By a Newsnet reporter
In his budget speech today, Chancellor George Osborne was forced to slash his growth forecast to 0.6%, half of what he was predicting just four months ago.
Public sector borrowing is now forecast to be £61.5 billion higher than originally planned, while the national debt continues to rise despite the Chancellor’s austerity measures.
Public debt is now expected to rise to 85% of GDP and is not forecast to start falling until 2017, a year later than planned.
Although there were a number of sweeteners in the budget, which the Chancellor must have hoped would grab the headlines, most households will be worse off as a result of the measures Mr Osborne introduced today. Cuts in direct taxation, such as the announcement that personal tax allowances are to rise, will be offset by increases in indirect taxes, the loss of tax credits, and cuts to benefits.
According to official figures released alongside the budget, the bottom 10% of earners will be worse of by approximately £200 in the financial year 2013.14, while the next lowest 10% of households stand to lose £300 annually. Only the top 10% of earners will be worse off, losing some £1,700 annually.
However the Chancellor has rewarded those on the very highest incomes. Those currently liable for the highest rate of tax, the so called “additional rate” at 50%, will see this fall to 45%, increasing the take-home pay of a person on an annual salary of £250,000 by £5000.
The Chancellor has reduced the threshold for the 40% tax rate, bringing more into the higher tax band. As of 6 April, the threshold falls to £41,450 from its current £42,475, bringing in an estimated £1 billion in tax revenues for the Treasury.
The personal allowance for income tax will rise to £10,000, starting from the 2014-15 tax year. This measure was promoted by the Lib Dems who trumpeted it as proof that they were protecting the low paid. Starting from April 5 this year, the allowance will rise from its current level of £8,105 to £9,440 for people under 65.
The Chancellor’s bid for tabloid headlines this year is a cut in the level of duty payable on a pint of beer. The planned 3p rise in duty has been scrapped, and instead the Chancellor has cut it by 1p. However all other planned rises in alcohol duty remain. The Scotch Whisky Association reacted negatively to the move, tweeting that the “favouritism” shown to beer drinkers was “unfair and incomprehensible”, as the duty on a bottle of whisky is set to rise by 50p.
The Chancellor also scrapped a planned rise of 3p in per litre in petrol duty. It is considered unlikely that there will be any further rises in fuel duty before the next General Election in 2015.
In energy policy, the UK government will offer new tax incentives for the manufacture of ultra-low emission vehicles and bring forward two schemes to develop carbon capture and storage. The government is also introducing a new tax regime to boost the development of the controversial shale gas industry.
Working age benefits will rise by 1% each year from April 2013. This is lower than the 2.2% rise which might have been expected if benefits were to keep in line with inflation, and therefore represents an effective cut. Child benefit has been frozen until 2014, but will then rise 1% annually during the following two years.
As announced last weekend, tax-free childcare vouchers are to be introduced. The vouchers will be worth £1,200 per child for families with both parents working and with a joint income of £300,000 or less. The move is seen as compensation for higher earning families who have lost entitlement to child benefit. There is also to be increased support for families with children on universal credit.
Public sector workers will also see their incomes squeezed, as the Chancellor announced that wage rises would be limited to an average of up to 1% in 2015/16, extending the cap on public sector salaries by a further year.
Carers allowance and disability benefits will keep in line with inflation, and will rise by 2.2% in April. The basic state pension will also rise by 2.5% in April, and the additional state pension will rise by 2.2%.
However the cuts to Housing Benefit, the so-called “bedroom tax” will also come into effect in April. An estimated 500,000 tenants in social housing will be affected by the change. If tenants are deemed to have one spare room, the amount of rent eligible for housing benefit will be cut by 14%. If they have two or more spare rooms, the cut will be 25%. This translates into an average loss of £14 per week for council tenants and £16 per week for tenants of housing associations.
Mr Osborne also announced a new scheme to assist house buyers to purchase a new-build property. The Help to Buy scheme will provide £3.5 billion over the next three years to buyers who can only put up 5% of the deposit on a new home. The scheme will provide funds to increase their deposit to 20% via a loan which will be interest free for the first five years. The scheme will only apply to newly-built properties, but will be open to anyone, not just first time buyers, and will only apply to properties costing under £600,000.
Mr Osborne also announced an increase in infrastructure spending in an attempt to kickstart the ailing economy. The Chancellor said that £3 billion saved from Whitehall spending cuts would be used to fund a capital expenditure programme – but the programme would not start until the financial year 2015/16.
The increase in capital spending is significantly lower than critics had called for. No details have yet been released about what projects will benefit from the extra funds.
In other announcements, the Chancellor promised that some 450,000 small businesses – one third of all employers – will pay no employer National Insurance after the introduction of a new Employment Allowance. Corporation tax is set to fall in 2015 to 20%. Mr Osborne also promised a new crackdown on tax avoidance schemes, which will include naming and shaming companies promoting aggressive tax avoidance.
Speaking before the Chancellor announced the budget details, the Scottish government’s finance secretary John Swinney said:
“This week’s UK Budget provides a timely illustration of the opportunities of independence. This week we will hear from a UK Chancellor setting out priorities that are more often for London and the South-East than they are for Scotland, or even the UK as a whole.
“In their approach to economic recovery and welfare reform the decisions made by the UK Government, specifically highlight more clearly than ever before the urgent need for Scotland to regain full economic and fiscal sovereignty.
“As the most recent figures show Scotland is in a stronger budget position than the rest of the UK as a whole to the value of £824 per person or £4.4 billion as a nation. This proves once again that the facts show that Scotland more than pays its way.
“That £4.4bn demonstrates the difference independence could make. With the full powers of independence Scotland could have chosen to borrow £1.4bn less reducing our debt payments in the long run. We could have invested £1.4bn in a stabilisation fund securing the economic benefit of our natural resources for future years, and importantly in a time of recession we could have funded a further £1.4bn of investment in our economy through capital spending, support for public services or targeted incentives to get the economy growing.
“An independent Scotland could have made those choices and had enough left to abolish the bedroom tax and still be better off than the UK.”
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