THE ECONOMY/PUBLIC FINANCES
• The newly-created interim Office for Budgetary Responsibility (OBR) released forecasts last week for growth and public borrowing. But these were based on the policy decisions of Alistair Darling’s Budget and are likely to change in response to moves made by the new chancellor.
• Previously, the OBR said GDP?growth is expected to be 1.3 per cent in 2010 and 2.6 per cent in 2011. Growth will then average 2.7 per cent in 2011-14, it said.
• The OBR revised down Labour’s fiscal projections. It said public borrowing for 2010-11 would be £155bn, £127bn in 2011-12, £106bn in 2012-13, £85bn in 2013-14 and £71bn in 2014-15.
• As a share of GDP, borrowing will be 10.5 per cent this year before falling every year to reach 3.9 per cent by 2014-15. Net debt as a share of GDP will be 62 per cent this year and peak at 74 per cent by 2013-14.
• The structural deficit was revised upwards by the OBR. It is estimated to be 8 per cent of GDP this year and will fall to 2.8 per cent by the end of 2014-15.
• A hike in capital gains tax (CGT) is expected. The current rate is 18 per cent but it could rise to match income tax rates of 40 per cent or even 50 per cent. A consultation period, rather than an immediate hike, may be announced.
• Enterprise has already been told it can expect “generous exemptions” in the changes to capital gains tax (CGT). This could mean anywhere between 10-25 per cent, says PricewaterhouseCoopers.
• Osborne will increase the income tax threshold by £1,000 and is expected to signal his intention to continue raising it until the personal allowance hits £10,000. No change expected to headline rates of income tax.
• An increase in VAT to as high as 20 per cent from 17.5 per cent is widely expected but the timing of such a hike is still uncertain. Alternatively, items such as food and children’s clothes may lose their VAT-exemption.
• There are no changes expected to the £325,000 inheritance tax threshold until 2014-15.
• ISA allowances could be given a further boost, up from the current £10,200.
• Hike in sin taxes announced in April likely to be at least kept: alcohol duty will increase by 2 per cent above inflation for each year until 2014-15; fuel duty is due to rise by 1p per litre on 1 October 2010, then 0.76 pence per litre on 1 January 2011 and one penny per litre in each April from 2011 to 2014; tobacco duty rates up by two per cent above inflation from 2011-12 to 2014-15.
• Osborne is expected to outline the total amount of spending cuts but is unlikely to give much detail on precisely where the axe will fall – this will come in the autumn spending review.
• Economists expect the bulk of the fiscal tightening to come in the form of spending cuts. Osborne has hinted that he will stick to the 80:20 ratio.
• Osborne has put public sector workers on notice to expect an extended pay freeze. He has already appointed John Hutton to lead a commission looking into public sector pensions.
• Spending on overseas development assistance to be protected and spending on the NHS?will increase in real terms.
• There are likely to be fewer gilt sales scheduled for this year thanks to spending cuts and higher tax receipts.
• The government has already indicated its intention to introduce a banking levy, which sources say will raise over £3bn.
• The coalition government has stated that it aims to bring the rate of corporation tax down to at least 25 per cent. It is not clear whether the chancellor will announce an immediate cut or simply give some idea of timeframe.
• An increase in the small companies rate of corporation tax was due to take place in 2011-12; this is likely to be axed.
• New businesses are hoping for a one year National Insurance contributions holiday on the first 10 staff they employ.
• The coalition government has committed to scrapping Labour’s 1p rise in employers’ National Insurance contributions. The threshold for employer National Insurance contributions is likely to be increased.
• A regional cut in employers’ National Insurance contributions outside London, the South East and the East of England is widely expected.
• The chancellor has signalled his intention to introduce a temporary increase in the level of small business rate relief from October, so that eligible small firms will pay no business rates for one year.
• The government has pledged to simplify the regulations surrounding pensions.
• High earners will hope the government doesn’t scrap some pension tax relief.
• Public sector workers are bracing themselves for a pensions levy, which would require them to contribute far more to their schemes than they currently do.
• Osborne may choose to link public sector pension payments to the consumer price index (CPI) rather than the retail price index (RPI). CPI has always been less than RPI, so this would save money.
• The state pension is expected to be linked to average earnings once again with a triple guarantee that pensions will be raised by the higher of earnings, RPI or 2.5 per cent.
• A review of current plans to increase the state pension age to 66 between 2024 and 2026 is expected.
• Child trust fund scheduled to be closed to any children born after 1 January 2011. The voucher’s value will be reduced as of August 2010.
• Child tax credits could be restricted to families with low household incomes. The current threshold is £58,000 or £66,000 if the child is under one.
• The Future Jobs Fund, created to get 150,000 young people into work, has been scrapped by the Liberal-Conservative government.
• Labour’s proposal to raise the National Minimum Wage by 2.2 per cent to £5.93 an hour in October has been confirmed by the coalition government.
• Labour’s green investment bank, which will focus on investing in sustainable transport and renewable energy, is expected to be kept.
• Climate change levy may be reformed into a carbon levy, boosting revenue possibly to £3bn. If a carbon tax were introduced, it is estimated that it could raise about £5.5bn.
• Air passenger duty to be replaced by an aeroplane tax from November. This should increase receipts from the current £2bn.
• High Speed 1 was put up for sale yesterday by the government.
• Chancellor will say he is not cutting capital spending, after Alistair Darling slashed levels of spending on infrastructure in his Budget.