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Autumn Statement 2012

Overview
As expected there was little in the way of good news in today’s Autumn Statement. The Chancellor painted a grim economic picture for the years ahead. GDP remains sluggish and the original five year deficit reduction plan has now been extended to eight years, ending in 2018. The Office of Budget Responsibility published revised forecasts which suggest that the economy is expected to grow less than expected in the years ahead. The Chancellor told the House of Commons, "the public know that there are no miracle cures. Just the hard work of dealing with our deficit and ensuring Britain wins the global race." In short, he repeated his mantra of we are on the right track and any change of direction would be dangerous.
The Chancellor’s headline announcements were a £5.5bn investment in infrastructure projects. New spending commitments will be covered by further cuts to welfare and Whitehall budgets. Other key measures announced include scrapping the 3p fuel duty hike, more welfare cuts, and a raid on the pension pots of higher earners. There were some surprises today; the Chancellor announced that corporation tax will be reduced further than planned and that the personal income tax threshold will increase next year. A Spending Review in the first half of 2013 will detail the extent of the continued departmental cuts. The Chancellor sought to reassure the public, despite austerity continuing for longer than expected and sluggish growth, that his chosen economic path was the responsible one and would eventually lead to recovery and a more sustainable economy in the long term. The Government continue to have an advantage over the Labour Party on economic competence despite Labour holding a steady lead in national polls. Trust in the Government may take a knock today, but it remains to be seen if this will cause lasting political damage to the Government and the Chancellor’s stewardship of the economy. The Autumn Statement can be viewed in full here: http://www.hm-treasury.gov.uk/as2012_index.htm

Key announcements
 The Office of Budget Responsibility have downgraded its growth forecast for this year to -0.1%. They forecast the economy will grow by: 1.2% next year. Then 2.0% in 2014; 2.3% in 2015; 2.7% in 2016 and 2.8% in 2017. All forecasts are down on the March Budget forecasts. Unemployment will peak next year at 8.3%; this is slightly lower than previously predicted. The Chancellor announced today that he would miss his debt reduction target. Borrowing will total 108bn in 2012/13, 99bn in 2013/14 and 88bn in 2014/15. The target of debt falling as a percentage of national income has been delayed by one year to 2016. Deficit to fall from 7.9% to 6.9% of GDP this year, and is expected to continue falling to 1.6% by 2017/18. A new Spending Review will take place in the first half of 2013. Departmental spending will be cut by extra 1% in 2013-14 and 2% in 2014-15. New spending announcements include: £1billion of new roads spending, £600m more for UK science & research infrastructure, £1bn to be allocated to expand good schools and build new free schools and £1bn of funding for a new business bank for SMEs. Lifetime pension allowance is to be cut from £1.5 to £1.2m and annual contributions will be reduced from £50k to £40k per year. The basic state pension will rise by 2.5% next year. Tax free ISA limit is to be increased to £11,520 next year. Most working-age benefits to rise by just 1% for each of the next three years. The higher rate personal income tax threshold will be increased by 1% in the tax years 2014-15 and 201516. 400,000 people are expected to be pulled into the higher 40% income tax band. From next April the personal income tax allowance will rise to 9,440, an increase of £235. UKTI funding will rise by 25% to support UK exports. Small business rate relief scheme is to be extended to April 2014 and corporation tax will continue to be cut. A further reduction of 1% will come into place in April 2014. This will set corporation tax at 21%. This cut is not extended to banks. The Government will increase the Annual Investment Allowance limit from £25,000 to £250,000 for two years for all qualifying investments from January 2013. The planned 3p fuel tax rise has been scrapped.

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