Archive for the ‘Budget 23/03/11’ Category

Autumn 2011 Statement of Chancellor.

Mercredi, novembre 30th, 2011

Key messages
This Government will do whatever it takes to protect Britain from the debt storm, while doing all we can to build the foundation for future growth. The challenge facing our country is tougher than we hoped it would be. As a result of the failure to deal with their debts, much of Europe now appears to be heading into recession. The public know that promises of quick fixes and more spending this country can’t afford are like the promises of a quack doctor selling a miracle cure. We do not offer that today.

Instead we will show Britain has the will to live within its means, in order to protect confidence in our economy and keep interest rates low. There are no changes to the spending totals for the next three years, and we will act to stay on course to meet our debt and deficit targets. Lower growth means we need to take tough decisions to control future spending.These include two more years of fiscal consolidation, further restraint on public sector pay, savings on tax credits and a rise in the state pension age. In the future these savings will help put our finances on a sustainable footing. But until 2014-15 every single pound saved will be spent on measures to support growth and improve fairness.

We will invest in our infrastructure and education, so that Britain can earn its living in the future. There will be £30 billion of private and public investment in roads and railways, high-speed broadband networks, science labs and free schools. We will have an active enterprise policy to help businesses expand and create jobs, with a £20 billion National Loan Guarantee Scheme, new tax breaks for investment in start-ups and cuts to red tape. We will help families and young people by doubling the number of children who will receive free nursery care, and investing nearly £1 billion to help young people get jobs and training.

And at every opportunity this Government will help families with the cost of living. The plan for next year was that fuel duty would be 3 pence higher in January than it is now and 5 pence higher than it is now in August. Instead we will scrap altogether the increase planned for January and ensure that in August fuel duty will only rise by 3 pence. So fuel duty will be frozen for nineteen months in total. From April petrol duty will be a full 10 pence lower than it would have been without our action in the Budget and this autumn. Families will save £144 on filling up the average family car by the end of next year.

This Government has a plan to deal with our nation’s debts. We are determined to support businesses and support jobs, and we are committed to taking Britain safely through the storm.

Forecasts and fiscal targets

The independent Office for Budget Responsibility has significantly downgraded their short-term growth forecasts for the UK and the world. They expect GDP to grow by 0.9 per cent this year and 0.7 per cent next year, followed by 2.1 per cent growth in 2013, and 2.7 per cent growth in 2014.

The OBR explain that this downgrade is due to a number of shocks to the UK economy:

· higher than expected inflation, due to a sharp increase in global commodity prices, is the reason why the economy has grown more slowly than expected since the June 2010 Budget;

· the crisis in the euro area has increase instability and uncertainty, which has affected household and business spending, and led to tighter credit conditions across the world;

· most significantly for medium term growth, the full scale and impact of the 2008-09 financial crisis has become clearer – the OBR conclude that the boom was bigger, the bust deeper and the effects of the crash will last longer than previously thought.

These are tough challenges. The question today is – do you deliberately add even more to spending and borrowing? Or does your Government have the resolve to deal with the debt and deficit?

Our plan is clear – we will tackle the debt. Today the OBR confirms that we will meet our fiscal mandate. The current structural deficit is forecast to go from 4.6 per cent of GDP this year, to a current surplus of 0.5 per cent in five years time. It won’t be eliminated in this Parliament, but it will be eliminated within our mandate. Debt is set to peak at 78 per cent in 2014-15 and will be falling by the end of Parliament.

Under this Government borrowing will fall and debt will come down – not as quickly as we wished because of the weaker economy, but meeting our budget rules nonetheless.

Labour’s alternative

Labour’s absurd suggestion is that if we borrow more, we will spend less. If we had followed their spending plans by 2014-15 we would still be borrowing over £100 billion a year – and Britain would have borrowed an additional £100 billion pounds in total over the Spending Review.

Failing to deal with the debt would jeopardise our low interest rates. Last April our market interest rates were higher than Italy’s. Now Italy’s rates are 7.3 per cent and ours are less than 2.5 per cent.

A 1 per cent rise in our market interest rates could add £10 billion to mortgage bills each year – the average family with a mortgage would pay an extra £1,000. The cost of business loans would rise by £4 billion. Taxpayers would have to find £26 billion more in debt interest payments. These sums would dwarf any extra government spending or borrowing funded tax cuts.

