BUDGET TO "EARN BRITAIN OUT OF TROUBLE" (21/03/12)
Chancellor springs surprises in 2012 Budget
It had been talked about as a ‘Robin Hood’ Budget, with pre-event speculation focusing on taxing the rich to fund the poor – and certainly higher earners will feel the brunt of George Osborne’s 2012 Budget.
But, in what was one of the most widely leaked Budgets in recent years, there were still a few surprises. One of the biggest headlines was that the 50p top rate of income tax will be cut to 45p from April 2013.
Mr Osborne said the rate, paid on earnings over £150,000, damaged competitiveness. “The 50p tax rate is the highest in the G20. It is widely acknowledged as harming British economy,” he told MPs.
“The 50p tax rate raised only £1bn – a third of the forecast. From April 2013 the top tax rate will be 45p. No Chancellor can justify a tax rate that damages our economy and raises next to nothing.”
Mr Osborne defended the politically risky decision to cut the top rate of tax by saying five times as much would be raised from the wealthiest by other tax and anti-avoidance measures being brought in.
He said a new "anti avoidance" tax rule would be introduced - to deal with the "morally repugnant" practice of people not paying the tax that they should. “A major source of abuse is the way some people avoid Stamp Duty including companies to buy expensive property,” he said.
As we mentioned in our pre-Budget article, the Chancellor has taken “aggressive measures” on Stamp Duty avoidance for homes worth over £2m.
Mr Osborne said he would increase Stamp Duty Land Tax on £2m residential properties in company shelters to 15%; he would also consider an annual charge on £2m residential properties already contained in company envelopes. “If you buy a property in Britain for residential purposes, stamp duty will be paid,” said Mr Osborne.
Stamp Duty will also be increased for £2m properties not held offshore: the new charge will be 7%. This appears to be the so-called ‘Mansion Tax’ that was widely mooted before the Budget.
Mr Osborne also announced caps on currently uncapped tax reliefs, for those claiming more than £50,000 worth of reliefs.
“We need a tax system that supports work,” said Mr Osborne. “Taxes should be simple, predictable, support work and be fair. The tax system we inherited has drifted far from these principles.”
With that in mind, Mr Osborne said he wanted a “far simpler tax system that businesses can easily navigate”. There will be a consultation on small firms (those with less than £77,000 turnover), who it is proposed will be taxed on the amount of cash passing through their businesses rather than more complicated methods used for large companies.
Other changes will see the amount people earn before having to pay tax will rise by £1,100 to £9,205, moving towards the Government’s target of £10,000. “The central goal of the Budget is to support working families,” he said. “The best way to support them is to take them out of the tax system altogether.”
Child benefit will also now be removed gradually for those earning more than £50,000, rather than the £43,000 originally proposed. This is in response to the complaints that the policy created a ‘cliff edge’ where Child Benefit was lost in full for those exceeding the income limits.
Meanwhile, he announced a further cut of 1% in the main rate of Corporation Tax rate to 24%, with the headline rate falling to 22% by 2014. “This is the biggest sustained reduction in business tax rates for a decade,” said Mr Osborne. “It’s an advertisement for investment and jobs in Britain.”
At the start of his speech, Mr Osborne said the Office of Budget Responsibility forecast that unemployment would peak this year at 8.7% before falling, and said the number of people claiming benefits had been revised down by 100,000 a year over the next four years.
He said the deficit was falling, borrowing was falling and would be £11bn less than forecast last autumn by 2016/7. He also slightly revised up growth forecast to 0.8% 2012, 2% 21013, 2.7% for 2014. Deficit forecast to reach 7.6% of GDP by 2012/2013.
The chancellor ended his speech by saying the British people will "share the efforts and the rewards" and that the country will "earn its way out" of its problems.
BUDGET 2012: Key points at a glance
Personal income tax allowance raised to £9,205 from April 2013, making 24 million people £220 a year better off, including higher rate earners.
New general anti-tax avoidance rule to be introduced.
