The Chancellor of the Exchequer, the Rt Hon George Osborne MP, delivered his Autumn Statement to the House of Commons today, focusing on improvements to public finances and the importance of continued reductions in government spending. Major announcements included reforms to stamp duty, the allocation of investment in infrastructure, and changes to the rules on inheritance tax for savings and pensions.
Growth, borrowing and reducing the deficit
The Office for Budget Responsibility (OBR) has revised growth expectations for 2014 up from 2.7 per cent, forecast in March, to 3 per cent. Forecasts for 2015 have also risen to 2.4 per cent. The Chancellor stressed that the “warning lights are flashing” for the global economy, and that the stagnation of the Eurozone and recession in Japan continue to pose a threat to economic recovery.
The budget deficit
The Chancellor stated that the budget deficit has been ‘cut in half’ since 2010, when measured as a proportion of GDP. The budget deficit for 2014-15 will be £91.3 billion, and is projected to fall to £75.9 billion in 2015-16. By 2018-19, the government expects to be running a small surplus of £4 billion.
Debt currently sits at 80.4 per cent of GDP and is projected to rise to 81.1 per cent in 2015-16, before falling every year thereafter and reaching 72.8 per cent in 2019-20.
A total of 500,000 new jobs were created this year, of which 85 per cent were full-time. Unemployment is expected to fall to 5.4 per cent in 2015.
Forecasts for 2014-15 have been revised down to 1.5 per cent and are forecast to be 1.25 per cent in 2015-16.
A new Charter for Budget Responsibility – announced in last year’s Autumn Statement – will be published next week, reinforcing the government’s commitment to continue cuts to public spending. The Chancellor stated that the work would begin with a further £13.6 billion of savings during 2015-16.
The Chancellor also announced that spending on welfare is set to be £1 billion lower than forecast in March. The government will introduce a two-year freeze for working-age benefits, as announced in October.
Housing, development and infrastructure
The Chancellor announced that he will abolish the existing ‘slab-rate’ system for stamp duty and replace it with a new sliding scale arrangement. The Chancellor claims that this will mean 98 per cent of property buyers paying less tax, with the only increases being applied to the most expensive properties – those over £937,000.
The Chancellor also announced plans to stop the avoidance of stamp duty on property during company takeovers.
The Chancellor reiterated the government’s commitment to improving the road network, following announcements earlier this week which detailed where funding from the National Infrastructure Plan would be spent.
As also announced earlier in the week, £2 billion of investment in flood defences was confirmed. Tax relief for private investment in flood defences is also to be expanded.
The Chancellor reiterated his commitment to creating a “Northern Powerhouse”. This includes investment of £250 million in a new Sir Henry Royce Institute for advanced material science in Manchester, with branches in Leeds, Liverpool and Sheffield.
The Chancellor also highlighted that the government will tender for new franchises for Northern Rail and the Trans-Pennine Rail services.
The Chancellor announced the creation of a new sovereign wealth fund for the North of England to keep tax receipts of shale gas exploration.
North Sea oil
Following the decline of global oil prices, the Chancellor announced that the supplementary charge on oil would be reduced from 32 per cent to 30 per cent. A full announcement detailing the plans will be made by the Chief Executive to the Treasury, the Rt Hon Danny Alexander MP, tomorrow (4 December 2015).
The Chancellor confirmed that fuel duty would remain frozen.
Taxation, incentives and other measures
It was announced that the doubling of small business rates relief will be extended into 2015-16, and that inflation-linked business rates increases will continue to be capped at 2 per cent.
The Chancellor also announced that there will be a full review into the structure of business rates, with results to be announced at the 2016 Budget.
The Chancellor announced that Northern Ireland will be given responsibility for setting its own rate of corporation tax. Wales will also be given fully devolved control over its ability to set business rates. Meanwhile, the government remains committed to the Smith Commission which outlined that Scotland should set its own income taxes.
The 55 per cent tax on pensions passed in the form of inheritance will be abolished. For those with a joint-life or guaranteed-term annuity who die before the age of 75, they will also be able to pass on their pension in full, tax free.
Research and development
The tax credit for research and development will be increased to 230 per cent for SMEs, and by 11 per cent for larger firms.
Multinational companies tax
The Chancellor announced a 25 per cent tax on profits generated in the UK that are then artificially diverted out of the country by multinational companies.
A limit of 50 per cent has been set on the level to which banks can off-set historic losses for taxation purposes. The Chancellor also announced that tax relief on ‘bad debt’ will also be delayed.
The upper limit of tax-free savings accounts has been increased to £15,200. The Chancellor also announced that an ISA passed on as part of an inheritance will retain its tax free status.
Current National Insurance exemptions for under-21 year olds working in small businesses have been extended to apprentices under the age of 25.
The tax free personal allowance will be raised to £10,600 instead of £10,500 in 2015. Unlike previous increases, the personal tax allowance will also be passed on in full to those who pay the top rate of tax.
The Chancellor announced that air passenger duty for children under 12 will be abolished, and from 2015-16 this will be extended to children under 16.
The Chancellor announced that improved funding for postgraduate study would be made available to students, including loans of up to £10,000.