. There will be additional reductions in current spending totals of £30bn a year by 2014-15. There will be no further cuts in capital spending totals in 2010-11 beyond those already announced as part of the £6.2bn savings.
• The Spending Review, which will set departmental expenditure limits for every department and for the Scottish and Welsh parliaments, will be published on 20 October 2010.
• Public sector net investment is forecast to fall from £38.9bn this year to £20.9bn by 2015-16 compared with £49bn in 2009-10.
• The NHS will see a real increase in its budget over the lifetime of the parliament. Overseas development assistance will also be protected.
• Public sector workers earning more than £21,000 will see a pay freeze for two years. Those earning less than £21,000 will get at least an extra £250 in each of these two years. Estimated to save £3.3bn by 2014-15.
• Independent commission chaired by John Hutton to review public sector pension provision by the 2011 Budget. It will consider the case for short-term savings by September 2010.
• The government will adopt the CPI for the indexation of benefits, tax credits and public service pensions from April 2011.
• The Debt Management Office (DMO) said that planned gilt sales in 2010-11 are being reduced by £20.2bn to £165bn as a consequence of the new forecasts.
• The Civil List will remain frozen at £7.9m for the coming year. The Queen has agreed that the Civil List expenditure will be subject to the same audit scrutiny as other government spending.
• Regional Development Agencies will be abolished through the Public Bodies
Bill. A White Paper later in the summer will set out details to support the creation of strong local enterprise partnerships
• Introduction of a levy on bank’s balance sheets from 1 January 2011, intended to encourage banks to move to less risky funding profiles.
• It is proposed that the levy will be set at a rate of 0.07 per cent, with a lower initial rate of 0.04 per cent in 2011. Final details will be published later this year, following consultation. This is expected to raise £2bn a year.
• Costs and benefits of a Financial Activities Tax will be explored.
• Budget confirmed the Bank of England will be given control of macro-prudential regulation and oversight of micro-prudential regulation.
• Confirmed establishment of independent commission on banking to be chaired by John Vickers. The commission will make recommendations to the Cabinet Committee on Banking Reform by the end of September 2011.
• The main rate of corporation tax will be reduced from 28 per cent to 24 per cent by one per cent each year from next April until 2015-16. This would give the UK the lowest corporation tax rate in the G7. This will cost £2.7bn by 2014-15.
• The small profits rate (formerly known as the small companies rate), will be cut to 20 per cent.
• The capital allowances main rate to be reduced to 18 per cent from 20 per cent and the special rate from 10 per cent to eight per cent. Introduced in April 2012.
• The Annual Investment Allowance will be cut from £100,000 to £25,000 from April 2012.
• Controlled Foreign Company (CFC) rules will be reformed and legislated in spring 2012. Consultation will occur over the summer on interim improvements to be ruled on in April 2011.
• The hike in employers’ National Insurance contributions will be largely reversed by increasing the threshold by £21 a week above indexation.
• New businesses in certain areas of the UK will not have to pay the first £5,000 of employer NICs in the first year for the first 10 staff hired. The scheme will start in September but any business set up from yesterday is eligible.
• The Enterprise Finance Guarantee to be increased by £200m this year to support extra lending of up to £700m for small businesses until the end of March 2011. The government will also create the Growth Capital Fund to support small businesses with high growth potential.
• Creation of a Regional Growth Fund in 2011-12 and 2012-13. This will operate in England only and support increases in business employment and growth.
• The 10 per cent capital gains tax rate for entrepreneurs will be extended from the first £2m to the first £5m of qualifying gains made over a lifetime.
• Special tax rules for furnished holiday lettings will not be implemented.
• Planned tax relief for the UK’s video games industry abolished.
• As of today, capital gains tax will rise to 28 per cent from 18 per cent for higher rate earners. Basic rate taxpayers will still pay 18 per cent on their gains. The exempt amount will remain at £10,100 for 2010-11 and rise in line with inflation.
• VAT will rise to 20 per cent as of 4 January 2011. This will raise £13bn a year by 2014-15.
• Personal allowance to be increased by £1,000 in April 2011 to £7,745 in 2011-12. The basic rate limit for income tax will be frozen in 2013-14. There will be no change to the 50p rate of income tax.
• Annual ISA allowance will be index-linked from 2011-12.
• Government will work with local authorities in England to freeze council tax in 2011-12.
• Duties on alcohol, tobacco and fuel announced in the March Budget will go ahead. However, the 10 per cent tax on cider will be reversed from 30 June. But legislation will be introduced shortly to hike tax on cheap, strong ciders.
• The basic state pension will be relinked to earnings. It will be uprated by a triple lock of earnings, prices or 2.5 per cent, whichever is highest, from April 2011.
• Will continue with plans it inherited to raise revenues from restricting pensions tax relief.
• Review of when the State Pension Age will rise to 66. It will consult on how quickly it will phase out the default retirement age from April 2011.
• Compulsory purchase of an annuity at 75 will be scrapped by April 2011.
• CPI will be used for the price indexation of benefits and tax credits from April 2011.
• Housing Benefit will be reformed from April 2011 onwards. Includes changing how Local Housing Allowance rates are calculated, uprating them by CPI from 2013-14, capping the maximum allowance payable for each property size, time-limiting the receipt of full Housing Benefit for claimants who can be expected to look for work, and restricting Housing Benefit for working age claimants in the social rented sector who have a larger property than needed.
• SureStart Maternity Grant for low income earners only available for first child from April 2011. Health in Pregnancy grant to be abolished in January 2011.
• Introduction of medical assessments for those claiming Disability Living Allowance from 2013-14.
• Stamp Duty tax relief for first-time buyers will be reviewed.
• Pensioners will still receive winter fuel payments, free off-peak local bus travel and free eye tests and free television licences for the over-75s
• Saving Gateway scrapped.
• Child element of the child tax credit will rise by £150 above indexation in 2011.
• Child benefit will be frozen for the next three years. Tax credit eligibility will be reduced for families with household income above £40,000 from April 2011 and make further changes to this threshold in 2012-13.
• The baby element of the child tax credit for new children will be removed from April 2011.
• One-off payment to new workers over 50 from April 2012 will be removed.
• Those with their youngest child over five will be moved onto Jobseeker’s Allowance rather than Income Support from 2011-12.
• Support for Mortgage Interest will be paid at the level of the Bank of England’s
Average Mortgage Rate from October.
• Government green investment bank to go ahead. Proposals to be announced following the Spending Review.
• Government to propose to reform the climate change levy to provide more certainty to the carbon price
• Landline Duty to be scrapped. Three pilots to take broadband to remote areas funded by a portion of the Digital Switchover underspend in the TV licence fee.
• Changes to the aviation tax system to be explored, including switching from a per-passenger to a per-plane duty.
• Operational allowance doubled to £4,800.