THE UK ECONOMIC OUTLOOK
■ The Office for Budget Responsibility (OBR) has revised down its forecast for UK growth and revised up its forecast for public sector borrowing. It says the government is no longer likely to meet its target of reducing debt as a proportion of GDP in 2015-16, breaking its supplementary fiscal rule.
■ The OBR has cut its 2012 growth forecast from 0.8 per cent in March to -0.1 per cent, and its projection for UK GDP is now down in each of the next five years: down by 0.8 per cent in 2013 to 1.2 per cent; 0.7 per cent in 2014 and 2015 to two per cent and 2.3 per cent respectively; and down 0.4 per cent to 2.7 per cent in 2016.
■ The OBR has increased its forecasts of the amount the government will spend beyond its means in each of the next four years. Excluding one-off windfalls, the expected deficit for 2012-13 has gone up from £119.9bn forecast in March to £120.3bn; 2013-14 has risen from £97.5bn to £112.1bn; 2014-15 from £75bn to £99bn; 2015-16 from £52bn to £82bn; and 2016-17 from £21bn to £56.7bn.
■ Gross debt will peak at 97.4 per cent of GDP in 2015-16. Public sector net debt is now expected by the OBR to peak in 2015-16, at 79.9 per cent of GDP. This is up from its March forecast of a peak in 2014-15 at 76.3 per cent of GDP.
■ The OBR says the government is still more likely than not to meet its fiscal mandate of balancing the cyclically-adjusted current budget at the end of a rolling five-year period, with a central forecast of the budget being in surplus by 0.9 per cent of GDP in 2017-18.
■ The labour market has shown unexpected strength, and is now 0.5m above the OBR’s March forecast, at 29.6m. Unemployment has fallen to 7.8 per cent, as against the OBR’s forecast of an increase to 8.7 per cent in the three months to September.
The OBR estimates that between the start of 2011 and the start of 2018 total market sector employment will increase by around 2.4m, while general government employment will be cut by 1.1m.
■ The government has announced it will extend austerity for another year, to 2017-18, equivalent to a reduction in spending of £4.6bn in 2017-18.
■ Total managed expenditure in 2015-16 will be £774.7bn.
■ The £5.5bn in cuts to departmental current spending from 2013 to 2015 and cuts to the current welfare bill will not be used to cut the deficit but spent on capital infrastructure investment.
■ The 4G spectrum sale in March 2013 is predicted to bring in £3.5bn.
■ The Treasury’s interventions to stabilise the financial sector are now estimated to have cost a £16.5bn direct loss to the taxpayer, up from a £14.3bn estimated loss in March.
■ The current maturity cap on gilts of 50 years will be removed and, demand permitting, in 2013-14 gilts maturing in 50-60 years will be issued.
■ From 1 January 2013, the Annual Investment Allowance limit will increase tenfold for two years, from £25,000 to £250,000.
■ The main rate of corporation tax will fall by a percentage point to 21 per cent from April 2014.
■ The bank levy will increase by 24 per cent to 0.13 per cent from 1 January 2013. From that date, foreign bank levies paid by a foreign banking group trading in the UK will not be able to be claimed as a deduction against UK corporation tax and income tax.
■ Real estate investment trusts (REIT) will be able to invest in other REITs without paying tax on income received.
■ All newly built commercial property completed between 1 October 2013 and 30 September 2016 will be exempted from empty property taxes for 18 months.
■ The Department of Work and Pensions will consult on giving the pensions regulator a statutory duty to consider the affordability to employers of deficit recovery plans.
■ The doubling of the small business relief rate will be extended by another year from 1 April 2013.
■ An option is being considered to exempt the first £2,000 of employee shares from income tax and NICs. From 2013, employees taking up the new employee shareholder status will be exempt from capital gains tax on shares up to £50,000.
■ Electricity generators in Northern Ireland are to be exempted from the carbon price floor.
■ The Carbon Reduction Commitment energy efficiency scheme will be simplified from 2013. The performance league table will be abolished and the tax element removed as soon as possible. The CRC will be reviewed in 2016.
■ Small unincorporated businesses with receipts up to £77,000 will have access to a new cash basis for calculating their tax from April 2013.
■ The government confirmed that it will introduce a General Anti-Abuse Rule (GAAR) to reduce tax avoidance. HMRC will gain the power to ask payment card processors for avoidance data. A new centre for offshore evasion will be established and there will be additional investment in HMRC’s debt collection capacity.
■ The rise in fuel duty planned for 1 January 2013 has been cancelled, and the rise in April 2013 has been delayed until September. Increases will then follow each September for the remainder of the Parliament.
■ From April 2013, the Isa limit will be uprated to £11,520. A consultation will look at expanding the remit of stocks and shares Isas to include SME equity markets like Aim.
■ The higher rate threshold above which income is taxed at 40 per cent will rise at just one per cent in 2014-15 to £41,865 and again to £42,285 in 2015-16. As this is less than inflation, many more taxpayers will have to pay higher-rate tax.
■ The tax-free personal allowance will increase by an additional £235 to £9,440 in 2013-14. Equal gains will be passed on to higher rate taxpayers who receive a personal allowance.
