Budget Briefing. Wednesday 19th March 2014

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2 Maitland Political Budget Briefing 2014 Together with the British people we held our nerve but the job is far from done Chancellor of the Exchequer George Osborne has presented a sober Budget Statement to the House of Commons, arguing that he wanted to see hard working people keeping more of what they earned and promising that the Government is on track to deliver a more resilient economy and stronger public finances. Osborne struck a confident yet cautious tone, recounting the Government s success in tackling the debt and deficit to the sound of cheering Conservative MPs. The economy is forecast to grow 2.7% this year, with the deficit continuing to fall and a small surplus emerging by 2018/19. He did allow himself a jibe at Shadow Chancellor Ed Balls, quoting his own phrase that the last Labour Government had made some mistakes in reference to the rising budget deficit under its tenure. The Chancellor told the Commons that: The Office for Budget Responsibility (OBR) forecasts growth of 2.7% for 2014, 2.3% next year, and 2.6% in 2016 and 2017 The OBR forecast the largest reduction in headline and structural deficit of any major developed country: 6.6% this year, 5.5% next year, then 4.2%, 2.4%, and 0.8% in 2018 Tax relief for savings and pensions will be extended A cap on welfare spending will be set at 119bn for bn of tax receipts are to be brought forward for those in tax avoidance schemes to pay up front Stamp duty of 15% will be levied on people buying residential homes through a company Osborne spoke firmly in support of business, manufacturing and an export-led recovery: Grants will be available for 100,000 more apprenticeships, young workers are to be taken out of employee NI, and the annual investment allowance will be doubled to 500,000, and extended to He also announced a 7bn package that will cut energy bills for manufacturers, a cut in the carbon price support rate and an extension of the compensation scheme for energy-intensive industries. 2

3 There were some limited giveaways for Coalition backbenchers to take back to their constituencies. The basic rate tax allowance is to rise to 10,500 next year, with the higher rate threshold rising slightly to 41,865 and sparing any additional taxpayers from being dragged into it. Popular campaigns for fuel, bingo and beer duty cuts were also rewarded. In his response, Labour leader Ed Miliband said the working people of Britain are worse off under the Conservatives, accusing the Government of doing nothing to help ease the cost of living crisis impacting people across the country. He highlighted the failure to rebalance the economy and attacked the growing pay gap between ordinary workers and bankers in the City, calling it an economy of the privileged, by the privileged, for the privileged. The Chancellor has fired the starting gun for the 2015 General Election campaign, setting out the dividing lines by posing a simple question to the country: Who has the credibility to stick to the long-term economic plan? 3

4 Announcements by sector 1. Banking, Business and Financial Policy 2. Consumer and Personal Finance 3. Energy and the Environment 4. Transport and Infrastructure 1. Banking, Business and Financial Policy The new 1 coin, "a more resilient pound for a more resilient economy," Mr Osborne says. Supporting documents: Tackling aggressive tax planning in the global economy: UK priorities for the G20- OECD project for countering Base Erosion and Profit Shifting Remit and recommendations for the Financial Policy Committee: 2014 Monetary policy remit: 2014 OTS competitiveness review: initial thoughts and call for evidence Bank of England and Monetary Policy Confirmed the appointments of Anthony Habgood to Chair the Court and Ben Broadbent and Minouche Shafik to be the new Deputy Governors for Monetary Policy and Markets and Banking respectively. Re-confirmed the remit for the Monetary Policy Committee, including the target of 2 per cent CPI inflation which the OBR expect will be met this year, next year and in the years ahead. Re-affirmed commitment to rebuilding foreign exchange reserves, now 50%$ higher than in Tax avoidance The number of registered tax avoidance schemes has fallen by half. People who sign up for aggressive tax avoidance schemes will be required to pay upfront. The OBR confirm that this will bring forward 4 billion of tax receipts. HMRC will get new powers and an increased budget, increased compliance checks on migrants and the ability to go into bank accounts to recover funds. 4

