Our at-a-glance guide to Osborne’s mini-budget
Growth up, borrowing down, yet the debt is still rising. Another raid on the banks, but shops to gain from reduced business rates
THE UK ECONOMIC OUTLOOK
● The Office for Budget Responsibility (OBR) has revised up its forecast for economic growth and revised down its prediction for inflation. It expects unemployment to drop quickly next year, reversing its earlier forecast – from March – of a slight rise in the jobless rate in 2014.
● Growth of 1.4 per cent is expected for 2013 (up from the 0.6 per cent that the OBR forecast in March), followed by 2.4 per cent next year (up from March’s prediction of 1.8 per cent). Unemployment should fall to 7.1 per cent next year, the OBR says, having expected the level to still be at eight per cent in 2014 during its March forecasts. Inflation will be 2.6 per cent this year and 2.3 per cent in 2014, the OBR predicts.
PUBLIC FINANCES
● The OBR predicts lower net borrowing by the government. However, when the statisticians iron out cyclical factors – what is sees as the effects on an economic cycle, rather than structural changes – the finances are forecast to be a little worse than expected back in March.
“We judge the positive growth surprise to have been cyclical… rather than indicating stronger underlying growth potential,” it says.
● Public sector net borrowing should be £111.2bn this year, the OBR says – £8.6bn lower than it expected back in March. The government’s so-called fiscal mandate to eliminate the cyclically-adjusted budget deficit five years ahead should still be reached in 2017-18, yet the surplus of 0.7 per cent of GDP that is now predicted for that year is slightly lower than the 0.8 per cent surplus that was forecast in March.
● Yet there will be some progress in cutting state spending, the OBR says. Total managed expenditure (which consists of both everyday spending and investment costs) will be cut by 3.4 per cent in real terms between 2010-11 and 2018-19 according to existing plans. TME, as it is known, is calculated to have been the equivalent of 44.7 per cent of GDP in 2012-13, but falling to 43.7 per cent of GDP in the fiscal year we are now in. On current projections, the OBR says it could dip to 39.4 per cent by 2017-18.
● The OBR also revealed the amount being transferred by the UK government to European Union institutions – from £2.2bn in this fiscal year, £1.6bn in 2014-15, then back up to £2.5bn in 2015-16, £2.2bn in 2016-17 and £1.4bn in 2017-18.
● A widespread clampdown on tax avoidance will bring in £6.8bn, the government claims. The detail of the plans, which are likely to affect some hedge funds and private equity firms, will be revealed in the middle of next week.
● A new Charter for Budget Responsibility will be introduced as part of fiscal rules that attempt to ensure that the UK government achieves a surplus by 2020.
HOUSING
● House price inflation has been revised up “significantly”, the OBR said. Prices will grow a further five per cent next year, before shooting up another seven per cent in 2015. “Relative to our March forecast, we have revised the level of house prices up 10 per cent by 2017-18,” it says.
● The OBR also issued a warning that the government’s Help to Buy scheme may be driving prices up. “A slow response of supply to price signals – which many researchers argue is related to rigidities in the planning system – would mean additional mortgage lending feeds mainly into upward pressure on house prices,” the OBR writes.
● Nonetheless, chancellor George Osborne is pressing ahead with Help to Buy and announced that Virgin and Aldermore expect to join the scheme this month.
● People will be encouraged to make use of the Right To Buy scheme to purchase their council properties, putting £100m towards improving access to mortgages and introducing new agents to help buyers.
● The government will look into a so-called right to move policy, for tenants who want to move for employment reasons.
● Osborne also used his speech to announce £1bn of loans that will go to large housing developments in Manchester, Leeds and some other areas of the UK.
● Local authorities will be encouraged to sell high-value housing stock in order to boost their bids for new affordable housing. The pot available to build new homes will be increased by £150m in 2015-16 and £150m in 2016-17.
PERSONAL TAX
● The UK government wants to cash in on gains that foreign-based people make when selling residential property in Britain. Osborne said a capital gains tax will be introduced from April 2015, the details of which will be published early next year. At present people pay the tax in their country of residence – but Osborne wants it paid to the Treasury instead. And some countries do not charge the tax at all.
● People in the UK subject to capital gains tax on sales of property that is not their main residence can currently claim relief related to periods of time that the property was their main residence. This final period of exemption is being cut in half, from 36 months to 18 months. The hike will raise an annual £100m by 2017-18.
● From April next year stamp duty will not apply to purchases of shares in exchange traded funds (ETFs). It can currently apply to shares in ETFs domiciled in the UK.
● National Insurance contributions for under-21s will be abolished from April 2015, in an attempt to boost youth employment. It won’t apply to those earning over a set limit, which will be £42,285 at first.
