THE ECONOMY/PUBLIC FINANCES
The Office for Budget Responsibility (OBR) forecasts that UK GDP will grow by around 0.8 per cent this year, the same rate as in 2011, up from its earlier forecast of 0.7 per cent. The beneficial effects of falling inflation are expected to be offset by uncertainty over the Eurozone and tighter credit conditions feeding through to the wider economy.
The OBR’s medium-term growth forecast for the UK remains similar to that presented in November 2011. In 2013, growth is forecast to be 2.0 per cent (revised down from 2.1 per cent in November), picking up to 2.7 per cent in 2014 and reaching 3.0 per cent in 2015 and 2016. However, the situation in the Eurozone remains a major risk to the OBR’s forecast.
The OBR has revised its forecast for Eurozone growth in 2012 by 0.8 percentage points to -0.3 per cent, and its growth forecast for 2013 by 0.4 percentage points to 1.1 per cent.
The OBR predicts that unemployment will rise 0.3 per cent this year, peaking at 8.7 per cent. It is expected to fall back to around 6.3 per cent by 2016. Claimant count is down, but this reflects methodological changes as well as better than expected data. Employment is predicted to be down by 100,000 on last year at 29.1m. It is expected to grow to 30m by 2016, but 800,000 of those jobs will not be gained until 2014 onwards.
The OBR expects real household disposable income growth to be weak in both 2012 and 2013 and that it will be 2014 before income growth outstrips inflation by a significant margin. It has made a small upward revision to its business investment forecast reflecting the cut in the main rate of corporation tax.
The OBR expects the CPI measure of inflation to fall from 2.8 per cent this year to 1.9 per cent in 2013 and 2 per cent by 2015.
Major taxes as a percentage of GDP are expected to rise from 35.8 per cent of GDP in 2010-11 to 36.2 per cent by 2016-17.
The OBR forecasts that public sector net borrowing (PSNB) will total £126bn this year, 8.3 per cent of GDP. This is £1.1bn less than its November forecast. In fact, the OBR expects the public sector to spend £6.2bn less than it forecast in November, but it has also revised down expected tax revenues by £5.1bn, mainly due to a £3.6bn shortfall in self-assessment receipts. PSNB is now forecast to decline to £21bn, 1.1 per cent of GDP, in 2016-17. This is just £2.5bn lower than the November forecast.
Public sector net debt (PSND) is expected to rise from 67.3 per cent of GDP this year to a peak of 76.3 per cent in 2014-15, falling thereafter.
The OBR notes that in 2012-13 PSNB is now predicted to enjoy a much larger fall than was predicted in November, due to the government’s decision to transfer the Royal Mail’s historic pension deficit, plus a share of its pension fund’s assets, into the public sector. This will lead to a one-off reduction in PSNB of £28bn (or 1.8 per cent of GDP) in 2012-13, and will reduce PSND by around £23bn from 2012-13 onwards as pension fund assets are transferred and sold.
This is a fiscally neutral Budget over a five year period, with matching reductions to both taxation and spending.
Total managed expenditure (TME) peaked in 2009-10 at 48 per cent of GDP. However, the OBR notes that this peak was primarily due to a sharp fall in nominal GDP at the time. TME is forecast to fall to 39 per cent of GDP by 2016-17, mostly because of the cuts in departmental expenditure limits set out in the government’s fiscal consolidation plan.
Since November, the OBR has reduced its forecast for spending by central government by £6bn and £1.6bn for spending by public corporations. The projection for local government spending has increased by £1.5bn.
A consultation will examine the case for longer-dated gilts than fifty years and also perpetual gilts.
The top rate of income tax will fall from 50 per cent to 45 per cent from April 2013.
The personal allowance will increase by a further £1,100 in April 2013, taking it to £9,205.
A new stamp duty land tax rate of 7 per cent for residential properties over £2m applies from 22 March. A 15 per cent rate will apply to residential properties over £2m purchased by “certain nonnatural persons” and the government will consult on introducing an annual charge on such owners.
A number of VAT hikes will come in from 1 October 2012, on items from listed building repairs to sports drinks..
A new limit on all uncapped income tax reliefs means that for anyone seeking to claim more than £50,000 of relief, a cap will be set at 25 per cent of income.
The government has accepted the recommendation of the Aaronson Report for a General Anti-Abuse Rule (GAAR) targeted at tax avoidance schemes. It will bring forward legislation to create it in Finance Bill 2013.
As previously announced, alcohol duty rates will increase by 2 per cent above the RPI inflation measure from 26 March 2012.
Tobacco products’ duty rates increased by 5 per cent above the RPI measure of inflation from 6pm on 21 March 2012.
There are no changes in fuel duty plans. A fair fuel stabiliser will come into effect as previously announced.
Vehicle excise duty (VED) rates will increase from 1 April 2012 in line with the RPI measure of inflation. VED rates for heavy goods vehicles will be frozen.
From 2014–15, taxpayers will receive a new personal tax statement. This will detail the income tax and national insurance contributions (NIC) they have paid, their average tax rates, and how this contributes to public spending.
The main rate of corporation tax will fall by an additional one per cent from April 2012.
The corporation tax rate will now fall by 2 per cent, from 26 per cent to 24 per cent in April 2012, to 23 per cent in April 2013 and to 22 per cent in April 2014.
