By Alex Thomas
Chancellor George Osborne’s 2014 Autumn Statement was delivered at 12.30 GMT today in the House of Commons. The Autumn Statement is an opportunity for the Chancellor to update MPs on the Government’s plans for the economy based on the latest forecasts from the Independent Officer for Budget Responsibility (OBR).
As many predicted the chancellor committed to further tightening public finances within the statement. He went on to say that if the Conservatives remain in government after the May General Election there will be substantial savings in public spending.
The other major theme from the budget was one of fairness through an effort to ensure that everyone pays their share this was apparent in the so-called ‘Google Tax’, the bank tax and the stamp duty reforms.
Business and the economy
The UK’s growth forecast for this year was revised up to 3%. Growth in the UK next year is forecast at 2.4%, 2.2% in 2016, 2.4% in 2017, 2.3% in 2018 and 2.3% in 2019 (OBR). The OBR also expects above inflation rises in wages for the next five years.
The government has missed its target on borrowing which is forecast to be £91.3bn this year up from a forecast of £87bn in March but this is down from £97.5bn last year. Borrowing is forecast to be £75.9bn next year and falling year-on-year until reaching a surplus of £4bn in 2018/9.
New tax on multinational firms
The so-called ‘Google Tax’ has been announced whereby a new 25% tax on profits generated by multinationals – but from their activity in the UK – will be introduced if they would otherwise move the money out of the country to avoid UK tax. How this will be implemented remains to be seen and may require substantial international cooperation.
The amount of profit in established banks that can be offset by losses carried forward will be limited to 50%, and relief on bad debts delayed. That means banks should contribute almost £4 billion more in tax over the next five years.
Related to this is the news that £1.2bn of fines on banks from the foreign exchange trading scandal will go to GP practices.
Business rates relief has been doubled for a further year, and inflation-linked increase in business rates capped at 2%. A full review of the structure of business rates will be carried out and there will be an increase in rates discount to help high street shops, pubs and cafes by 50% to £1,500 next year.
Employers will no longer be required to pay national insurance on apprentices.
Welfare and income tax
Total welfare spending is set to be £1bn a year lower than forecast at the Budget in March. Universal Credit work allowances will be frozen for a further year, cutting tax credits when overpayments are certain, and unemployment benefits will stop for migrants with no prospect of work.
The tax-free Personal Allowance will rise to £10,600 providing a total wage boost for working people of £825 a year according to the Treasury.
Post-graduate students will now be able to apply for student loans moving the UK in line with many other OECD countries. They will be able to borrow up to £10,000 to fund their post-graduate studies. While the loan is only available to those under the age of 30 it is expected to allow 10,000 more individuals to undertake postgraduate study each year
The cut in fuel duty will remain and from May 2015, Air Passenger Duty (APD) for children under 12 will be abolished and in the following year, APD for children under 16 altogether will be scrapped. This move is likely to be popular with voters given falling fuel prices.
As part of the government’s plan to rebalance the economy and establish a “northern powerhouse”, a Sovereign Wealth Fund for the North of England will be set up, obtaining its funds from shale gas proceeds.
Following Greater Manchester no further cities were named in regards to establishing elected mayors but the chancellor stated that the door was open for councils to discuss the idea.
Northern Ireland will now set its own corporation taxes.
The chancellor announced a complete reform to stamp duty. The new rates are as follows:
- No tax on the first £125,000 paid
- 2% on the portion up to £250,000
- 5% up to £925,000
- 10% up to £1.5 million
- 12% on everything above that.
The chancellor said: “As a result stamp duty will be cut for the 98% of homebuyers who pay it.”
The full budget can be accessed here.