Unlike Labour, this Government is not prepared to risk the solvency of the British economy or the security of British families.

Measures in the Autumn Statement

Measures to protect the economy include:

· Committing to two more years of fiscal consolidation – total expenditure will fall by 0.9 per cent a year in real terms in 2015-16 and 2016-17, same growth rate as set out for existing period of the Spending Review.

· Setting public sector pay awards at an average of 1 per cent for each of the two years after the current pay freeze comes to an end. Departmental budgets will be adjusted in line with the policy, with the exception of the Health and schools budgets, where savings will be recycled.

· Raising the State Pension age to 67 between April 2026 and April 2028.

· Adjusting the allocation of Official Development Assistance in line with the OBR’s revised growth forecast, still meeting the 0.7 per cent of GNI target in 2013.

· Not going ahead with the planned £100 above inflation increase to the child element of the Child Tax Credit by more than inflation, and not up rating the couple and lone parent elements of the Working Tax Credit in 2012-13, to ensure that the welfare system remains affordable.

These measures will reduce spending permanently in the medium and long-term. In the short term the Government will use the savings to support balanced economy growth, infrastructure investment, social mobility and helping young people find work.

Measures to support infrastructure include:

· Using savings from current spending in this Spending Review to fund £5 billion of additional infrastructure spending over the next three years, alongside £1 billion of new private sector investment in regulated industries support by government guarantee.

· Committing to £5 billion of capital projects in the next spending review.

· Signing a Memorandum of Understanding with UK pensions fund to support up to £20 billion of new private sector investment in UK infrastructure.

· Increasing the Regional Growth fund for England by £1 billion, plus Barnett consequentials for the devolved administrations.

A list of infrastructure projects in each region is included in the next section of this brief.

Measures to support enterprise include:

· Introducing a £20 billion National Loan Guarantee Scheme to get cheaper loans to businesses.

· Creating a new £1 billion Business Finance Partnership fund, to invest in smaller and mid-sized businesses through non-bank channels.

· Launching a new Seed Enterprise Investment Scheme (SEIS) from April 2012, offering 50 per cent income tax relief on investment, and a capital gains tax exemption on gains realised in 2012-13 and then invested through SEIS.

· Offering 100 per cent capital allowances for the Enterprise Zones in Sheffield, the Black Country, Liverpool, Tees Valley, North Eastern and Humber.

· Introducing an ‘above the line’ tax credit in 2013 to encourage R&D activity.

· Extending the small business rate relief holiday for a further six months.

· Calling for evidence on the proposal to introduce compensated no fault dismissal for businesses with fewer than 10 employees.

Measures to support education:

· Investing an extra £600 million to fund an additional 100 Free Schools by the end of this Parliament, including new specialist maths Free Schools.

· Investing an additional £600 million to deliver 40,000 new classroom places.

Measures to support fairness include:

· Freezing fuel duty, by deferring the 3.02 pence per litre fuel duty increase due to take effect on 1 January 2012 to 1 August 2012; the second increase planned for 1 August 2012 will be cancelled.

· Limiting the increase to Transport for London fare and regulated rail fares to RPI plus one per cent for one year from 2012.

· Increasing the rate of the Bank Levy to ensure it raises at least £2.5 billion per annum.

· Extending Air Passenger Duty to business jet flights.

· Ending double tax relief for complex asset-backed pension funding arrangements.

· Introducing a Youth Contract worth £940 million. This includes 160,000 wage incentives to encourage firms to employ young people; at least 40,000 incentive payments for small firms to take on young apprenticeships; and offer of work experience or training for every unemployed 18 – 24 year old after three months on Jobseeker’s Allowance.

· Near doubling the number of disadvantaged of 2 year olds eligible to receive 15 hours of free education and care a week.

Measures in every region

North East

· Infrastructure projects to support growth in the North East:

o Electrification of the Transpennine railway.

o Tyne and Wear metro upgrade.

o East Coast Main Line improvements programme.

o Tees Multimodal Bio-Freight Terminal

· Enhanced Capital Allowances will be available in the North Eastern and Tees Valley Enterprise Zones to promote the creation and growth of capital intensive industries.