5 Corporation tax Most competitive business tax rates Next year corporation tax will reach 20%, down from 28% when the Coalition Government came into office Business rates discounts and enhanced capital allowances will be extended in enterprise zones for another three years New Enterprise Zone in Northern Ireland Raised the rate of the R&D tax credit for loss-making small businesses from 11% to 14.5%. Backing investment into social enterprises with a Social Investment Tax Relief at a rate of 30% Annual investment allowance doubled from 250,000 to 500,000 and extended to end of The cost of this measure is expected to be 2 billion LIBOR/FX fines LIBOR fines will continue to go to military and emergency services charities 10 million support to scouts, guides, St Johns Ambulance and cadets Funding for apprenticeships Doubled the number of apprenticeships and extension of the grants for smaller businesses to support over 100,000 apprenticeships Exports The Chancellor reiterated his backing for companies that invest and export. OBR forecast increased export growth (especially to BRICs) Competitive export finance double lending available to 3 billion. Interest rates will be cut by third Recommendations from the Wood report on North Sea oil and gas taken forward. New allowance for ultra-high pressure, high temperature oil and gas fields. OBR revised down the forecast tax receipts from North Sea oil by a further 3 billion over the period 5

6 2. Consumer and Personal Finance Outlining the Government s plans for the consumers and personal finance the Chancellor said this budget will make sure hard working people keep more of what they earn. Key documents: Overview of Tax Legislation and Rates The New ISA Factsheet Personal tax allowances Personal tax free allowance increased to 10,500 in April According to the Chancellor, since the government came into power 3 million people no longer pay any income tax at all 40p income tax threshold increased from 41,450 to 41,865 from next month and increased by a further 1% to 42,285 in 2015 National Insurance Under-21s will be taken out of employee national insurance contributions all together Inheritance Tax Inheritance tax will be abolished for emergency service and military personnel killed in the line of duty Child care Working parents earning under 150,000 will be given 2,000 to ease the cost of childcare Alcohol & Cigarette duties Tobacco duty will rise by 2% over inflation for this year, as part of the tobacco duty escalator, which will be extended for the life of the next parliament Scrapping the alcohol duty escalator, with alcohol duty instead rising in line with inflation Freeze in alcohol duty for Scottish Whisky and West Country cider producers. Beer duty cut by a penny for the second year in a row. Fuel Duties VAT on fuel for air ambulances and coast guard vehicles is scrapped Fuel duty rise planned for September 2014 will not take place Gambling Duties Fixed odds betting terminals duty raised to 25% Horse race betting levy extended to bookmakers based abroad 6

7 Bingo duty will be halved from 20% to 10% Pensions State pension will be excluded from the Chancellor s welfare cap of 119bn for Pensioner bond to be issued NS&I available from January next year to everyone over 65. Rates likely to be 2.8% for a one year bond and 4% for a three year bond, with over a million bonds to be issued. A maximum of 10,000 can be saved per pensioner in these bonds Defined contributions pensions will see the income requirement for flexible drawdown fall from 20,000 to 12,000. The total pensions saving one can take as a lump sum will be increased to 30,000 Legislating to remove all tax restrictions on how pensioners access their pension pots, being able to draw down as much or as little as they want. 20m over the next two years to develop a new right to advice for people shopping around for a pension People choosing to take their pension pot early will be taxed at the normal marginal rate of 20%, rather than the 55% currently in place Property and Mortgages The Chancellor announced plans for a 15% rate of stamp duty on properties worth over 500,000 purchased by companies, down from 2m. The measure is designed to stop people avoiding stamp duty by purchasing property through a company. 150m financing made available to Right to build your own homes scheme. Help to buy equity loan scheme is extended to the end of the decade Savers Merging the Cash and Stocks ISA to create a single ISA with a tax free annual limit of 15,000 Cap on premium bonds raised from 30,000 to 40,000 Abolishing the 10p starting rate for savers, extending the newly abolished rate to cover 5,000 worth of savings 7

