29 November 2011
Despite warnings this week that the UK was likely to slip back into recession, Chancellor George Osborne has said that the Office for Budget Responsibility’s (OBR) latest annual growth and borrowing figures do NOT predict this happening. However, the figures do show that the bust was deeper and had an even bigger effect on Britain than first thought, he said.
Giving his Autumn Statement in response to the OBR’s report, Mr Osborne updated MPs on the current state of the economy, as well as outlining the Government’s plans for its future growth.
Referring to the ongoing eurozone crisis, the Chancellor said that the Government would do “whatever it takes” to protect Britain from the debt storm.
Economic growth and borrowing
The OBR downgraded its growth forecast for 2011 from the 1.7% announced in March’s Budget to just 0.9%. An even bigger drop is forecast for 2012, down from 2.5% to 0.7%.
However, things start to look better after next year, with growth forecasts of 2.1% for 2013, 2.7% for 2014 and 3% for both 2015 and 2016.
UK borrowing forecasts were also increased, with borrowing this year being £127 billion – £5 billion more than first thought. Borrowing will be £19 billion higher next year and £30 billion higher in 2013/2014. These increases come as a result of the reduced expected growth levels, according to the Chancellor.
Debt to GDP ratio will peak at 78% by 2014/2015 and will fall afterwards.
Increasing lending to UK businesses, particularly smaller firms which continue to face difficulties obtaining funding, formed a key part of the Autumn Statement, with Mr Osborne outlining a number of measures designed to tackle this problem.
As first hinted by the Chancellor during the Conservative party conference in October, the Government is to launch a credit-easing programme, the National Loan Guarantee Scheme, which will underwrite up to £40 billion in low-interest loans to small and medium-sized firms. New loans and overdrafts to businesses with a turnover of less than £50 million will be eligible for the scheme, which will be up and running within the next few months.
A £1 billion Business Finance Partnership will also be set up to help secure funding for mid-sized firms. This will involve the Government investing in funds that lend directly to these firms, in partnership with other investors such as pension funds and insurance companies, and is designed to provide mid-sized firms with a new source of funding. Mr Osborne said he would increase the Partnership’s size if it proved successful.
The Regional Growth Fund will receive a further £1 billion in funding, while a £250 million support package will be available for energy-intensive firms.
In a bid to create jobs for unemployed young people, the Government will launch a £1 billion ‘youth contract’ to subsidise six-month work placements for up 410,000 individuals.
The bank levy will be increased to 0.088% from January 2012.
The Enterprise Investment Scheme is to be extended to become the Seed Enterprise Investment Scheme (SEIS). Under this scheme, anyone who invests up to £100,000 in a qualifying new start-up business will be eligible for Income Tax relief of 50%, regardless of their respective tax rate.
The Autumn Statement brought further good news for small firms with the announcement that the business rate relief holiday would be extended for another year until April 2013. For all other businesses, the Government will allow them to defer 60% of the increase in business rates next year to the two following years.
The annual exempt allowance for Capital Gains Tax will be frozen at £10,600 for 2012/2013, with tax being waived for one year only on capital gains invested through the Start-Up Britain scheme in 2012.
Capital allowances of 100% will be available to encourage manufacturing and other industries in Enterprise Zones such as Liverpool, Sheffield, the Tees Valley, Humber, the Black Country and the North East.
Mr Osborne also announced an “above the line” research and development (R&D) tax credit in 2013 to encourage research and development activity by larger companies. This will be consulted on for the 2012 Budget to ensure that SME R&D tax credits are not reduced as a result of such a change.
There will be a below-inflation increase in some working tax credits, while the above-inflation £110 rise in the child element of the child tax credit will be scrapped altogether.
Pensions and benefits
The rise in state pension age to 67 is to be brought forward by 10 years from 2036 to 2026.
The basic state pension will rise to £107.45 per week – an increase of £5.35. Pension credit will rise by the same amount. Meanwhile, benefit payments will be uprated by 5.2% next year, in line with inflation.
Public sector workers will face a 1% cap on pay rises from 2013 to 2015, after the current pay freeze has ended.
Infrastructure and transport
Looking at the cost to people travelling to and from work, Mr Osborne announced that the planned fuel duty rise of 3p in January 2012 will be scrapped, with the duty rise planned for August 2012 being reduced from 5p to 3p.
Meanwhile, the rise in regulated rail fares will be capped at 6.2% – 1% above inflation – in January 2012. This is down from the 8.2% originally planned, which the Chancellor said was “too much”.
In terms of infrastructure, £5 billion is to be spent in this area, including £1 billion on the national rail network.
Up to 35 new road and rail projects across England will receive the go-ahead.
The Government will aim to unlock a further £20 billion in investment for infrastructure projects from pension funds.
Housing played an in important part in the Autumn Statement, with Mr Osborne announcing that the mortgage indemnity scheme will help up to 100,000 people buy homes with a 5% deposit.
Meanwhile, £400 million will be used to ‘kick-start’ construction projects which have stalled for whatever reason.
The Government’s Right to Buy scheme will offer a 50% discount for social tenants who wish to purchase their own homes.
View official documents and full Autumn Statement