■ The inheritance tax nil rate band will rise by one per cent in 2015-16 to £329,000. Again, at less than inflation, this will make more assets liable for inheritance tax. The government will give HMRC more resources to crack down on avoidance of inheritance tax via offshore trusts and other entities.
■ Capital gains tax exemption will increase by one per cent in 2014-15 and 2015-16 to £11,100. Once more below inflation, this will decrease in real terms the level of capital gains exempted from CGT.
■ From 2014-15, the lifetime allowance for pension contributions will be cut from £1.5m to £1.25m. The annual allowance will be cut from £50,000 to £40,000.
■ The capped drawdown limit for pensioners will be increased from 100 per cent to 120 per cent of the value of an equivalent annuity.
■ The basic state pension will increase by 2.5 per cent to £110.15 a week next April.
■ Most working age benefits will be uprated by one per cent for three years from April 2013. As this is less than inflation, it amounts to a real terms cut. But out-of-work benefits are predicted to be higher in 2015-16 than if they had increased in line with average earnings since 2007-08.
■ The one per cent uprating limit will also extend to child tax credit and working tax credit, except for the elements that are already frozen in 2013-14 and the family element.
■ Child benefit will be uprated by one per cent in 2014-15 and 2015-16.
■ Other benefits will continue to be uprated in line with prices, including the additional state pension and those specifically for the disabled and carers.
■ Housing benefit will receive the increase announced in April 2013, but rises will be capped at one per cent in most areas in 2014-15 and 2015-16. Rates will be exempted in areas where rent increases are highest.
■ Following a consultation, the government will respond in the 2013 Budget on plans to make high income tenants in social housing pay full market rents.
■ Additional cuts will be made to departmental resource budgets of one per cent this year and two per cent the following year.
■ In the NHS and schools, these savings will be reinvested in the departments.
■ Local government budgets will be exempt from the first year of these cuts, but will be subject to the two per cent cut in the following year.
■ The Ministry of Defence will be included in the cuts but will receive special multi-year flexibility to avoid a reduction in military manpower or core defence equipment this Parliament.
■ The budget of the Department for International Development will be reduced to reflect the decline in UK GDP, to keep aid spending at 0.7 per cent of gross national income.
■ The report of the independent pay review bodies on local pay has been published and its recommendations accepted. This means that there will be no centrally-determined local pay rates.
■ The NHS and Prison Service will continue with national pay arrangements. Civil service pay arrangements will also remain unchanged.
■ The School Teachers’ Review Body has however recommended greater freedom for individual schools to set pay in line with performance and this will be implemented, subject to consultation.
■ A Business Bank will be created to spend £1bn to stimulate the long term capital market and improve finance to SMEs. Fully operational from autumn 2014, some parts of the bank will be in operation from spring 2013. More details will be set out later this month.
■ An Office for Unconventional Gas will be established, and there will be a consultation on the tax regime for shale gas.
■ A new private finance initiative process has been published. Its first use will be on the £1.75bn privately financed part of the Priority Schools Building Programme. Projects for the army and NHS are in the planning stages.
■ An additional £980m will be spent on schools by the end of the Parliament.
■ £270m will be spent on improving further education colleges.
■ £600m will be spent on Research Council infrastructure and R&D facilities.
■ An extra £1.5bn, £1bn in this spending review period, will be spent on upgrading roads, including junction 30 of the M25 and junction 12 of the M40, as well as parts of the A1, an A5-M1 link and dualling the A30.
■ The High Speed 2 rail project will be extended to the North West and West Yorkshire, though no details will be available until next year.
■ A £1bn loan has guaranteed the extension of the Northern Line to Battersea Power Station.
■ Regulated rail fares and Transport for London fares will be held to an increase of RPI plus one per cent for two years from January 2013.
■ The second wave of cities for fast broadband has been announced: Brighton and Hove, Cambridge, Coventry, Derby, Oxford, Portsmouth, Salford, York, Aberdeen, Perth, Newport and Derry/Londonderry.
■ An additional £120m will be allocated to new flood defences.
■ £50m has been set aside for the Open Institute civic entrepreneurship accelerator on Old Street’s Silicon Roundabout.
■ Former Goldman Sachs banker and Locog chief executive Paul Deighton will lead a review before the 2013 Budget assessing Whitehall’s ability to deliver infrastructure projects.
■ UK Trade and Investment will see an annual budget increase of £70m.
■ UK Export Finance will establish a scheme to provide up to £1.5bn of loans to finance small export deals by the end of 2015-16.
■ A consultation will be launched into TUPE employment regulations to remove unnecessary burdens on business.
■ 106 water regulations will be scrapped or improved.
■ New drug reclassification rules will attempt to halve the time for a medicine to be changed from prescription-only to over-the-counter.
■ From January 2013 the Food Standards Agency and from April 2013 the Environment Agency will have to quantify and consult with industry on the cost of each regulator in terms of its impact on business. The scheme will be extended to other regulators in July 2013.
■ Following the Heseltine Review, Local Enterprise Partnerships will receive £10m a year and more spending decisions will be devolved. The Regional Growth Fund will receive another £350m.