- Coalition launches £130bn bid to subsidise risky mortgage loans
- Fresh threat of UK downgrades as growth slashed and debt soars
- Bank of England given more flexible terms to fight inflation
GEORGE Osborne stood accused of encouraging another housing bubble yesterday as he unveiled massive taxpayer guarantees for risky mortgages, after abysmal figures predicted the UK will grow by just half the rate forecast three months ago.
The UK will grow by just 0.6 per cent this year, while the budget deficit will come in at £120.9bn, barely down on the previous year’s shortfall.
The Office for Budget Responsibility (OBR) warned that the national debt would keep on rising until 2017-18, when it will hit 85 per cent of GDP.
The chancellor responded by using his fourth Budget to pledge to guarantee up to £130bn of high-risk mortgages for as many as 600,000 home buyers who can only afford a five per cent deposit – prompting critics to warn that his scheme was tantamount to the sub-prime lending that destroyed the US economy.
The government will also allow all purchasers to access a shared equity scheme on new-build homes, in the hope of kickstarting a construction boom.
Osborne also announced changes to the Bank of England’s monetary policy remit. The central bank will be granted greater flexibility over monetary policy, as well as a broader focus on economic growth.
In a Budget with few dramatic gestures the chancellor also announced that the tax-free allowance on personal income will rise to £10,000 in April 2014 while corporation tax will be cut to 20 per cent from 2015.
Osborne appealed to what he termed the “aspiration nation” by abolishing September’s planned 3p increase to petrol tax, as well as taking the symbolic decision to cut the duty on a pint of beer by 1p – though there were hikes for wine and spirits.
Meanwhile businesses will benefit from a £2,000 cut to employee national insurance contributions, meaning thousands of small firms will not pay the charge at all.
Promoters of tax avoidance schemes face being “named and shamed”, while deals will be struck with tax havens such as Jersey to raise as much as £3bn.
The chancellor said the measures were designed to help “those who want to work and get on”.
Stamp duty will be abolished for shares traded on the junior market, a capital gains tax holiday for investment in start-up firms will be extended, and the government will abolish some tax requirements to try to attract fund managers to the UK.
But yesterday’s figures from the OBR show the scale of the challenge ahead. Although they suggest the UK will narrowly avoid a triple-dip recession thanks to anaemic growth of 0.1 per cent in the first quarter of 2012, total public spending will have fallen by just 2.7 per cent by 2017-18.
Analysts warned that the new data could pose fresh threats to the UK’s credit rating. “The strong likelihood is that the reduced growth and higher public finance forecasts will be the trigger for Standard & Poor’s and or Fitch to follow Moody’s in stripping the UK of its AAA rating,” said Howard Archer, chief economist at IHS Global Insight.
Osborne said that to cut the deficit faster he would now demand that Whitehall departments find £11.5bn of cuts for the 2015-16 financial year, up from the previously announced £10bn in spending reductions.
Labour leader Ed Miliband criticised the plan as a “ more of the same Budget” from a “downgraded chancellor”.