● Some married couples will be able to transfer £1,000 worth of income tax allowance between each other, so long as neither is a higher rate or top rate taxpayer.
● Although expected, Osborne clarified that the personal allowance will be lifted to £10,000 from April.
● Several measures were included to support employee-ownership. Bonuses up to £3,600 paid to workers of firms that are indirectly employee owned will get an annual exception from income tax. There will also be relief on capital gains tax on the sale of shares that results in a trust used as an indirect employee ownership structure taking a controlling interest in a company.
● A move to restrict income tax relief on investments in VCTs is predicted to save £140m over five years.
BUSINESS TAX
● The bank levy will increase in the New Year to 0.156 per cent. It had previously been scheduled to rise to 0.142 per cent on 1 January. The levy is a tax on many of the forms of debts held by banks. It expects to raise £2.7bn a year from the levy.
● The rise in business rates will be capped at two per cent for 2014-15, rather than being linked to the retail price index level of inflation.
● Shops moving into premises that have been empty for at least a year will receive a further 50 per cut in their business rate. The reduced rate will apply for 18 months.
● The doubling of small business rate relief will now be extended to April 2015.
● A business rates discount of up to £1,000 over the next two fiscal years will be available for retail properties with a rateable value of up to £50,000.
● The Autumn Statement also said that the decision to slash corporation tax is being justified. The cuts are increasing business investment by between 2.5 per cent and 4.5 per cent, the research said.
● The government wants to stop the use of partnership structures by alternative investment managers to pay lower rates of tax on income, such as hedge funds.
PENSIONS, SAVINGS AND WELFARE
● The state pension age of 66 will be brought forward from 2026 to 2020, and to 67 from 2028. The Autumn Statement says this should rise to 68 by the middle of the 2030s. It should reach 69 before the year 2050.
● The full state pension itself will increase by £2.95 a week.
● The cap on total welfare spending revealed in March will include a requirement for a House of Commons vote if future governments breach the cap or wish to change it.
● Workplace saving schemes called Save As You Earn (SAYE) will have the amount a worker can save per month doubled from £250 to £500. And so-called Share Incentives Plans will have their annual limits boosted to £3,600 for free shares and £1,800 for partnership shares.
● Pensioners, and people who reach state pension age before the introduction of the new single tier pension, will be able to top up their additional state pension record with a new class of voluntary National Insurance contributions.
● The Junior Isa and Child Trust Fund limits will both be increased to £3,840 from 2014-15.
ENERGY
● Shale gas exploration will be encouraged by a reduction in the tax rate for companies that invest in this area. The tax rate will be cut from 62 per cent to 30 per cent, for a portion of profits.
● The government has pledged to reduce the average household bill by £50 by reducing green levies or shifting them into general taxation. And new home owners will be provided with incentives worth up to £1,000 to undertake energy efficiency measures.
ARTS AND SCIENCE
● The UK film industry will be boosted by plans to extend film tax relief from 20 per cent to 25 per cent for films with budgets over £20m from April 2014. The government also said it intends to extend tax relief for theatres by 2015, however it did not reveal any details.
● Research into quantum technology will receive a £270m boost over the next five years from the government as part of a fund to support companies and universities doing pioneering research.
● Physicist and Nobel laureate Peter Higgs will be honoured by the establishment of the Higgs Centre at Edinburgh University.
TRANSPORT
● Fuel duty will be frozen for the rest of the parliamentary term, with Osborne scrapping the 2p increase scheduled for next September.
● Mayor Boris Johnson’s move to cap average tube fare hikes to the rate of the retail price index will be replicated for train fares across the UK. The amount of so-called flex for a fare to go above the cap will be cut to two per cent.
● The prospect of driverless cars will be encouraged by a new £10m prize fund for a town or city to develop as a test site.
CIGARETTES AND ALCOHOL
● Alcohol wholesalers will have to take steps to ensure that their suppliers and customers are legitimate from early 2014, and a compulsory registration scheme will be started from 2016 to crack down on the illicit trading of alcohol.
● The government wants the Border Force and HMRC to collaborate more in order to tackle tobacco smuggling.
EDUCATION
● Every child at a state-funded school in reception, year one or year two will be offered a free school meal from next September. The extension of this policy will cost £755m in 2015-16, the OBR said.
● The government will lift a cap on student numbers to allow an extra 30,000 places at universities in England to be offered in 2014-15. From the following year, the cap will be lifted entirely.
ENTERPRISE
● A further £160m will be put into start up loans that are given to young people who want to start their own business.
● UK Export Finance will have its maximum commitment level doubled to £50bn as the government ups its bid to rebalance the economy.
OTHER
● In his speech Osborne also said that another £100m of fines from Libor-related offences will be given to charities for the military as well as police, fire and ambulance services. By Julian Harris