From 1 January 2013, the full rate of the bank levy will rise from 0.088 to 0.105 per cent.
The government will introduce a new £3bn ﬁeld allowance for oil and gas production for particularly deep ﬁelds with sizeable reserves, targeted at the West of Shetland.
The allowance for small ﬁelds will increase to £150m and the size of ﬁeld qualifying for the maximum allowance will be 6.25 m tonnes (approximately 45m barrels), tapering to no allowance at 7m tonnes (approximately 50m barrels).
The government will introduce legislation in 2013 giving it statutory authority to sign contracts with companies operating in the UK and UK continental shelf, to provide assurance on the relief they will receive when decommissioning assets.
The government will consult on simplifying the Carbon Reduction Commitment (CRC) energy efﬁciency scheme to reduce administrative burdens on business. If the burden remains, proposals in autumn 2012 will replace CRC revenues with an alternative environmental tax.
Sunday Trading laws will be relaxed, 22 July-9 September 2012, to let retailers make the most of the Olympics.
From April 2013, corporation tax relief for the video games, animation and high end television industries.
Machine games duty (MGD) from 1 February 2013 will be at a standard rate of 20 per cent and the lower rate will be 5 per cent of net takings.
Child beneﬁt will be withdrawn through an income tax charge, applying to households where someone has an income over £50,000 a year. For households where someone has an income between £50,000 and £60,000, the charge will apply gradually, preventing a cliff-edge effect. But above £60,000 the benefit will stop altogether.
New laws will ensure that arrangements where an employer pays a pension contribution into a registered pension scheme for an employee’s spouse or family member as part of their employee’s ﬂexible remuneration package cannot be used to obtain tax and NIC advantages for the employee or the employer.
From 6 April 2013, income tax age-related allowances will be restricted to existing recipients. This is the so-called “granny tax”. The allowance available to those aged 65-74 will in future be limited to those born between 6 April 1938 and 5 April 1948, and the higher allowance available to those aged 75 and over will be limited to those born before 6 April 1938. In addition, from 6 April 2013 the age-related allowances will be frozen at their 2012–13 levels (£10,500 for those born between 6 April 1938 and 5 April 1948, and £10,660 for those born before 6 April 1938) until they align with the personal allowance, at which point age-related allowances will be removed.
The government will reform the state pension into a single tier pension for future pensioners from early in the next parliament. The pension age will be increased in future to take account of increasing longevity.
Savings from the end of Afghanistan operations will leave £100m to improve military accommodation. Council tax relief will be doubled to 100 per cent for deployed military personnel. The families welfare grant will also be doubled.
The Treasury has published its submission to the pay review bodies on the advantages of bringing public sector pay into line with local private sector rates.
Some departments will have the option of moving to more local systems in 2012.
The Enterprise Management Incentive scheme (EMI), which helps SMEs recruit and retain talent, will get support to help start-ups access it, consultation on amending restrictions that prevent the scheme being used by academics employed by startups, and a more than doubling of the grant limit to £250,000. Gains on shares acquired through EMI options will be eligible for capital gains tax entrepreneurs’ relief.
From April, the EIS annual investment limit for individuals will be £1m. Qualifying company limits will be increased to fewer than 250 employees and gross assets before investment of £15m and a post-investment gross assets limit of £16m. The annual investment limit for qualifying companies will increase to £5m under EIS and VCTs. From April, some restrictions will end on qualifying shares and types of investor for EIS and the £1m limit on investment by a VCT in a single company.
From April, the new Seed Enterprise Investment Scheme (SEIS), provides income tax relief of 50 per cent for individuals who invest in shares in qualifying seed companies. There is also a capital gains tax (CGT) holiday: gains realised on the disposal of assets in 2012–13 that are invested through SEIS in the same year will be exempt from CGT.
The government is considering a programme of enterprise loans to help young people set up and grow their own businesses.
From April 2013 the government will introduce a new cash basis for calculating tax for small unincorporated businesses, perhaps up to £77,000 turnover. The details are to be worked out.
The Growing Places Fund will be increased by £270m, including £70m for the Greater London Authority. Up to £150m will also be available from 2013–14 for large projects in core cities.
£130m will be spent through Network Rail on the Northern Hub rail scheme.
Enhanced capital allowances will be available from 1 April at enterprise areas in Scotland and Wales.
Lord Heseltine will lead an independent review of public sector bodies’ capacity to deliver pro-growth policies.
A new £100m fund will support investment in university research facilities. £60m will establish a UK centre for aerodynamics, opening in 2012-13.
Belfast, Birmingham, Bradford, Bristol, Cardiff, Edinburgh, Leeds, London, Manchester and Newcastle have all been selected to be made super-connected broadband cities, using the £100m announced in the Autumn Statement. An additional £50m will fund a second wave of ten smaller super-connected cities.
The funds for the Business Finance Partnership have been increased from £1bn to £1.2bn. A shortlist of seven funds has also been announced: Alcentra, Ares Management, Cairn Capital, Haymarket Financial, M&G Investment Management, Palio Capital Partners and Pricoa Capital. £700m will now be shared from the pot between some or all of these. £100m will be allocated to non-traditional lending channels, such as peer-to-peer.
The level of lenders’ Enterprise Finance Guarantee loan portfolios to which the scheme applies will increase from 13 per cent to 20 per cent for 2012-13.
The Get Britain Building fund gets £150m more for development finance.