Budget at a glance: Osborne’s plans for Britain’s economy
As growth bounces back, the focus turns to reforming savings
THE ECONOMY
UK growth for this year is now expected to be 2.7 per cent, the Office for Budget Responsibility (OBR) said yesterday – up from its previous estimate, made in December, of 2.4 per cent GDP expansion. A year ago the OBR expected growth of just 1.8 per cent this year. The growth upgrades have been “the biggest upward revisions between Budgets for at least 30 years,” Osborne boasted.
Yet the OBR remains more cautious than the Bank of England, which said last month that growth this year could be as high as 3.4 per cent. The OBR’s forecasts show 2.3 per cent growth in 2015, and 2.6 per cent in 2016. Last year the economy grew 1.8 per cent, the fiscal watchdog said.
GDP will surpass its pre-recession peak by the end of June, the OBR said.
Unemployment this year will be 6.8 per cent, the OBR expects – down from its December forecasts of 7.1 per cent joblessness. The rate is predicted to fall to 6.5 per cent in 2015, 6.1 per cent in 2016 and 5.7 per cent 2017 – each year’s rate being revised down by 0.4 percentage points, as the labour market improves.
Private sector jobs are expected to have grown by 3.3m from 2011 to 2019 – “This more than offsets a 1m fall in general government employment,” the OBR said. Public sector jobs will be cut by around 36,000 a quarter on average, totalling over three quarters of a million during the forecast period.
Inflation is expected to be just 1.9 per cent this year, on the consumer price index (known as CPI). In December the OBR thought inflation would be 2.3 per cent this year.
With lower inflation, real wages will finally start to climb this year. However, the OBR leaves its projected rate of wage growth largely unchanged from December’s forecasts. It says average earnings will grow 2.5 per cent this year, and by 3.2 per cent next year (0.1 percentage point lower than its previous estimate), and by 3.6 per cent in 2016.
The budgetary watchdog also warns that, despite rising wages, “household consumption outpaces disposable income in our forecast,” hence reducing the savings ratio.
PUBLIC FINANCES & SPENDING
A welfare cap of £119.5bn is set for 2014-15. It will include 26 different benefits and payments but exclude Jobseeker’s Allowance and its associated benefits, the state pension and a few smaller specific credits.
The outlook for the UK’s state finances has improved since December, yet the government is still adding billions onto the national debt. Public sector net borrowing (known as PSNB) is set to come in at £107.8bn for the current fiscal year – £3.4bn lower than it was expected to be according to December’s forecast.
PSNB will then fall to £95.5bn in 2014-15, £75.2bn in 2015-16, £44.5bn in 2016-17, and £16.5bn in 2017-18. This means a further £232bn being added to the national debt over the next four fiscal years.
Still, the annual deficit is gradually set to wither away. From being the equivalent of 6.6 per cent of GDP this fiscal year, it will ease to 5.5 per cent in the coming year, and then 4.2 per cent, 2.4 per cent and 0.8 per cent in following years, before turning into a 0.2 per cent surplus in 2018-19. That’s the plan, at least.
Public sector net debt will climb to the equivalent of 77.3 per cent of GDP in the next fiscal year, before peaking at 78.7 per cent of GDP in 2015-16. Even by 2018-19, with the planned fiscal consolidation, it will still equal 74.2 per cent of GDP, the OBR estimates. These are better forecasts than in December, however, when debt was expected to touch close to 80 per cent of GDP.
The public sector will finally break into a surplus (of £4.8bn) in 2018-19, the OBR forecasts – but this is only if the current plans are stuck to, even after the next General Election.
In a bid to consolidate the public finances, government spending will ease from being the equivalent of 43.5 per cent of GDP in the current fiscal year, to 42.5 per cent next year, 41.6 per cent by 2015-16, and to below the 40 per cent mark by 2017-18.
HOUSING
House price growth will peak at an annual rate of more than nine per cent later this year, the OBR has predicted. Meanwhile, Osborne’s Budget includes the following:
Consultation on a plan (Right to Build) where councils provide plots of land for custom-built houses. Includes a £150m repayable loan scheme “to provide up to 10,000 serviced plots”.
Consideration of reforms to the planning system, such as making it easier to change the use of buildings such as warehouses, and to make minor changes to buildings.
From today, properties worth over £500,000 bought through so-called corporate envelopes will be subject to 15 per cent stamp duty. Homes rented out will be exempt.
The part of the Help to Buy scheme that provides equity loans for new build homes is extended to 2020.
A new garden city in Ebbsfleet will be supported with up to £200m. Up to 15,000 new homes could be built.
A new £500m builders finance fund to provide loans to developers, intending to unlock 15,000 new units.
TRANSPORT
The fuel duty rise planned for September has been scrapped.
The Overground line from Gospel Oak will be extended to Barking Riverside, a new development with 11,000 homes. The government will also look into helping with the regeneration of Brent Cross.
An £150m fund will go towards regenerating some council estates.
An initial £100m will be committed to Cambridge for transport and infrastructure.
A guarantee of up to £270m to support the Mersey Gateway Bridge.
Air Passenger Duty on long haul flights has effectively been cut, with the government scrapping the top two bands. People in private jets will pay six times the APD rate for the equivalent economy class flight.
Start-up cash for routes from regional airports will be extended, at £20m over two more years.
