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 this year then a temporary targeted tax cut would have been a more appropriate policy decision.
"The headline grabbing reduction in fuel duty is expected to be paid for by an increase in the tax paid by oil and gas companies operating in the North Sea.
"While other giveaways rely to some extent on further clampdowns on tax avoidance and evasion (expected to raise £1.2 billion by 2015-16). We should not rely on the success of such clampdowns as there is no guarantee the projected revenues will materialise.
"The overall current budget balance is now expected to be in deficit in 2015-16, rather than in surplus as projected in the OBR’s November Outlook. According to the OBR this downward revision is almost entirely due to cyclical factors.
"The cyclically adjusted budget balance (the Fiscal Mandate’s primary target) is still expected to be in surplus in 2015-16. Our latest forecast suggests this primary target will be just missed (by 1 per cent of GDP) and that additional tax increases will be required at some point over the next five years.
Craig Hallam, Land & New Homes Director for Townends estate agents, said:
"This scheme, which will allow first time buyers below a certain income threshold to gain access to a 25 per cent equity loan, is being welcomed by many house builders who, over the last few years, have been forced into devising their own schemes to make up for the shortfall in government support. This in turn has meant the money they have available to build new houses has diminished.
"As far as the house building industry is concerned, this is a real shot in the arm, as it is specifically targeted at the new build sector, and on current understanding, it is not ring fenced for Housing Associations alone to offer.
"A previous successful scheme, HomeBuy Direct, helped around 10,000 first time buyers enter the property market and cost in the region of £275m, so the effects of a similar number of first time buyers being able to enter the market, especially in the current testing climate, will be very welcome indeed.
"The knock on effect of more houses being built will bring, without question, an increase in jobs to the construction sector, and this will also be welcomed in every part of the UK.
"Whilst some of the detail needs to become clearer, it obviously shows that there is a commitment to help the house building industry off the floor, as currently we have the lowest number of new houses being built in peacetime UK.
"On top of that, lenders are still seeking much higher levels of deposit from first time buyers, so all in all this will be a huge help, and hopefully a signal of more initiatives to come.
"The developers I have spoken to so far are already talking of more positive times ahead, and an industry that might start to get back to normal by delivering the volume of new houses that we need in the UK to have a fully functioning property market. Those conversations have not happened for many, many months.
"I would advise first time buyers that fall into this income threshold but who, until now, have had to postpone buying until they had raised a substantial deposit, to talk to an estate agent soon, so that they can be fully aware of the new options available to them. The distant dream of home ownership may have just took a significant step forward.”
Andy Hill, Chief Executive of Hill, comments:
"The Firstbuy scheme, which is essentially a resurrection of the old Homebuy Direct, will bring a boost to the housebuilding sector by encouraging 10,000 first time buyers to choose new homes. This will help stimulate the industry at a time when new housing starts are extremely low, largely due to lending criteria demanding large deposits.
"However, this measure will have little impact on the wider housing market, when we consider the fact that there were 102,000 completions of new homes in 2010.
"I am sceptical about the long term impact of the scheme and believe it is unlikely to make any difference to the fact that banks remain stubbornly unwilling to lend.
"Buyers without sizeable deposits continue to be penalised, even though in many cases they are perfectly credit worthy, as lenders hide behind codes of conduct and strict terms which are designed to make it impossible for first time buyers to secure mortgages."
Alan Robinson at Robinson Jackson estate agents, comments:
“George Osborne’s gesture to encourage first-time buyers into the housing market is just that – a gesture. Sure we have brand new homes on our books and this new initiative will help the few who are interested in buying a new build but in our eyes, today's measure doesn't go far enough.
"This initiative doesn't help the vast majority of first-time buyers who can't buy a new build or those vendors out there with entry level re-sale flats and houses to sell - we all know that first-time buyers are essential in getting property chains moving and that's what our industry needs.
"First-time buyers that had hoped for better support from the Government should not, however, feel totally disgruntled as there are glimmers of hope on the High Street. We are busy matching first-time buyers with affordable re-sale properties on a daily basis, using our expert links with financial advisers to help secure 90%+ mortgages that are coming through.
