The Budget confirms that the Government will stick to its plan to reduce the deficit and sets out a new model of economic growth, based on investment, manufacturing and exports, where prosperity is shared across all regions and across all sectors.
Growth
The Government has published its Plan for Growth, based around four overarching ambitions:
- to create the most competitive tax system in the G20;
- to make the UK the best place in Europe to start, finance and grow a business
- to encourage investment and exports as a route to a more balanced economy; and
- to create a more educated workforce that is the most flexible in Europe.
Measures announced today include:
- a 1 per cent cut in corporation tax from April 2011 to 26 per cent, falling to 23 per cent by 2014, with an increase in the bank levy from January 2012 to offset the benefit to banks
- changes to the Controlled Foreign Company rules in 2012 to improve the competitiveness of the UK, including an effective UK tax rate on overseas financing income of 5.75 per cent
- a powerful presumption in the planning system in favour of sustainable development and a wide-ranging package of deregulatory measures
- enhanced tax incentives for investment in higher risk companies and for SMEs undertaking research and development activity, subject to State Aid approval
- 11 Enterprise Zones across England, with simplified planning rules, superfast broadband and tax breaks for businesses, with local areas to bid for a further 10
- an increase in capital available to the Green Investment Bank to £3 billion and introducing a carbon price floor starting at £16 per tonne of carbon from 1 April 2013 to drive investment in green infrastructure and low-carbon electricity generation
- taking forward the Office of Tax Simplification's recommendations to simplify the tax system by consulting on options for integrating the operation of income tax and national insurance contributions and announcing an intention to scrap 43 tax reliefs
- a new £250 million scheme that, in England, will offer over 10,000 first time buyers an equity investment of 20 per cent towards the deposit on new-build homes and reforms to the stamp duty land tax treatment of 'bulk' purchases of residential property
- up to 50,000 additional apprenticeships and 100,000 work placements for young people, and expanding the University Technical Colleges programme to at least 24 new colleges by 2014 to provide technical qualifications for 11-19 year olds
Fairness
The Chancellor announced measures to help people this year and make the tax and benefit system fair and sustainable, including:
- a 1 penny per litre cut in fuel duty from 6pm tonight, abolishing the 2009 Budget fuel duty escalator and replacing it with a fair fuel stabiliser that increases tax on North Sea oil production when oil prices are high, and delaying inflation increases this year and next
- an increase in the personal allowance of £630 in April 2012 to £8,105, taking 260,000 more people out of income tax and reducing the tax paid by 25 million people by £48 on average
- the default indexation for direct taxes will be CPI from April 2012. To ensure employers and older people do not lose out, for the duration of this Parliament the annual increases in the employer NICs threshold, the age related allowances and other smaller thresholds will be over-indexed compared to CPI and will increase by the equivalent of RPI
- a crack down on tax avoidance to raise an extra £1 billion a year by closing down schemes which disguise remuneration, avoid corporation tax, VAT and stamp duty land tax
- reforms to the taxation of non-domiciled individuals, increasing the £30,000 annual charge to £50,000 for those resident for 12 or more years, removing the tax on income remitted for commercial investment in UK businesses and introducing a statutory residence test
- a green paper on state pension reform shortly, including an option for a simple, contributory single tier pension around £140 per week for future pensioners
- accepting Lord Hutton's recommendations on reforms to public service pensions as a basis for consultation, recognising that the position of the uniformed services will require particularly careful consideration and setting out proposals in the autumn
- a one-tenth reduction in the inheritance tax rate when at least one tenth of a person's net estate is donated to charity and Gift Aid on small donations without requiring declarations.
The NIESR commented:
"Despite the downward revisions, we think the Office for Budget Responsibility’s (OBR) forecast for economic growth (1.7 per cent in 2011 and 2.5 per cent in 2012) remains too optimistic. We expect a more subdued recovery (GDP growth of 1.5 per cent in 2011 and 1.8 per cent in 2012) due in large part weak very consumer spending growth.
"Such poor consumer spending growth is expected because of declining real incomes this year and a weak housing market both this year and next.
"Partly underlying the OBR’s robust forecast for consumer spending is the path for household saving. They expect the household saving ratio to stabilise at around 3.4 per cent of incomes over the next five years. In contrast we expect the saving ratio to be double this by 2015, as the retrenchment of household finances continues.
"The Budget decisions are broadly fiscally neutral and will have little effect on the aggregate economic numbers. Indeed by 2015-16 the net policy effect is dwarfed by the upward revision to spending on benefits and debt interest payments.
"If the Chancellor wanted to stimulate economic growth t
