Budget 2013: As it happened
As Chancellor George Osborne outlined details of his fourth Budget on Wednesday, the key message was that the government would be sticking to its austerity plans, regardless of the weakness in the economy.
- The Chancellor said the government was "slowly but surely fixing the economic problems".
- The Office for Budget Responsibility now estimates gross domestic product (GDP) will grow by 0.6% in 2013, 1.8% in 2014, 2.3% in 2015, 2.7% in 2016 and 2.8% in 2017.
- Borrowing is forecast to be £114 billion in 2013. This will fall to £87 billion in 2015/16, £61 billion in 2016/17 and £42 billion in 2017/18.
Analyst view: "The growth forecast for 2013 looks entirely realistic, but we have doubts that the economy can achieve the projected expansion rates from 2014 onwards," scoffed Howard Archer, chief UK and European economist at IHS Global Insight.
"We suspect that the economy will struggle to grow by more than 1.5% in 2014 and given [its] deep-seated problems it is hard at this stage to see the economy growing by 2.7% in 2017 and 2.8% in 2018."
He added: "The strong likelihood is that the reduced growth and higher public finance forecasts will be the trigger for Standard & Poor's and or Fitch to follow Moody's in stripping the UK of its AAA rating.
"In particular, the credit rating agencies are likely to be concerned by the fact that public debt is now seen peaking at 85.6% of GDP in 2016/17 rather than at 79.2% of GDP in 2015/16.
This means that public debt is not only seen peaking at a percentage of GDP but also does not start falling to 2017/18 which is a year later than was envisaged in the Autumn Statement and two years later than originally targeted."
While the inflation target of 2% was reaffirmed, the Chancellor altered the Bank's remit so it could use unconventional tools and employ forward-looking guidance to influence interest rate expectations.
The personal tax allowance will be raised to £10,000 from 2014, while the size of loans employers can offer tax-free, to pay for items such as season tickets for commuters, doubled to £10,000.
There was more to chew on the business tax front. Saying Britain was "open for business", the Chancellor revealed a 20% rate of corporation tax from April 2015 - "the lowest business tax of any major economy in the world".
Other highlights included...
The first £2,000 will be taken off national insurance paid by every company.
Capital gains tax relief for sales of businesses to employees.
Analyst view: Angus Campbell, head of market analysis at Capital Spreads, welcomed the tax reductions for both low earners and companies.
However, he pointed out the corporation tax cut did not come into effect until 2015 and added: "You only have to look back at the Chancellor's previous budgets to see that the cuts in corporation tax have done little to really boost companies' expansion plans."
Housing and infrastructure
Calling it a "dramatic intervention", the Chancellor unveiled a Help to Buy scheme to get more people on the housing ladder.
This was made up of two components. Firstly, there will be £3.5 billion in capital spending over three years for shared equity loans.
Secondly, for every 5% put down by buyers, the government said it would offer an interest-free loan (for the first five years) for another 20%. This would be repaid when the home was sold. The only caveat was the new-build property could not be worth more than £600,000.
Separately, the Chancellor announced infrastructure spending would be boosted by £3 billion in 2015/16.
Alcohol and fuel duty
Osborne announced a freeze in the fuel duty for two years, pointing out petrol would be 13p a litre cheaper than if he had not frozen the duty over the last two years.
Additionally, Osborne scrapped April's 3p rise in beer duty. In fact, he "went one step further" and cut beer duty by 1p. However, the "duty escalator" would remain in place for wine, cider and spirits.
Analyst view: Campbell acknowledged that the scrapping of the 3p fuel duty rise in September would be cheered by motorists and businesses across the country, but warned that that this was not going to make petrol any cheaper "unless sterling appreciates or crude prices decline".
Angus Elphinstone, founder of the marketplace for British transporters, Anyvan.com, was of the view that the abandoned fuel duty rise did not go far enough.
"Even without fuel duty, petrol and diesel prices are still crippling - both for British transport businesses, and for motorists too," he explained.
"The knock-on effect is that transport businesses are forced to cover their costs by upping prices, affecting the very customers who are also struggling to keep their cars on the road as rising prices at the pumps take their toll on household finances."
Osborne reconfirmed the government would pay 20% of the first £6,000 of childcare costs from 2015.
There would also be a £5,000 payment for those who lost money on Equitable Life policies bought before 1992.
Reaction to the Budget
While the Chancellor concluded by saying: "This is a Budget that doesn't duck our nation's problems. It confronts them head on. It's a Budget for an aspiration nation." Opposition leader Ed Miliband called it a "downgraded Budget from a downgraded Chancellor".
Office for Budget Responsibility
Formed in May 2010, the OBR makes an independent assessment of the public finances and the economy, the public sector balance sheet and the long-term sustainability of the public finances. The OBR has four man priorities: to produce two forecasts a year for the economy and public finances, to judge the progress the government has made towards meetings its fiscal targets, to assess the long-term sustainability of the public finances and to scrutinise the Treasury’s costing of Budget measures.
A scheme originally established in 1944 to provide protection against sickness and unemployment as well as helping fund the National Health Service (NHS) and state benefits. NI contributions are compulsory and based on a person’s earnings above a certain threshold. There are several classes of NI, but which one an individual pays depends on whether they are employed, self-employed, unemployed or an employer. Payment of Class 1 contributions by employees gives them entitlement to the basic state pension, the additional state pension, jobseeker’s allowance, employment and support allowance, maternity allowance and bereavement benefits. From April 2016, to qualify for the full state pension, individuals will need 35 years’ of NI contributions.
The total money value of all the finished goods and services produced in an economy in one year. It includes all consumer and government consumption, government spending and borrowing, investments and exports (minus imports) and is taken as a guide to a nation’s economic health and financial well being. However, some economists feel GDP is inaccurate because it fails to measure the changes in a nation's standard of living, unpaid labour, savings and inflationary price changes (such as housing booms and stockmarket increases).
Capital gains tax
If you buy an asset – shares, a second home, arts and antiques – and then sell it at a later date and make a profit, that profit could be subject to CGT. You don’t pay CGT on selling your main home (which is why MPs “flipped” theirs so regularly) or any securities sheltered in an ISA. Individuals get an annual CGT allowance (£10,600 in 2010/2011) but if you have substantial assets it’s worth paying an accountant to sort it for you.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).