8 3. Energy and the Environment The Chancellor said that the Government s goal is to decrease energy costs while maintaining investment in renewable energy, specifically within the energy intensive industries, in order to strengthen overall growth. Carbon Price Floor Reform Climate change levy: exemptions for energy used in metallurgical and mineralogical processes Energy Costs The package of reforms to lower energy costs for industries and small businesses and domestic households is expected to save up to 7 billion by Most of the savings (80%) are expected to be felt by energy intensive manufacturers based in Northern England, Scotland and Wales North Sea Oil and Gas New allowance for ultra-high pressure, high temperature oil and gas projects, and working with the new oil and gas agency to ensure that the UK s tax regime remains competitive Revenue is expected to fall from North Sea oil and gas due to the maturity of the reserve, North Sea tax receipts are expected to fall by 3bn Renewables An investment of 10 billion will be given to over 50 onshore wind projects (around 75% in Scotland) with consents already approved or in the process of obtaining them An 2.6 billion injection of funding was pledged for marine power projects up to 2020 including the publicly-owned Wave Hub in Cornwall, and the European Marine Energy Centre in Orkney Investments worth 3.2 billion shall be made to solar power projects through the Renewables Obligation regime. Carbon Price Floor The Carbon Price Support rate will be capped at 18 per ton of CO2 from to and providing targeted support to energy intensive industries and Combined Heat and Power plants, which is expected to save business up to 4 billion by , 1.5 billion in and $15 household rates Extend compensation for energy intensive industries for the cost of the Carbon Price Floor and EU emissions trading system to Exempting electricity from Combined Heat and Power plants, which hundreds of manufacturers use, from the carbon price floor 8

9 Fuel Poverty The Government will shortly announce a plan for a new fuel poverty target strategy, focusing especially on those households that are not connected to the gas grid Capacity Market Introducing a Capacity Market to ensure security of supply via incentivising investment in new gas capacity and getting the best out of existing power plants Carbon Capture Investing 60 million for new low-carbon innovation to support carbon capture and storage technologies Company Car Tax Extending 2% increase in company car tax Ultra low emission fuel Decreasing the tax on ultra low emission vehicles Reducing fuel duty on ethanol 9

10 4. Transport and Infrastructure The Chancellor set out plans for over 300 billion of public investment over the next parliament. This includes a commitment to publicly funded specific projects worth over 100 billion, including the biggest programme of investment in roads since the 1970s, funding for superfast broadband in hard-to-reach areas, and long-term funding settlements for flood defence and science projects. Key documents: The Red Book Infrastructure Delivery Update Budget 2014 provided 140 million of new funding to repair and restore the condition of vital flood defences that have suffered damage in recent months A UK government cooperation agreement has been signed to support the Wylfa Newydd nuclear plant in Anglesey. There is 5 billion of investment planned in this project before 2020, all of which is expected to be available as either debt or equity The Government announced it will provide 42 million over 5 years for a new Alan Turing institute supporting the commercialisation of novel technologies An update on delivery of the Top 40 Projects identified in the National Infrastructure Plan 2011 was published alongside the budget 2014 Housing and Planning The Government announced that the Help to Buy scheme-the equity loan partwill be extended to 2020 instead of ending in 2016, as well as an 150 million scheme to help people build their own homes. The Government will create a 500 million Builders Finance Fund, which will provide loans to developers to unlock 15,000 housing units stalled due to difficulty in accessing finance. The Chancellor repeated a previous announcement that will see the first garden city built at Ebbsfleet and 15,000 homes will be built there. Alongside housing, planning changes made included the creation of the UK Regulators Network (UKRN) and extending the current PWLB (Public Works Loan Board) lending limit of 70 billion to up to 95 billion to enable local authorities to continue to borrow from the PWLB. Air Budget 2014 announced that the Government will reform air passenger duty (APD) by abolishing bands C and D from 1 April 2015, which will mean flights to South Asia and the Caribbean will pay tax at the lower band B rate The Government will extend the scope of the existing Regional Air Connectivity Fund to include start-up aid for new routes from regional airports, and will increase the funding to 20 million per annum. 10

11 Railways Government spending railways through a 60 billion fund over the next ten years between and including projects such as Crossrail, Thameslink and High Speed Two. Spending for Network Rail has been set by the Office of Rail Regulation at over 38 billion ( prices), which includes contributions from the train operating companies and government-backed borrowing. Roads The Government gave approval of 270m worth of funds for the Mersey Bridge project. Also included was extra spending for road and flood repairs, including the M4 in South Wales and a 200m fund for councils to repair potholes. Emergency Services The Government revealed it will relieve the VAT on fuel for Air Ambulances and Inshore Rescue boat services across Britain, and provide a new air ambulance for London. 11

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