Age-related allowances to be removed for new pensioners from April 2013, and replaced with a single personal allowance for all.
Allowances for those already of pension age to be frozen, but George Osborne said "no pensioner will lose in cash terms".
Will be phased out when someone in a household has an income of more than £50,000. It will fall by 1% for every £100 earned over £50,000.
Only those earning more than £60,000 will lose the entirety of the benefit.
Independent Office for Budget Responsibility (OBR) revises up UK growth forecast for 2012 to 0.8% - from 0.7%.
Forecast for 2013 is 2%, for 2014 is 2.7%, and in each of the two years after that 3%.
Eurozone growth forecast for this year revised down from 0.5% to -0.3%.
UK inflation forecast to fall from 2.8% this year to 1.9% next year.
Borrowing this year to be £126bn - £1bn less than forecast in the autumn. Predicted to be £120bn in 2012-13 and £98bn in 2013-14. Forecast to fall to £21bn by 2016-17.
Consultation to be held on offering gilts - government bonds - with maturity terms of more than 50 years.
JOBS AND SKILLS
OBR forecasts unemployment to peak this year at 8.7% before falling each year to 6.3% by 2016-17.
One million more jobs to be created in the economy over five years, OBR says.
From midnight, new stamp duty level of 7% for homes worth more than £2m. Any such homes bought through companies will pay 15%.
Extra funding to help construction firms building new homes.
HELP FOR BUSINESS
Corporation tax cut to 24% from next month. By 2014 it will fall to 22%.
Enhanced capital allowances for businesses setting up in new Scottish enterprise zones in Dundee, Irvine and Nigg. A Welsh enterprise zone to be created in Deeside.
Consultation on simplifying the tax system for small firms with a turnover of up to £77,000.
Government support for £150m of tax increment financing to help councils promote development and an extra £270m for the Growing Places fund.
Tax relief for the video games, animation and high-end television production sectors.
Government considering enterprise loans for young people to start their own business.
Relaxation of Sunday trading laws on eight Sundays during Olympics and Paralympics, starting July 22.
Cost of operations in Afghanistan to be £2.4bn less than expected.
Money saved will provide an extra £100m to improve military accommodation.
Personnel serving overseas will receive 100% relief on an average council tax bill.
Families welfare grant also doubled.
Government evidence to be published on the case for regional public sector pay.
Option for government departments to move to regional pay structures for civil servants when current freeze ends.
FUEL, CIGARETTE AND ALCOHOL DUTIES
Duty on all tobacco products to rise by 5% above inflation from 18:00 today - the equivalent of 37p on a packet of cigarettes.
No change to existing plans on alcohol duty.
New duty on gaming machines at a standard rate of 20% and a lower rate for low-prize machines of 5% of net takings.
No change to existing plans on fuel duty. Vehicle excise duty to rise by inflation, but frozen for road hauliers.
Automatic review of state pension age to ensure it keeps pace with increasing lifespans.
New single-tier state pension for future pensioners to be set at about £140 and based on contributions.
TRANSPORT AND INFRASTRUCTURE
Report on the future of aviation in south-east England to be published in the summer.
Funding for superfast broadband and wi-fi in the UK's 10 largest cities.
OTHER TAXES AND ALLOWANCES
Bank levy to be increased to 0.105% from January 2013 "to ensure that corporation tax cuts do not benefit the banks". The levy will raise £2.5bn a year.
New cap on tax reliefs set at 25% of total income for anyone claiming more than £50,000 in a year, but no significant change to pensions relief.
VAT loopholes and anomalies to be removed - including removing exemptions for sports nutrition drinks and hot takeaway products in supermarkets.
Existing exemptions will remain for food, children's clothes, books and newspapers.
Personal tax statement to be sent to 20 million taxpayers from 2014.
Government to seek "major savings" in the administrative cost of the Carbon Reduction Commitment, and bring forward an alternative environment tax this autumn if such savings cannot be found.