by James Aitken
The UK Chancellor, George Osborne, delivered his Budget today. This is of course the second Budget that directly affects Scotland in 2011, the first being the Budget delivered by Scottish Finance Secretary John Swinney and approved by the Scottish Parliament. To put these Budgets into some context the Scottish Government is responsible for approximately 60% of government spending in Scotland, whereas the UK Government is responsible for the remaining 40%. The big difference is in tax raising powers. The UK Government presently has control of over 90% of tax revenue.
As is the case with every UK Budget statement the devil is in the detail. A complete analysis takes a number of days and this article only looks at some headline points along with some background and historical information.
So what is Budget statement? The Budget statement is the UK Chancellor’s yearly update on the state of the UK’s public finances and progress on the UK Government’s economic goals. Changes to tax rates and announcements on how taxpayers’ money will be spent are also made in the UK Budget statement.
The first annual UK Budget dates from the 1720s. Anyone who is also interested in the historical side of our financial system will quickly notice how rarely Scotland is mentioned. A Scottish Exchequer dates back to around 1200 and had a similar role of auditing and deciding on royal revenues as in England. As the Scottish Parliament gains further tax powers we will once again see a Scottish Exchequer.
One of the key features of UK tax law is that changes announced in the Budget can take effect before a Finance Bill is passed. That is why changes on excise duties, for example, often take effect from 6.00 pm on the day of the Budget statement.
The Finance Bill is the Bill presented to Parliament each year and which enacts the UK Chancellor’s Budget proposals. Once the House of Commons has agreed the main Budget resolutions, the Bill starts its passage through the UK Parliament in the same way as any other Bill. Passage through the House of Lords, which has no powers to amend or delay a Finance Bill, usually only takes one day. Last year due to a UK General Election we had two UK Budget statements and three UK Finance Bills.
Some headline announcements
Fuel duty cut by 1p per litre from 6pm tonight. Planned inflation rise in fuel duty due in April to be delayed until 2012. Annual 1p above inflation “fuel escalator” rise scrapped until 2015. Measures to be paid for by £2bn of extra taxes on North Sea oil companies.
Consultation on long-term plan to merge Income Tax and National Insurance. This may affect the income tax proposals contained in the Scotland Bill.
Tax avoidance clampdown to raise £1bn this year. Measures such as this are often announced. As usual we will have to wait and see if the proposals are effective.
43 tax reliefs to be scrapped as part of a simplification of UK tax legislation. This is to be welcomed, with one caveat, given the ever increasing complication of the UK’s tax legislation. The caveat being that each proposal is properly analysed. The Office of Tax Simplification published its final report of the review of tax reliefs on 3 March 2011. The report recommended that 45 reliefs should be abolished.
Corporation tax to be cut by 2% in April, not 1% as previously planned. Corporation tax then to be cut by 1% in each of the next three years, reducing it to 23%. The Bank Levy is to be adjusted so banks do not pay less tax as a result of this change. Also a further consultation announced on “mechanisms for devolving the rate of corporation tax to Northern Ireland”. No similar announcement for Scotland or indeed Wales.
Further review of Air Passenger Duty announced due to concerns as to the legality and feasibility of introducing a “per plane duty”. This announcement will now hopefully allow for Air Passenger Duty to be devolved to the Scottish Parliament as part of the Scotland Bill.
Growth forecast downgraded from 2.1% to 1.7%. 2012 forecast also down from 2.6% to 2.5%. Inflation set to remain between 4% and 5% in 2011, falling to 2.5% in 2012.
Borrowing forecast borrowing of £146bn this year, £2.5bn lower than anticipated. Borrowing to fall to £122bn next year, dropping to £29bn by 2015-16. National debt forecast to be 60% of national income this year, rising to 71% in 2012 before falling to 69% by 2015.
Let the detailed analysis begin.
Read the latest opinion and analysis in Budget Blogs