Budget 2013

Today’s Budget will likely be remembered chiefly for Chancellor George Osborne’s plans to stimulate the housing market. In what he called his “biggest tax cut”, he committed the Government to providing £12billion of funding to help guarantee new mortgages and £3.5billion to invest in shared equity loans of up to 20% of the value of new-build homes worth £600,000 or less. The latter cash injection starts almost immediately; the larger scheme begins in a year’s time, perhaps because Mr Osborne will want to see the housing market showing greatest buoyancy in the year before the 2015 General Election. It is unclear how the mortgage guarantee will be treated when calculating overall Government borrowings.
The majority of the Budget was a commitment to “more of the same” – any change of course would have been seen as politically weak. In a Budget which he trumpeted as one supporting an “aspiration nation”, the Chancellor cancelled this September’s rise in fuel duty, committed to lower – 20% - corporation tax for all businesses from 2015 and raised the income tax threshold to £10,000 from April 2014, a year earlier than promised. The Chancellor also announced that all UK companies would benefit from a £2000 reduction in National Insurance contributions, a measure designed to encourage growth in the small and medium enterprise sector. In less positive news, the growth forecast for the year ahead has been halved to 0.6%, Government borrowing continues to remain stubbornly high and – just this morning – unemployment rose. The Chancellor suggested that the UK economy will avoid a second quarter of contraction this year, which would be called a “triple dip recession” in economists’ jargon, but the outlook remains bleak for the remainder of this Parliament. So, in an appeal to voters to look beyond 2015, Mr Osborne promised to cap care costs at £72,000 and introduce the single-tier, flat rate £144 per week pension from 2016, earlier than originally planned. There were announcements on tax breaks for employee share ownership and reduced capital gains liabilities. Low emission vehicles and shale gas exploration will get tax incentives. To encourage people to celebrate, the Chancellor lopped a penny off the price of beer and scrapped the beer duty escalator altogether. | | +44 (0)20 3102 5197

Budget 2013

Key announcements
Economic forecasts and borrowing
 The Office of Budget Responsibility halved the forecasted growth for 2013 to 0.6 per cent, meaning the UK will escape a triple dip recession. Growth predicted to be 1.8 per cent in 2014; 2.3 per cent in 2015; 2.7 per cent in 2016 and 2.8 per cent in 2017. Borrowing will of £144bn this year, falling to £108bn in 2014; £97bn in 2015 and £87bn in 2016. Borrowing as share of GDP to fall from 7.4% in 2013-14 to 5% in 2015-16. Debt as a share of GDP to increase from 75.9% in 2012-13 to 85.1% in 2015-16. The deficit has been reduced by a third since 2010. Inflation target of 2 per cent to stay in place. Bank of England to gain extended remit to allow for focus on growth. Unemployment is up by 7,000 to 2.52 million.

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Business and general taxes
  Corporation tax to be cut by 1 per cent in 2015, meaning there will be a standardised rate of 20 per cent. New employment allowance will cut national insurance bill by £2000 for every UK company.

Housing and planning
 Help to Buy scheme will deliver 3.5billion of capital spending to shared equity loans – worth up to 20% of the value of a new build home. The extended scheme now available to all buyers (not just first-time buyers) of newly-built homes on all incomes with a house value limit of £600,000. New mortgage guarantee scheme will provide assistance to first time buyers. Government is spending £12bn from 2014, which is expected to generate £130bn of new mortgages. Right-to-Buy scheme qualifying period will be reduced from 5 years to 3. The discount in London will increase from £75k to £100k from March 2013. The Government will publish reduced planning guidance by this summer, in line with Lord Matthew Taylor’s recommendations. | | +44 (0)20 3102 5197

Budget 2013

Income taxes, NI and personal allowances
 Income tax threshold to be raised to £10,000 in April 2014, one year earlier than expected.

Fuel and transport duties
 September’s planned rise in fuel duty has been scrapped.

Economic “bads”
   Beer duty escalator has been scrapped and duty is to be cut by 1 per cent this month. All other alcohol duties to rise by 2 per cent above inflation. Tobacco duty remains unchanged -continuing to rise by 5 per cent above inflation.

Other points of note
         Whitehall departments to have budgets cut by 1 per cent in each of the next two years. Public sector cap extended to 2015-16. Single flat rate of pension of £144 per week has been brought forward a year to 2016. 20 per cent tax relief on childcare, which amounts to £1,200 per child. Tax avoidance measures will aim to recoup £3bn in unpaid revenue. Stamp duty on shares traded on growth markets to be scrapped. The Government has accepted the overwhelming majority of Lord Heseltine’s recommendations from his, “No Stone Unturned” report and will implement the ideas in 2015. £11.5bn in further cuts will be announced in 2015-16 Spending Review. There will be an extra £15bn for infrastructure projects by 2020, starting with £3bn in 2015.

Mind the gap
Budget Statements are famous for “gaps” – the hidden detail and stealth consultation that eventually emerge from the mass of paperwork released on the day. Over the next week, think tanks, MPs, academics, tax and economic experts will pick the Budget apart word by word and graph by graph. PSA will keep you on track over the coming days and weeks. Full Budget 2013 documents can be downloaded here. | | +44 (0)20 3102 5197