· Extending the existing North Eastern Enterprise Zone to include the Port of Blyth, encouraging private sector investment in the renewable industry and creating new jobs in the area, subject to due diligence.

· Local Enterprise Partnerships in the North East will receive over £20 million as part of the Growing Places Fund.

North West

· Infrastructure projects to support growth in the North West:

o Road improvements, including an airport link road, A556 Knutsford, the Heysham to M6 Link Road, and a new link road to the east of Crewe opening up key development area and acting as bypass.

o New cross Manchester city centre bus services.

o Electrification of the Transpennine Express railway.

o Manchester Metro Link Phase 3A Extensions.

o Mersey Gateway Bridge.

o Completion of Western gateway Enabling Scheme at Port Salford (as part of Regional Growth Fund).

o Rail improvements, including reinstating the Todmorden Curve, cutting travel times from Manchester to Burnley (as part of Regional Growth Fund) and improvements to Northern rail connectivity (Liverpool-Newcastle including Northern Hub)

· A new Enterprise Zone led by the Lancashire Local Enterprise Partnership

· Enhanced Capital Allowances will be available in the Liverpool City Region (Mersey Waters) Enterprise Zone to promote the creation and growth of capital intensive industries.

· Local Enterprise Partnerships in the North West will receive over £60 million as part of the Growing Places Fund.

Yorkshire and Humber

· Infrastructure projects to support growth in Yorkshire and Humber:

o Road improvements including the A18-A180 Link in NE Lincolnshire, the A6182 White Rose Way Improvement Scheme in Doncaster, accelerating the M1 junction 39 to 42 scheme, and capacity and safety improvements at 4 roundabouts and dualling of 1.4km section of the A164.

o Halving the Humber Bridge’s tolls for cars by writing down the debt.

o Two new park and ride sites in York.

o Leeds Rail Growth – Two new railway stations: Kirkstall Forge and Appley Bridge.

o Supertram additional vehicles (Sheffield) - 4 Additional tram vehicles for the Supertram network.

o Electrification of the Transpennine Express.

o Improved access to the Sheffield Gateway (as part of Regional Growth Fund).

· A new Enterprise Zone led by the Humber Local Enterprise Partnership, the second Enterprise Zone for the Humber area.

· Enhanced Capital Allowances will be available in the Sheffield City Region and the existing Humber Enterprise Zone to promote the creation and growth of capital intensive industries.

· Sheffield City Region will be using £7 million from the Growing Places Fund to establish a JESSICA for South Yorkshire, leveraging £13 million of European funding.

· Local Enterprise Partnerships in Yorkshire and Humber will receive nearly £50 million as part of the Growing Places Fund.

West Midlands

· Infrastructure projects to support growth in the West Midlands:

o Road improvements including a replacement bridge on the A45 over the West Coast Main Line close to Birmingham Airport, the rebuilding of the main bridge into Evesham from the South, and the M6 managed motorway scheme between Birmingham and Manchester.

o Improvements to the Midland Metro.

o Birmingham New Street station enlargement.

· Enhanced Capital Allowances will be available in the Black Country Enterprise Zone to promote the creation and growth of capital intensive industries.

· Local Enterprise Partnerships in the West Midlands will receive nearly £50 million as part of the Growing Places Fund:

East Midlands

· Infrastructure projects to support growth in the East Midlands:

o Road improvements, including a new dual carriageway link road to the south east of Corby; a bypass to the east of Lincoln; widening the A453 between Nottingham, the M1 and Nottingham East Midlands Airport; improvements at the M1/M6 Junction; widening the A14 Kettering Bypass between junctions 7 and 9; and improving the A1 at Elkesley.

o Hucknall Town Centre Improvement Scheme. A new inner relief road allowing pedestrianisation of High Street plus ‘bus only’ link and enhanced pedestrian and cycle facilities.

o Nottingham Express Transit.