“It’s sad that Mr Osborne’s failed to address the true issue for first-time buyers – more competitive and affordable mortgages for all – but at Robinson Jackson we’ll continue to help first-time buyers become homeowners.”
Secretary of State for Communities and Local Government, Eric Pickles, said:
"The actions set out in today's Budget will create the conditions for growth and put this country back on a strong and stable economic footing. We are unblocking the complex, costly planning system, regenerating redundant sites and putting the brakes on the years of Whitehall micro-management that has tied business up in red tape, slowing and stifling growth.
"The current planning system is bureaucratic, we will make it easier to navigate. We have a system plagued by conflict and appeals. We will establish a system where councils, communities and business work together. Instead of fighting against development imposed from Whitehall, local people will have a far greater influence over what is built in their area. We will maintain protection for the Green Belt and the environment - as we are committed to sustainable growth.
"Every new home built will create jobs in the UK building industry. Before we took office house building had slumped to its lowest peacetime level since 1924. We are turning this around, providing support for first time buyers, encouraging private investment in housing, accelerating the release of public sector land and putting in place powerful new incentives that will give communities a share in the rewards of growth.
"Together, these measures to support local jobs and local firms will play a crucial part in the Government's wider work to get the economy back on its feet."
Stephen Gifford, Chief Economist at Grant Thornton, says:
“The UK economy is in a tricky place. The Chancellor’s determination to reduce the budget deficit is broadly going to plan, but all manner of risks have recently raised their ugly heads. Inflation is running above target, the economic recovery stalled in the last quarter and political turmoil grips the Middle East.
“The Office for Budget Responsibility reduced its GDP forecast to 1.7% in 2011, significantly lower than the 2.1% in the previous Budget. Economic growth is then expected to strengthen to 2.5% in 2012 and to 2.9% in 2013.
“The 2012 and 2013 forecasts are rather optimistic given the many economic and political risks revolving around the global economy. The credibility of the OBR will be riding on whether these forecasts can be achieved.”
- Addressing the deficit
“GDP growth has been somewhat subdued of late as the UK economy continues to shake off the effects of the recession. Much faster economic growth is desperately needed if a balanced budget is to be achieved by 2015-16.
“Public borrowing is expected to be £146 billion for 2010/11, slightly better than the £149 billion in the previous Budget. The reduction is encouraging but only a small step on a very long road. It is the tax side of the equation which is a bigger worry.
"Tax revenues held up reasonably well in 2010 but will come under pressure if a return to normal economic growth is further delayed.”
- Supporting growth
“The Chancellor announced some targeted initiatives aimed at stimulating private sector-led growth, particularly a further reduction of 1% in corporation taxes, planning reform, incentives to help start and run businesses and investment in 21 Enterprise Zones.
"Let’s hope Osborne has learnt the lessons from the 1980s, when similar zones were found to be expensive and poor value for money.”
- Tweaks in taxes
“This was a largely neutral budget. The Chancellor announced some targeted tax measures, such as changes to personal allowances and to fuel duty, but these are small giveaways compared to the rises in VAT and national insurance already in the pipeline.
"Tax revenues as a proportion of GDP are predicted to increase from 36½% in 2009/10 to 38½% in 2015/16.”
Wendy Evans-Scott, President Elect of the NAEA said:
“The Chancellor’s help for first time buyers is a good gesture towards re-starting the stalling property market. However, it is nothing more than a gesture – the focus on new build properties, rather than incentivisation across a broader spectrum of property, means there will still be little upward momentum in the market.
"While the measures aimed at first time buyers must be welcomed, it is unlikely that they will provide the kick-start that the housing industry badly needs.
“The review of Stamp Duty, for which we have long-campaigned, is a positive step and we believe the Chancellor is right to address planning laws and change of property use. However, without the ability to overcome the substantial capital barriers that are currently restricting property ownership, the market will stagnate in 2011.
"Such a stagnation has wider implications for the economy as it restricts the flexibility of the workforce and the ability of families to own the homes they need as they grow.
"Encouraging first time buyers back to the market is an important first step, but it is just that – a first step on a long road to recovery.”
Kevin Still, Director, Atlantic Financial Management, said:
“From April, 1.1m people on lower incomes will no longer need to pay tax. This and the decision not to lower the 40% tax threshold are welcome moves. There is also help for low income families through more child tax credits as well as a pay lift for public sector workers.
