Chancellor's Autumn Budget Statement

5th December 2012

The Main Points
Tax
• Income tax personal allowance to go up to £9,440 next year, £235 more than previously announced. The rise will be extended to higher rate tax payers.

• Threshold for 40% rate of income tax to rise by 1% in 2014 and 2015 from £41,450 to £41,865 and then £42,285.

• Inheritance tax threshold to rise from £325,000 now to £329,000 in 2015/16

• Planned 3p per litre rise in fuel duty scrapped

• Capital gains tax annual exempt amount to increase by 1% over the same period, reaching £11,100

Pensions
• From 2014/15 will further reduce lifetime pension relief allowance from £1.5 to £1.25m. Annual tax-free allowance reduction from £50,000 to £40,000
• Basic state pension to rise by 2.5pc next year to £110.15 a week
• Increase in capped drawdown limit for pensioners from 100pc to 120pc
Savings
• Overall ISA limit increased to £11,520 from next April
Benefits and allowances
• Most working age benefits will get a real terms cut and increase by 1pc for next three years, including JSA, employment and support allowance, income support, child tax credit and working tax credit
• Local housing allowance rates to rise in line with existing policy next April but increases thereafter to be capped at 1pc
• Carer and disability benefits to be increased in line with inflation

Business
• SME equity markets to be held directly in stocks and shares ISAs
• The main rate of corporation tax to be cut by 1% to 21% from April 2014
• Bank levy rate to be increased to 0.13pc next year
• Temporary doubling of the small business rate relief scheme to be extended by a further year to 2014
• £1bn extra capital for Business Bank

The Economy
Forecasts
• Office for Budget Responsibility forecasts 0.1pc contraction this year
• OBR forecasts the economy will grow 1.2pc next year, 2pc in 2014, 2.3pc in 2015, 2.7pc in 2016 and 2.8pc in 2017.
• The deficit this year has fallen by a quarter to 6.9pc this year. OBR forecasts deficit to come down to 6.1pc next year, 5.2pc in 2014, 4.2pc in 2015, 2.6pc in 2016 1.6pc in 2017
• Net debt will miss target to fall by 2015/16. It will be 74.7pc this year, then 76.8pc next year, then 79pc, 79.9pc in following years, falling to 79.2pc in 2016/17 and again to 77.3pc in 2017/18.
• OBR forecasts government on course to eliminiate structural deficit in five years time
• Forecast for debt interest payments £33 billion lower than predicted two years ago
• Share of national income spent by the state to fall from 48pc of GDP in 2009/10 to 39.5pc in 2017/18

Employment
• 1.2m new jobs were created in private sector since election, 600,000 more than predicted
• Unemployment set to peak at 8.3pc rather than 8.7pc as previously forecast
Government Spending
• Government total managed expenditure to be £745bn
• Period of austerity extended by one year to 2017/18
• All money saved in next two years will be reinvested in £5bn capital spending
• Capital expenditure will also fund 120,000 new homes, flood defence schemes, broadband expansion including ultrafast broadband in smaller cities
• Whitehall department budgets cut by 1pc next year and 2pc in 2014, with NHS and schools exempt
Transport
• £1bn to roads to upgrade key sections of A1, linking A5 with A1, upgrading M25 and dualling A30.
• £1bn loan to extend London's Northern Line to Battersea
• The High Speed 2 rail link, planned to run between London and Birmingham, will be extended to the North West and West Yorkshire.
Science
• £600m more for UK scientific research infrastructure
Education
• £270m for FE colleges
• £1bn to improve good schools and build another 100 free schools and academies
Energy
• Incentives for shale gas drilling under consultation
Local Government
• Local government budgets cut by 2pc in 2014
Aid
• 0.7pc aid spending maintained next year, though not exceeded
Tax evasion and avoidance
• Prosecutions for tax evasion up 80pc
• 2,500 more tax inspectors going after evaders and avoiders
• Hundreds of millions of pounds of tax loopholes to be closed with immediate effect
• HMRC to have no budget cut and £77m more to fight tax avoidance by corporates and wealthy individuals
• £5bn expected to come in over next six years from undisclosed Swiss bank accounts through treaty with Switzerland
What it means for the government purse
• Changes to welfare to save £3.7bn by 2015/16
• New measures to save £1bn over four years from fraud, error and debt in the tax credit system
• Changes in tax-free pension allowance will save £1bn
• Clampdown on tax evasion and avoidance to bring in £2bn a year

Fairness
Fairness underpins the Government’s plans to protect, rebalance and strengthen the economy. The measures announced in the Autumn Statement will help to ensure that businesses and families continue to benefit from low interest rates and that the UK remains protected from the worst of the global crisis.

