George Osborne’s day started with him joining Twitter, whilst in a controversial development his budget was published in the London Evening Standard even before he took to his feet.
This was Mr Osborne’s fourth budget since becoming Chancellor and started in a combative tone saying: “This was a Budget for people who aspire to work hard and get on”, that he was “putting right what went so badly wrong” and he was “slowly but surely fixing the problems”.
He also recognised that “progress had been made but there was much more to do.”
Economic predictions
As with any Budget, the Chancellor gave an overview of the state of the UK economy. He started with the crisis in Cyprus, using it as a reminder of how the problems in the Eurozone can still affect the UK’s economy.
He also took the opportunity to give reassurance to government workers in Cyprus, including military personnel, that they will be compensated for any reduction in their savings as a result of the proposed bank levy.
Turning to the UK, the Chancellor said that the UK economy is predicted to grow by 0.6% in 2013, half the previous estimate and by 1.8% in 2014, 2.3% in 2015 and 2.7% in 2016. He also confirmed that the UK is predicted to avoid a triple dip recession.
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When it came to the deficit, Mr Osborne reported that this has now fallen from 11.4% of GDP to a forecast of 7.4% this year, although the level of debt is still rising and will peak at 85.6% of GDP in 2016/17.
Bank of England
Perhaps driven by the change in Governor later this year, there has been much debate leading up to the Budget about the Bank of England’s roll in the economic recovery.
The Chancellor confirmed that Quantitative Easing (QE) will remain an option for another year, which will disappoint both savers and people retiring over the next 12 months, as additional QE will further depress gilt yields and reduce the income available from Annuities and Income Drawdown plans.
The Chancellor also announced that he has updated the remit for the Bank of England’s Monetary Policy Committee to allow more flexibility. Although he has left the inflation target, which will “apply at all times” unchanged.
Mr Osborne also said: “The new remit also recognises that the Monetary Policy Committee may need to use unconventional monetary instruments to support the economy while keeping inflation stable.”
He went on to say: “We are now actively considering with the Bank of England whether there are potential extensions to the successful Funding for Lending Scheme that will boost lending still further,”
Spending & Infrastructure
The Chancellor announced that the schools and health budget will remain protected, although government departments will underspend by £11 billion this year.
At the same time an extra £3 billion will be made available for infrastructure projects from 2015/16.
Income Tax
In a move which will affect most employees, as well as the self-employed, it was announced that the Personal Allowance, the amount which can be earned before Income Tax is paid, will be increased to £10,000 from 2014, a year earlier than was previously planned.
George Osborne said: “The government affirms its commitment to reaching £10,000 this parliament. In fact it goes one better as it will be reached next year. There will be no income tax at all for the first £10,000 of earnings. Almost three million of the lowest paid will pay no tax at all…the 10 pence band has become the zero pence band.”
Inheritance Tax
Having previously indicated that the nil rate band, currently set at £325,000, will remain unchanged until 2019 at the earliest, no further changes were made in the Budget.
Capital Gains Tax
No major changes were announced, although the Capital Gains Tax holiday for Small Enterprise Investment Schemes (SEIS) has been extended.
Corporation Tax
It was announced that Corporation Tax will be cut by 1% to 20%, from April 2015.
Whilst being popular with businesses, with the exception of banks who will not benefit, this move also simplifies the tax system, with Corporation Tax and Income Tax now being set at identical rates.
Pensions
For once private pensions were not attacked and the rules for the majority of pension savers were not tinkered with or altered. However, would-be retirees will be disappointed by the possible extension of Quantitative Easing which will further depress gilt yields and reduce the income available from Annuities and Income Drawdown contracts.
It was however announced that the government will consult on whether residential properties should be allowed to be held in Self-Invested Personal Pensions.
Income Drawdown
No immediate changes were announced, however following pressure from the Association of British Insurers (ABI) the Government Actuary’s Department will carry out a review of the assumptions used in the calculation Income Drawdown rates.
As previously mentioned, the possible extension of the Quantitative Easing program could push down the maximum possible income available from Income Drawdown plans.
State Pension
The Chancellor announced that the single tier state pension of £144 will be brought forward to 2016, a year earlier than was previously planned.
In addition the social care spending cap will be brought forward to 2016 to protect savings above £72,000.
Public sector
Public sector pay increases will be limited to 1% in 2015/16, although the military will be exempt.
Business
Jobs and rising employment were constant themes throughout the Budget and Mr Osborne proudly announced that for every job lost in the public sector, six have been created in the private sector.
The Budget also included a number of other measures to help business.
Firstly, the Chancellor announced a new ‘employment allowance’. From April 2015, companies will not have to pay the first £2,000 of employer National Insurance contributions. The Chancellor said that as a result of the move, 450,000 companies will pay no employer National Insurance whatsoever.
Secondly, and as already mentioned, Corporation Tax will be cut by 1% to 20% from April 2015.
Thirdly, the government has accepted Lord Heseltine’s proposal for a single competitive pot of funding for local enterprise and also endorsed a report from former Dragon’s Den panellist, Doug Richard, which recommended making the most of apprenticeships
Finally, the SEIS (Seed Enterprise Investment Scheme) will be extended as will the Capital Gains Tax (CGT) exemptions.
Stamp duty
The Chancellor announced no major changes here, although shares traded on growth markets such as AIM (Alternative Investment Markets) will be exempt from Stamp Duty.
Fuel tax
It was announced that September’s fuel duty increase will be cancelled, with the Chancellor announcing that due to this and previous changes it will now cost “£7 less every time you fill up”.
Alcohol & Tobacco
Mindful of the 10,000 pubs lost in the UK over the past decade, the Chancellor announced that the beer duty escalator will be scrapped altogether, that the 3p rise in duty planned for this year will be cancelled and that duty will actually be cut by 1p from Sunday night.
All other duties will remain unchanged.
Benefits
In a move to help working parents the Chancellor announced tax free childcare vouchers equating to £1,200 per child per year.
He said: “New tax-free childcare vouchers for working families: 20% off the first £6,000 of your childcare costs for each child. And increased childcare support for those low-income working families on universal credit.”
Mortgages & housing
The Government are clearly keen to help the housing market and Mr Osborne announced further radical help for homebuyers.
The ‘Help to Buy Scheme’ will be launched, which will have two components. The first being £3.5 billion of shared equity loans of up to 20% of the purchase price. The loans will be available to anyone, not just first time buyers, buying a new build home and who puts a 5% deposit down from their own savings.
The loans, which will be available to all buyers, irrespective of income and will be interest free for five years and repaid when the home is sold.
The second component is a new £130 billion mortgage guarantee scheme, to help people who can’t provide a large deposit, and again will be available to all homeowners, but not limited to new build properties.
The ‘Help to Buy’ scheme will be available from 2014 and will run for three years.
It was also announced that the government will commit a further £225 million to the building of 15,000 affordable homes in England by 2015.
Equitable Life
The existing compensation scheme extended to those people who bought With Profits Annuities before 1992. It was announced that these people will receive a one off payment of £5,000 and policy holders on low incomes or income credit will receive a further £5,000.
The Chancellor said: “We are now in a position to help those who bought a with-profits annuity before 1992. We will make payments of £5,000 to elderly policy holders and make £5,000 available for those on the lowest incomes and income credit. We are doing this because it is simply the right thing to do.”
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