A grant of £65,000 a year for air ambulance charities. The provision of a new air ambulance for London.
£200m funding to repair potholes.
£140m to fix flood defences that were damaged in the recent floods.
Extending the two per cent hike in company car tax, 2017-18 and 2018-19.
ENERGY
Helping industry by capping the carbon price floor at £18 a tonne from 2016-17 to 2019-20, “to limit any competitive disadvantage”.
Extending compensation to 2019-20 for energy intensive industries that would otherwise be hit by the carbon price floor and the EU emissions trading system. Also introducing a new compensation scheme for energy intensive industries with high electricity costs.
Introduction of a so-called capacity market in order to “ensure the lights stay on at the lowest possible cost,” boosting the UK’s energy security.
The UK’s tax treatment of the North Sea will be reviewed to protect its economic recovery. A new allowance will encourage investment in ultra high pressure, high temperature oil and gas clusters.
However, the OBR revised down its estimates of receipts from the North Sea from 2014-15 to 2018-19.
PENSIONS
Plans to allow people to withdraw their savings from defined contribution pension pots subject to their marginal rate of income tax. Scrapping the requirement to purchase an annuity.
Everyone who retires with a defined contribution pension offered free financial advice on their options.
A number of immediate changes in the meantime, allowing people access to more of their pension pots.
A new pensioner bond for over-65s launching in January. Initially suggested interest rates of 2.8 per cent for a one-year bond, and four per cent for three years, up to £10,000 in total. To a total of £10bn.
Saving the Treasury £3.77bn by making departments pay more towards staff pensions.
PERSONAL FINANCE
From July a New Isa system (Nisa) will be in place, allowing cash and share Isas to be merged into one account with a maximum tax-free annual savings injection of £15,000.
The annual junior ISA limit hiked to £4,000.
The 10 per cent starting rate of tax on savings income (above the tax-free personal allowance) is scrapped. The band of untaxed savings income is increased to £5,000.
The limit on premium bonds (provided by National Savings and Investments) will rise from £30,000 to £40,000 from June, and then to £50,000 in 2015-16. There will now be two £1m prizes per month.
Profits made from Seed Enterprise Investment Schemes which are reinvested in the scheme’s shares will qualify for capital gains tax relief. The relief, which is 50 per cent, was originally introduced on a temporary basis in the 2012-13 tax year but will now become permanent.
Social enterprise schemes were boosted after Osborne expanded the income tax relief available for enterprise investment schemes and venture capital trusts to the sector. The rate will be 30 per cent.
TAXES
Personal allowance is raised to £10,500 in 2015-16. The transferable tax allowance for married couples or civil partners will therefore be £1,050, a tenth of the allowance.
The higher rate (40p) threshold is lifted from £41,450 to £41,865 for the coming fiscal year, then to £42,285 the following year.
No inheritance tax will be paid by “those in our emergency services who give their lives protecting us.”
The government believes it can make nearly £4bn over the next five years from making people pay upfront any disputed tax associated with avoidance schemes. If the taxpayer wins the dispute, they will be reimbursed with interest.
The government wants to block the transfer of profits from within multinational company groups when this avoids tax paid in the UK.
FINANCIAL SERVICES
Consultation on whether smaller banks should be brought into the bank levy, albeit at a lower rate.
Consultation on whether the levy system should be reformed with banks put into bands according to the size of their balance sheets.
Standardised data on current accounts letting customers find the best value account for them.
The payment systems regulator will review the current system sooner than expected to see if small banks are being disadvantaged.
The government will soon reveal details of its proposal for banks to be required to share information on SME customers to facilitate more credit being available to firms.
A new “highly secure” £1 coin is being introduced to fight fraud.
BUSINESS AND JOBS
The annual investment allowance is being doubled to £500,000 until the end of 2015.
A research and development tax credit for loss-making small and medium sized enterprises (SMEs) will have its rate raised from 11 per cent to 14.5 per cent.
A scheme to attract early stage entrepreneurs to the UK, called the global entrepreneur programme, will have its funding doubled.
Funding for UK exporters is doubled to £3bn while interest rates on the deals are being cut to the lowest permitted levels.
The minimum wage for adults rises by three per cent to £6.50 per hour. The youth and apprentice minimum wage rates are up two per cent. The changes come in from October.
£85m will be provided in both 2014-15 and 2015-16 to finance over 100,000 grants to employers who take on apprentices.
EDUCATION AND SCIENCE
A new Alan Turing Institute for big data research is to receive £42m.
Up to 25 per cent theatre tax relief is introduced. Meanwhile film tax relief is increased to 25 per cent.
CHILDCARE & WELFARE
The cap on tax-deductible childcare costs, against which 20 per cent support can be provided, is increased to £10,000 per child each year.
£50m of funding is announced with the intention of helping disadvantaged three and four-year-olds in state-provided early education.
LIFESTYLE
Duty on fixed-odds betting terminals rises to 25 per cent, from 20 per cent previously.
Bingo duty is halved from 20 per cent to 10 per cent.
A typical pint of beer has its tax cut by 1p from next week. The duty on ordinary cider is frozen this year. Duty on spirits is also frozen, with Osborne citing Scottish whisky-makers as needing a boost.
The duty escalator for wine will be abolished.
Cigarettes are not spared, though. Tobacco duty rates continue to rise two per cent above the retail price index (RPI)