· Local Enterprise Partnerships in the East Midlands will receive over £50 million as part of the Growing Places Fund

East of England

· Infrastructure projects to support growth in the East of England:

o A new Lower Thames Crossing.

o Road improvements, including the A14 in Cambridgeshire, the A11 Fiveways, and the M1 (J10-13).

o London Gateway port.

o Continuing to implement the £14.5 billion Crossrail project, with services operational from 2018.

o Continuing to implement the Thameslink Programme, investing around £6 billion in infrastructure and new trains

· Local Enterprise Partnerships in the East of England will receive over £30 million as part of the Growing Places Fund

London

· Infrastructure projects to support growth in London:

o Limiting increases in Transport for London and regulated rail fares.

o Road improvements including the acceleration of M25 junction 23 to 27 scheme, and widening of the M25 from J16-23 and J27-30.

o Extending flexible smart ticketing across London and the South East.

o An urban broadband fund to create 10 super connected cities, including London.

o Thames Tideway Tunnel.

o London Underground Investment Programme.

o Rail improvements including Kings Cross Station improvements, Great Western Electrification, and the East Coast Main Line improvements programme.

o Heathrow Capital Investment Programme.

o Continuing to implement the £14.5 billion Crossrail project, with services operational from 2018.

o Continuing to implement the Thameslink Programme, investing around £6 billion in infrastructure and new trains.

· Working with the Mayor and TfL to explore options for a proposed additional river crossing at Silvertown to relieve congestion at the Blackwall Tunnel

· Support for the extension of the Northern Line to Battersea, and will consider allowing local borrowing against future receipts of Community Infrastructure Levy to support this, subject to agreement from potential developers to contribute and develop the site

· The London Local Enterprise Partnership will receive nearly £40 million as part of the Growing Places Fund

South East

· Infrastructure projects to support growth in the South East:

o Road improvements, including the replacement of Northern Road Bridge in Portsmouth, and a new interchange on M275 opening up development area, park and ride site and bus priority measure.

o Rail improvements including 130 additional carriages for the Southern rail franchise in south London, a new rail link between Oxford and Bedford, and major resignalling work and construction of new platforms at Reading.

o M3 in Surrey – managed motorway scheme.

o New Lower Thames Crossing - over the next year, DfT will work with the Mayor and TfL to explore options for a proposed additional river crossing at Silvertown.

o Gatwick Capital Investment Programme.

o Continuing to implement the £14.5 billion Crossrail project, with services operational from 2018.

o Continuing to implement the Thameslink Programme, investing around £6 billion in infrastructure and new trains.

· Local Enterprise Partnerships in the South East will receive nearly £95 million as part of the Growing Places Fund.

South West

· Infrastructure projects to support growth in the South East:

o Improved buses in Bristol – a new Bus Rapid Transit scheme (including guided bus) from the Ashton Gate area to the city centre, including feeder services from further a field.

o Road improvements including, a new bypass of Kingskerswell linking Newton Abbot with Torbay, and a new link road through the South Bristol area linking a number of existing radial routes into the city.

o Great Western Electrification (electric services to Bristol, Oxford and Newbury)

· Funding for South West Water to enable it to cut bills by £50 per year for all household customers.

· Local Enterprise Partnerships in the South West will receive over £75 million as part of the Growing Places Fund.

Scotland

· The Government is working in consultation with the Scottish Government on the National Infrastructure Plan. In devolved areas it is for the Scottish Government to determine its own priorities.

· The Scottish Government will receive will receive Barnett consequentials on increased funding for England.

· £50 million will be made available to replace the Caledonian Sleeper fleet, to improve on-train facilities. The funding is subject to the Scottish Government agreeing to co-fund the replacement and provide the remainder of the funding

· An urban broadband fund will create 10 super connected cities, including Edinburgh.

Northern Ireland

· The Government is working in consultation with the Northern Ireland Executive on the National Infrastructure Plan. In devolved areas including transport, water, flood and waste it is for the Northern Ireland Executive to determine its own priorities.

· The Northern Ireland Executive will receive Barnett consequentials on increased funding for England.

· An urban broadband fund will create 10 super connected cities, including Belfast.

Wales

· The Government is working in consultation with the Welsh Government on the National Infrastructure Plan. In devolved areas including transport, water, flood and waste it is for the Welsh Government to determine its own priorities.

· The Welsh Government will receive Barnett consequentials on increased funding for England.

· An urban broadband fund will create 10 super connected cities, including Cardiff.

· Engaging with the Welsh Government on improvements to the M4 in south east Wales.

Budget: Aims & Achievements.