"But while council tax has been frozen, we must not forget that the cost of living is rising at twice the pace of wages so any increase would have really hurt. There is also now increasing speculation of a mortgage rate increase in May bringing further woe for squeezed homeowner budgets.
"Our experience with our homeowner clients with mortgages is that they have higher levels of unsecured debts with around £35,000 being the average, where high interest rates can be very punitive.
“The Chancellor’s decision to axe the planned rise in fuel duty must also be welcomed but 1p is not going to make a huge difference to struggling families and small businesses. There is still some way to go before we can really say that fuel is an affordable commodity.
“What is striking about the Budget is that many middle income families already struggling with the day to day cost of living will see little relief. It is this group that is perhaps most at risk of debt problems simply because they are more likely to have higher secured credit.
"Mortgages, secured loans, rent, council tax and utility bills must all be top of the list when choices have to be made over who to pay first.
“This is where a Debt Management Plan or an Individual Voluntary Arrangement from a licensed debt solutions company such as Atlantic can help. We will work out which payments are prioritised and which can be negotiated.
"Atlantic makes allowances for the priority payments and any arrears on these in the client’s monthly budget and statement of affairs. Atlantic also negotiates a debt repayment plan for unsecured debts and has an excellent record of getting interest & charges frozen on these accounts, typically credit cards, store cards, personal loans and catalogue debts.”
Jonathan Lipkin, Head of Research at the IMA, said:
"Today's Budget brings an important element to the new pensions settlement. A single tier state pension-combined with automatic enrolment into workplace pensions and annuitisation reform-marks a radical shift.
"The continuing move to greater individual responsibility for pension saving will be complemented by a solid state foundation and the freedom to determine options for retirement income.
"With auto-enrolment and NEST now on their way, awareness of, and interest in, long term saving will increase. Industry, government and regulators must work together to ensure a flourishing environment that encourages saving for the long term."
David Brown, commercial director of LSL Property Services, comments:
“With the public kitty empty and unable to fund much needed new housing in the social sector, the only alternative is to stimulate investment in the private rented sector.
"Lending to buy-to-let landlords has been steadily improving in recent months, but remains woefully inadequate to sufficiently ease the supply of rental homes to match the booming demand from the UK’s increasing number of households.
"The Chancellor’s reform of stamp duty for bulk purchases may well provide a shot in the arm for institutional investment into private rented sector which is excellent news. By allowing multi-property landlords to face mean value stamp duty rather than aggregate, the government is reducing the financial barriers placed in front of corporate investors and stimulating increased participation from big players.”
Ian Potter, operations manager of the Association of Residential Letting Agents, says:
"We have campaigned for a number of years for the Government to reform Stamp Duty, so its inclusion in this year's budget is a welcome one - particularly for the Private Rented Sector (PRS).
"The PRS plays a vital role in the housing market but is suffering from a lack of institutional investment, which in other countries is flourishing. In the UK there are many barriers to this kind of investment but by reforming Stamp Duty to bulk purchases, it seems the Government might be removing one of them.
"This, we hope, will help drive institutional investment to the UK PRS, benefiting the housing market has a whole. In addition, and depending on exact details, the proposed changes to REITs could act as a further step towards enabling institutional investment"
Eric Stoclet, CEO of Crown Mortgage Management said:
"By continuing with the amended SMI, George Osborne has admitted times remain tough for borrowers. Although the number of repossessions has been falling since its 14 year peak in 2009, this has been largely thanks to ultra-low interest rates and the forbearance of lenders.
"Many borrowers who have benefitted from relatively low rates and assistance from the public sector since the recession remain worried about the prospects for the economy in the long-term.
"Although the MPC sounded defiantly doveish in their latest minutes, it's inevitable that high inflation will eventually bring about a rate rise. This, along with a potentially swift rise in unemployment resulting from public spending cuts will put greater pressure on household finances.
"During the coming months, the SMI will prove a vital tool in the effort to keep repossessions from trending upwards again."
