Wednesday 22 November 2017

UK Budget: Osborne delivers beer cheer but recovery taking longer than anticipated

Britain's Chancellor of the Exchequer, George Osborne, holds up his budget case for the cameras as he stands outside number 11 Downing Street, before delivering his budget to the House of Commons
Britain's Chancellor of the Exchequer, George Osborne, holds up his budget case for the cameras as he stands outside number 11 Downing Street, before delivering his budget to the House of Commons

THE UK Chancellor has cut the price of beer and had some good news for taxpayers as he delivered his 2013 Budget.

George Osborne today delivered what he termed a Budget for an "aspiration nation", against a backdrop of economic gloom as growth forecasts were slashed and official forecasters warned that deficit reduction had "stalled".

Eye-catching give-aways included a penny off the price of a pint of beer and the scrapping of September's planned 3p rise in fuel duty, but the Chancellor put his strongest emphasis on measures to encourage jobs, home-ownership and small businesses.

Labour leader Ed Miliband attacked Mr Osborne as a "downgraded Chancellor" offering "more of the same - higher borrowing, lower growth".

But the UK Chancellor insisted the coalition Government's "tough decisions" had cut the deficit by one-third and helped create 1.25 million new jobs in the private sector since the general election, while keeping interest rates at record lows.

He brought a planned increase in income tax thresholds to £10,000 forward to 2014, which Tory aides said meant that everyone who paid the 10p tax rate under Labour will next year be taken out of the tax altogether.

With figures released just hours before Mr Osborne's statement showing unemployment up by 7,000, the limits to the room for manoeuvre available to the Chancellor were laid bare by forecasts published by the Office for Budget Responsibility (OBR).

The OBR halved its prediction for GDP growth for this year from 1.2% to 0.6% and trimmed next year's forecast from 2% to 1.8%.

And the independent body said that the decline in borrowing seen in the first years of the coalition Government "now appears to have stalled".

Public sector net borrowing forecasts were revised upwards in every year to 2017/18, adding a total of £55.7 billion to the amount the Chancellor is expecting to borrow over the next five years compared to his plans at the time of the December Autumn Statement. Debt will not fall as a share of national income until two years after Mr Osborne's original 2015 target and will peak at 85.6% of GDP (£1.58 trillion) in 2016/17, an increase of 6.4% on the previous forecast.

But in better news for the UK Chancellor, the OBR predicted a small increase in GDP in the first quarter of this year, meaning that the UK will avoid an unprecedented triple-dip recession.

Labour said that today's figures meant that overall borrowing is expected to be £245 billion higher than planned over the course of the Parliament.

And the party said that OBR figures showed wages are set to fall by 2.4% in real terms between 2010-15, leaving a one-earner family with two children and a £20,000 income £381 a year worse off.

Mr Osborne acknowledged that recovery was "taking longer than anyone hoped", but rejected Labour calls for a change in the course of economic policy, telling MPs: "We must hold to the right track."

Outlining a "fiscally neutral" package aimed squarely at the aspirational, he told people who want to buy their own home, start businesses or pay for childcare so they can go out and work: "We are on your side."

Among the key policies designed to support aspiration was a new Employment Allowance worth £2,000 to every company in the country to encourage them to take on staff, which means 450,000 small businesses will no longer have to pay employers' National Insurance.

Mr Osborne also unveiled a Help to Buy programme for would-be home-owners - its name deliberately chosen to echo Margaret Thatcher's Right to Buy scheme - which will offer shared equity loans for new-build homes as well as Government-backed mortgage guarantees to help people struggling to raise a deposit on property.

He confirmed plans to offer help with childcare for parents who both go out to work, worth up to £1,200 a year.

And he said he would boost infrastructure spending by £3 billion a year, using savings from Whitehall departments, which have been asked to cut their budgets by 1% a year after underspending in 2012/13. Health, schools and aid were exempted from the cuts.

Mr Osborne offered new help for shale gas production and also announced a further 1p cut in corporation tax, bringing it down in April 2015 to 20%, which the Chancellor said was "the lowest business tax of any major economy in the world".

But prominent Tory right-winger David Davis said he should have gone further, warning that Britain risks "low growth for decades" unless more action is taken to boost competitiveness.

To the delight of many Conservative backbenchers, Mr Osborne abolished the beer tax escalator which would have added 3p to the price of a pint and instead trimmed a penny off beer duty from Sunday. However, duties on other alcohols will rise as expected.

He also ditched the planned 3p rise in fuel duty, telling MPs that petrol will now be 13p a litre cheaper than if he had not acted to freeze taxes over the past two years - the equivalent of £7 off the cost of filling the tank of a Vauxhall Astra.

The introduction of a single-tier state pension worth £144 a week was brought forward to 2016, as expected. But shadow chancellor Ed Balls warned that the move had created a "ticking timebomb" beneath the budgets of schools and hospitals, as the Treasury said Whitehall departments will be expected to "absorb" the resulting £3.3 billion cost in additional National Insurance payments.

A cap on social care costs will be introduced in 2017 and protect savings above £72,000, while the threshold for means-tested help is to be raised from £23,000 to £118,000.

Carl Emmerson, of the Institute for Fiscal Studies economic thinktank, said Mr Osborne had responded to a worsening situation for the public finances by "borrowing a lot more over this Parliament, pushing more of the deficit reduction into 2016-17, 2017-18 and beyond".

Hardest-hit will be "those at the very top", followed by working-age families towards the bottom of the income distribution, Mr Emmerson told the BBC.

TUC General Secretary Frances O'Grady said: "This Budget is the wrong answer to the wrong question. We face a jobs, growth and living standards crisis, yet today's proposals are small beer that do little more than tinker at the edges."

But John Walker, chairman of the Federation of Small Businesses, said the Chancellor had "pulled out all the stops with a wide-ranging package of measures to support small business".

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