Mercredi, mai 4th, 2011

To support MPs debating the Finance Bill (developed from the Budget) in the House of Commons on the 3rd May, and to establish a system of monitoring yearly progress towards improving the longer term growth prospects for the UK economy, the Treasury Select Committee has established certain criteria. Such criteria include:
• Fairness
• Growth
• Competition
• Certainty & Simplicity
• Stability
• Practicality & Coherence.
Tax experts from the professional associations and institutes for accountancy and taxation were then invited to evaluate the Budget against the above criteria which are considered important for good tax policy.
Now the Chancellor in his Budget has emphasised his twin aims of e.g. ensuring fairness in taxation and encouraging growth in the economy and the tax experts in general support the cut in corporation tax, the increase in entrepreneur tax relief and the limiting of tax haven status for foreign subsidiaries of UK multinationals.
However, the increased tax burden on middle-income (£40,000 - £50,000) households when also withdrawing their tax credits and child benefits is viewed as unfairly taxing them (The Squeezed Middle?) proportionally more than those on higher incomes. Again, the surprise windfall tax on North Sea oil companies although considered simple and clear does not on the other hand support the need for tax policy stability and growth in the economy. The unexpectedness of the tax rise could also impact competiveness. In addition, the changing level of the bank levy, the latest change in force from 1st January, adds instability and uncertainty to the long term tax regime as far as the banks are concerned. Further, to reduce capital allowances to offset the effects of corporation tax cuts on the overall tax take, introduces incoherence within the business tax system when this also results in e.g. unincorporated businesses being penalised by this capital allowance reduction.
It will be interesting to see if the Treasury Select Committee succeeds in this Budget monitoring role which is similar to the Congressional Budget Office in the USA but without proportionally similar resources.

Inflation Threat to Growth

Mercredi, mars 30th, 2011

An open trading nation such as the UK cannot afford to ignore the globalised markets and the effect e.g. of the cost of government debt and worldwide commodity prices. There is evidence of the merit in the continuing commitment of the Chancellor in his 23rd March Budget, to shrink the public spending deficit to 2 – 3% or thereabouts of GDP by 2015/16. Long-term interest rates are currently marked closer to those of benchmark Germany , rather than the considered more profligate Portugal, Greece and Spain, the latter economies all facing higher borrowing costs than the UK despite their lower budget deficits.
However, the Labour opposition, aided by the recent surge in oil prices and the negative growth (-0.5%) recorded in the last quarter of 2010, is still arguing that cutting the deficit too soon is harming growth and the living standards of the squeezed middle-income earners, citing the downgraded growth forecasts for 2011 and 2012 as evidence of this (refer also to Chairman’s Blog/Categories/Budget 23/03/11 in the right-hand index column).
More important for the Coalition government is that the independent Office for Budget Responsibility (OBR) has revised upwards growth forecasts for 2014/15 when the next general election could take place. Labour also has no real counter to the fuel price cuts to help households and small businesses or the raising of the lowest tax threshold above which people start paying tax to help the lower paid. Instead Ed. Miliband, with no apparent alternative policies ahead of the completion of his own policy reviews, is seemingly being drawn closer to the Trades Unions marching against cuts and, thereby, risking being viewed as an obstructive rather than constructive opposition leader by voters still doubting the overall competence of Labour on economic policy.
The main threat to the recovery of the economy in fact comes from inflation with the Consumer Price Index (CPI) at 4.4% and the Retail Price Index (RPI) at 5.5%. Higher inflation is responsible for the new OBR figures for the budget deficit with net borrowing in 2010/11 of £145.9 billion (£2.6 billion below what was forecasted but this undershoot less than expected by the markets). The OBR then predicts continuing overshoots starting with £4 billion on borrowing of £122 billion in 2011/12 and averaging £10 – 11 billion thereafter, due to the impact of inflation on benefits, public sector pensions and debt interest. Underlying this scenario is the assumption that average earnings will not be rising faster than inflation until 2013, with the Bank of England in order not to stifle growth, only allowing interest rates to slowly start to rise up later this year to average 1.8% in 2012 and 2.8% in 2013.
However, without a sharp drop in inflation next year as the effects of the recent increase in VAT and other such contributing factors fall away, an average CPI of over 4% (RPI 6%) in 2012/13 could trigger a jump in average earnings together with a bank rate at over 6% in 2013. The net result would be a squeeze on the economy equivalent to the effect of the cuts but without the offsetting stimulus of low interest rates.