Stuart Law, Chief Executive of Assetz, comments:
“Tens of thousands of first time buyers need help, and I hope the Government uses the £250million pledged to the new Firstbuy scheme wisely. Rather than just help 10,000 first time buyers raise 25% deposits on average, it would be sensible to help a significant number of first time buyers raise 10% deposits, since 85% and 90% LTV mortgages are available at reasonable rates.
"I do welcome the news that stamp duty charges will be changing for the bulk purchase of property, so investors will pay tax based on the individual property prices rather than the total purchase price.
"This will provide a significant boost to the private rental sector by encouraging more professional landlords and larger institutional investors to build up their portfolios, boosting the supply of much-needed homes for rent."
Bob Hunt, Chief Executive of Paradigm Mortgage Services, said:
“Overall the Budget measures were as expected with the Government unable to give too much away because of the nature of the economy and the course it is steering with regard to its ‘cuts strategy’.
"Specifically in terms of the housing and mortgage markets, I welcome the help afforded to first-time buyers in terms of the five-year interest-free deposit loans available for the purchase of new homes. It offers a boost not only to the property market, as first-timers are the lifeblood of the sector, but also in terms of a potential increase in housing construction jobs.
"Anything that stimulates the first-time buyer sector should be applauded as it is these purchases at the start of the chain which often mean a further five or six housing transactions taking place.
"To my mind the focus on helping first-timers with their deposits is also right given most individuals would have no problem with their mortgage affordability, the difficulty has been in finding a deposit in order to access mortgage finance.
"If it can get anywhere near 10,000 first-time buyers onto the ladder then it will have been a scheme worth pursuing.”
Tony Bernstein, senior tax partner, HW Fisher & Company chartered accountants, said:
- On 50% tax rate
"By telegraphing the abolition of the 50% rate as soon as possible, the Chancellor may see a decrease in revenues before the drop as wealthy individuals and owner-managed businesses manipulate the timing of their income to their best advantage.
- On merger of NI and income tax
"At the very least this is an admission that national insurance is a tax. But in real life merging NI and income tax will be almost impossible to achieve in a simple fashion. Politically, will a much higher headline basic tax rate combining income tax and NIC be palatable?
- On the increase in the personal allowance
"The increase in the personal allowance was expected but still very welcome. It is refreshing that almost everyone will benefit from next year’s increase, including those at the margin of higher rate tax.
- On non-doms
"Out of 123,000 non-doms completing UK tax returns, only 5,400 actually paid the £30,000 charge in 08/09. This increase may keep certain sectors happy and make the headlines but is likely to be of limited practical consequence.
- On corporation tax
"The reduction in corporation tax may help to stem the flow of businesses out of the UK but is unlikely to attract companies to these shores. It’s more likely to encourage people to leave profits in the company rather than paying out as dividend or remuneration.
- On the statutory residence test
"The current UK law on tax residence has been built up over decades of decided cases. A recent case that decided in HMRC’s favour has made it very difficult to know when you stop being a UK resident. This new test will provide the certainty that today’s internationally mobile individuals require.
- On the restriction of no win, no fee employment cases
"It was unexpected, in a Budget speech, to hear that contingent fees for employment cases are to be restricted. In common with some of his predecessors, the Chancellor appears to be blurring the lines of his responsibility. Could this have anything to do with the ongoing reductions in civil service numbers?
- On EIS
"The increase in the limits and the rate of tax relief available come at a time when businesses are looking to expand as the recession passes. Coupled with the increasing cost of borrowing, the new limits make share investments into EIS companies more attractive although they remain speculative."
Angus Elphinstone, director of delivery auction website Anyvan.com, said:
"At first glance, George Osborne's series of measures to decrease prices at the pumps is a relief, but the harsh reality is that, even without the scheduled 4p fuel duty increase, hard-pressed small businesses and families will only save £14 per vehicle each year on petrol, and £12 per year on diesel when prices are slashed by 1p per litre from 6pm today.
"The Chancellor is trying to score popularity points rather than provide a real solution.
"On the upside, the fair fuel stabiliser takes the pressure off motorists and small businesses and shifts the onus onto oil companies, provided oil prices are high, which is a vote-winning move.
"If the scheduled fuel duty increase had gone ahead on April 1, British motorists would have spent around £1.6billion extra on petrol and diesel in 2011."