To help households and businesses cope with higher inflation, and to ensure the deficit reduction plan is implemented fairly and support young people in the labour market, the Chancellor announced in the Autumn Statement that the Government will:

defer the 3.02 pence per litre fuel duty increase due to take effect on 1 January 2012 to 1 August to 1 August 2012; the second increase planned for 1 August 2012 will be cancelled;
increase the Bank Levy to 0.088 per cent from 1 January 2012 to ensure it raises at least £2.5bn each year, as set out at Budget 2011;
limit the increase to Transport for London and regulated rail fates to inflation, measured using the retail price index, plus one per cent for one year from 2012;
provide extra support from Jobcentre Plus for unemployed 18-24 year olds; and
via a new Youth Contract worth a total of £940 million:
provide an offer of work experience or Sector Based Work Academy place for every unemployed 18-24 year old who want one after three months on Jobseeker’s Allowance;
fund wage incentives for 160,000 young people to make it easier for private sector employers to take them on.
The Government will also invest a further £380m a year by 2014-15 to extend its new offer of 15 hours free education and care a week for disadvantaged two year olds, to cover an extra 130,000 children. This is in line with the Government’s plan to tackle the causes of child poverty.

Autumn Statement 2011 - Protecting the economy

Sound public finances are essential to maintain confidence in the UK economy during a period of global uncertainty and to secure sustainable long-term growth. Due to the ongoing impact of the financial crisis, the euro area crisis, and high global commodity prices, the Office for Budget Responsibility (link) is forecasting slower growth in the UK economy. In turn, this would make it necessary for the Government to borrow more money to make up for the shortfall in tax receipts.

In order to maintain economic stability and to meet its fiscal targets, the Chancellor has announced some reductions in public spending. The Government will:

set plans for spending in 2015-16 and 2016-17 in line with the reductions in the current Spending Review period;
raise the State Pension age to 67 between April 2026 and 2028, as people live longer, saving an expected £60bn in today’s prices between 2026-27 and 2035-36;
set public sector pay increases at an average of one per cent for the two years after the current pay freeze comes to an end; and
freeze the couple and lone parent elements of the Working Tax Credit in 2012-13 and not increase the child element of Child Tax Credit by more than inflation.
The intensifying euro area crisis is now causing alarm in the markets and affecting economies in many countries, including our own. As a consequence of this, businesses are finding it harder to get hold of the financing they need to operate. To support the economy through this difficult period, the Government will take action to inject money directly into the parts of the economy that need it, including:

up to £21bn of support known as credit easing, through a National Loan Guarantee Scheme and a Business Finance Partnership. This will strengthen the flow of credit to smaller businesses that do not have ready access to capital markets. This will complement the other elements of monetary activism that are happening, including keeping interest rates low and quantitative easing.
a reduction of the maximum Asset Purchase Facility limit for purchases of eligible private sector assets by £40 billion to a ceiling of £10 billion, financed by the issuance of central bank reserves, Treasury Bills and the DMO’s cash management operations.

Autumn Statement - Building a stronger economy for the future

In The Plan for Growth, published alongside Budget 2011, the Government set out a comprehensive programme of structural reforms. Work has started on all 137 commitments and substantial progress has been made.

In the Autumn Statement, the Chancellor has announced how the Government will accelerate its programme of structural reforms to infrastructure, support enterprise and lay the foundations for strong, balanced growth, supporting around £30 billion of new capital investment. This includes:

working with UK pension funds to target up to £20 billion of private sector investment in infrastructure;
providing £6.3 billion, of which £1.3 billion was announced earlier in the autumn, of additional infrastructure spending over the Spending Review 2010 period – funded by savings – including tackling congestion on the road and rail networks, superfast broadband, extra money for schools and housing, increasing the Regional Growth Fund, and more funding for science and innovation; and
supporting around a further £1 billion of investment by Network Rail.
Through this investment, the Government is:

supporting the delivery of the National Infrastructure Plan;
increasing the Regional Growth Fund by £1 billion;
providing £600 million of funding for 100 additional Free Schools, alongside an extra £600 million for Local Authorities with the greatest pressure on school places; and
introducing a new build indemnity scheme for builders and lenders to stimulate the construction of new homes, and launching a new £400 million Get Britain Building investment fund.
The Government is also:

launching a new Seed Enterprise Investment Scheme (SEIS) from April 2012; and
making 100 per cent capital allowances in the Enterprise Zones in Sheffield, the Black Country, Liverpool, Tees Valley, North Eastern, and the Humber.
Up to £21 billion in a package of interventions – known as credit easing – to ease the flow of credit to businesses that do not have ready access to capital markets, was also announced as part of the Autumn Statement.