Vision for Growth Budget

Vendredi, mars 25th, 2011

The 23rd March, 2011 and Budget Day in the UK, our blog received an interesting comment viz. In passing would just like to say that it does not matter what George Osborne likes to pretend will be the outcome of the Budget, the real winners will again be the banks from whom as a culture we must borrow, at excessive interest, if we want to eat, sleep and breathe. Changing anything other than that is purely cosmetic. Food for thought for you all!
This is a real problem for households and businesses but unfortunately for the government it cannot over-risk driving off-shore such a wealth creating sector as financial services, which has served to compensate for the reduced value-added contribution to the economy of the diminished British manufacturing base (see Chairmans Blog/ Categories/ Banks & Bonuses in the right-hand index column). Following the financial crisis, these banks are also still in the process of rebuilding their balance sheets and have adopted a more cautious lending policy towards both retail and business customers, who in turn find themselves faced with what they perceive as excessive rates of interest compared with before when money seemed cheap. Having, therefore, already taxed and pressurised as far as judged prudent the banks to reduce their level of bonuses and improve their lending levels to small businesses in particular, the Chancellor in this his second budget has hit instead upon another popular target for the public i.e. oil companies, with a £2 billion windfall tax to pay for a 1p cut in fuel duty (instead of the 5p increase due from next month).
The high price of oil in recent years having encouraged increased investment particularly by smaller companies in the rapidly decreasing reserves of economically accessible oil in the North Sea, there has predictably been an outcry from an outraged and surprised oil industry that this can only lead to job cuts and less investment. Nick Clegg, the Deputy Prime Minister, considers this a fair deal since these oil companies are making huge profits (rather like some banks). However, it is a gamble for a business friendly Chancellor looking for investment and growth in the economy, particularly when you reduce after-tax returns on profits from North Sea oil fields by a quarter, the off-shore industry accounting for a third of total industrial investment. The industry also mainly benefits Scotland and the North of England, areas which again face public spending cuts. It serves to illustrate just how little room the public spending deficit has left the Chancellor in which to manoeuvre when he also admits to having essentially used up the political capital or public goodwill gained from winning the last election, by the tough but necessary things he is doing.
A problem for his termed Vision for Growth Budget is that he was forced at the same time to announce lower forecast growth rates of 1.7% and 2.5% for 2011 & 2012 respectively (although then rising to 2.9% in 2013/2014) with, in addition, the Office of Budget Responsibility (OBR) saying it made no difference to its own forecasts, which were themselves downgraded from 2.1 % to 1.7% this year and from 2.6% to 2.5% next year.
That said, the Chancellor revealed a number of business–friendly measures including a surprise 1% reduction in the main rate of corporation tax which will be cut to 26% from April 2011 and reduced by 1% per year thereafter to 23% in 2014. There was also the introduction of 21 new enterprise zones, improved incentives for R & D and a strong indication that the current 50% top rate of income tax was considered only a temporary measure (certainly considered politically impossible to scrap immediately, given the strong public feeling on the issue e.g. of highly paid bankers & their bonuses). These enterprise zones will offer discounts on business rates, provide super-fast broadband communications and have more efficient planning rules to encourage the establishment of new businesses. The Green Investment Bank will also receive an extra £2 billion of seed money, although the Green lobby was not too happy about the 1p cut in fuel duty.
The above measures aimed at rejuvenating the private sector were broadly welcomed by analysts although recognising that the government was still gambling on growth whilst continuing to cut public spending so deeply. Public spending would also be a cumulative £44 billion higher than expected over the course of the current parliament according to the OBR. In addition, the national debt would now reach 70.9% of GDP in 2013/2014 (£1.25 trillion), worse than forecasted last November.
Ending on a more positive note, the head of WPP, the largest advertising company in the world, was moved to comment that WPP would now be considering relocating their HQ back to the UK instead of remaining in Ireland. Forecasts for growth in world trade are also being marked higher, the UK manufacturing sector is performing well and the OBR is still expecting private sector employment to have increased by 1.3 million by 2015, compared with a decrease of some 400,000 public sector jobs. Such growth remains dependent upon a number of variables such as businesses having the confidence to start reinvesting and hiring more people, despite rising inflation, the state of the banking system, the outlook for household spending and unexpected events in a globalised trading world.