Budget 2014 - Extracts

19th March 2014

Extracts from the Budget 2014 paper.

This Budget sets out further action to secure the recovery and build a resilient economy. The
government is continuing to take difficult decisions to put the public finances on a sustainable
path. The Budget supports businesses to invest, export, and create jobs, and cuts taxes for hardworking
people – laying the foundations for sustainable economic growth. The Budget sets out
the most radical reforms to saving for a generation, providing security for families to plan for
their future.

The UK has been hit by the most damaging financial crisis in generations and the government
inherited the largest deficit since the Second World War. The government’s long-term economic
plan has protected the economy through a period of uncertainty, and provided the foundations
for the UK’s economic recovery which is now well established. Since Budget 2013, economic
growth has exceeded forecasts, inflation is below target, and the deficit has been reduced
year on year. However, the job is not yet done and more work will be needed to tackle historic
weaknesses, including low productivity, poor skills and inadequate infrastructure.

Budget 2014 sets out the next steps in the government’s long-term economic plan:
The UK economy and public finances: the deficit as a share of GDP is forecast to have fallen
by a half by 2014-15 compared to 2009-10, and the Office for Budget Responsibility (OBR)
forecasts a small surplus by 2018-19. Budget 2014 announces further detail on the difficult
decisions needed to reduce the deficit and debt beyond this Parliament, including setting the
level of the welfare cap and controlling the cost of public sector pay and pensions.
Growth: a record number of people are in work and business investment is forecast to increase
this year. Budget 2014 sets out further action to help businesses invest and export, to reduce
energy costs – especially for manufacturers – and to increase housing supply.
Fairness: Budget 2014 delivers an income tax cut for 25 million people, with 3.2 million low
earners being lifted out of income tax altogether through increases in the personal allowance.
Budget 2014 announces radical reforms to give people greater freedom over how they access
their pension savings and to support savers at every stage of their lives.

The UK economy and public finances
The government’s long-term economic plan has protected the economy through a period of
global uncertainty and provided the foundations for the UK’s economic recovery. GDP growth
has exceeded forecasts and has been balanced across the main sectors of the economy.
However, the job is not yet done. Abandoning the government’s long-term economic plan and
the path of fiscal credibility would represent the most significant risk to the recovery. The UK
also faces a number of external risks, including slowing growth and financial instability in some
emerging markets, and ongoing weakness in the euro area. The situation in Ukraine is a new
risk, and any further deterioration is likely to have some impact on the UK.

The performance of the UK labour market has continued to improve, with a net increase of over
1.6 million jobs in the private sector. A record number of people are in work, and all nations and
regions of the UK have seen an increase in employment. Only a sustained economic recovery,
with growing productivity, will deliver a lasting improvement in living standards. The OBR
forecasts that real household disposable income per capita will grow in 2014 and throughout
the forecast period.

The UK economy and public finances
The government’s long-term economic plan has protected the economy through a period of
global uncertainty and provided the foundations for the UK’s economic recovery. GDP growth
has exceeded forecasts and has been balanced across the main sectors of the economy.
However, the job is not yet done. Abandoning the government’s long-term economic plan and
the path of fiscal credibility would represent the most significant risk to the recovery. The UK
also faces a number of external risks, including slowing growth and financial instability in some
emerging markets, and ongoing weakness in the euro area. The situation in Ukraine is a new
risk, and any further deterioration is likely to have some impact on the UK.

The performance of the UK labour market has continued to improve, with a net increase of over
1.6 million jobs in the private sector. A record number of people are in work, and all nations and
regions of the UK have seen an increase in employment. Only a sustained economic recovery,
with growing productivity, will deliver a lasting improvement in living standards. The OBR
forecasts that real household disposable income per capita will grow in 2014 and throughout
the forecast period.

Activity is expanding across all sectors of the economy. The OBR judges that business investment
activity is likely to gather pace this year, and has revised up its forecast for business investment
growth from 5.1% to 8.0% this year. Exports of goods to countries outside the EU have risen
by 23% since 2010 and exports of goods to the EU by 8% – but export performance needs to
improve to support a balanced recovery.

Economic forecast
The OBR has revised up its forecast for GDP growth from 2.4% to 2.7% in 2014 and from 2.2%
to 2.3% in 2015, and forecasts GDP growth of 2.6% in 2016, 2.6% in 2017 and 2.5% in 2018.
It expects GDP to return to its pre-crisis peak in the third quarter of 2014.

The OBR has revised up its forecast for employment across the forecast period and expects
employment to reach 31.4 million by 2018. At the start of 2014 the claimant count was
1.2 million, the lowest level since December 2008, and the OBR now expects it to fall below
1 million in 2017 for the first time since 2008.

The OBR expects CPI inflation to be below target at 1.9% in 2014 and then to stay at the
2.0% target for the rest of the forecast period. It expects average earnings to grow faster than
inflation throughout the forecast period.

Fiscal forecast
The government remains on course to meet the fiscal mandate one year early, in 2017-18.
‘Underlying’ public sector net borrowing as a percentage of GDP is forecast to have fallen by
half from its 2009-10 peak by 2014-15, and the OBR forecasts a small surplus in 2018-19.
The supplementary debt target is missed by one year, as forecast at Autumn Statement 2013.

Growth
The changing global economy is opening up new opportunities for British businesses, but
there is more work to do to secure sustainable economic growth. The government’s ambitious
programme of structural reform is creating the right environment for businesses to invest, export
and grow. Corporation tax will fall to 21% in April 2014 before reaching 20% in April 2015 –
the joint lowest rate in the G20. The introduction of the £2,000 Employment Allowance in April
2014 will also support businesses to grow and create jobs.
Budget 2014 announces further reforms to capital allowances, energy and housing to support
investment and a sustained recovery across the UK. The government will:
• support businesses across the UK to invest and expand by doubling the annual investment
allowance to £500,000 until the end of 2015
• ensure that UK businesses are able to take advantage of new global opportunities by
offering the best export finance in Europe – doubling the UK’s direct lending programme
to £3 billion and cutting interest rates – and reducing the cost of long-distance flights for
exporters and visitors to the UK by abolishing two tax bands
• reduce business energy costs to ensure that the UK remains a competitive location for
manufacturing, including by capping the Carbon Price Support rate at £18 from 2016-17 to
2019-20 and providing targeted support to energy intensive industries and Combined Heat
and Power plants
• ensure that the buying power of the Levy Control Framework will be unaffected by other
Budget decisions, introduce a Capacity Market to ensure security of supply, and provide
£60 million to develop new technologies to support carbon capture and storage
• take further action to boost housing supply by extending the Help to Buy: equity loan
scheme, creating a £500 million Builders Finance Fund to provide loans to SME housing
developers, and creating an Urban Development Corporation for a new garden city in
Ebbsfleet
provide £140 million of new funding to repair flood defences that have suffered damage in
the recent severe flooding, and provide £200 million to establish a potholes challenge fund
• set out the next steps in the government’s industrial strategy, including establishing a
new Alan Turing Institute for analysing and identifying useful insights in Big Data, and
investing another £74 million over 5 years in the UK’s network of Catapults to support the
commercialisation of novel technologies
• maximise the benefit of North Sea oil and gas for the UK economy by announcing a new
allowance for ultra high pressure, high temperature oil and gas projects, and working with
the new oil and gas agency to ensure that the UK’s tax regime remains competitive
The second section of Chapter 1 sets out further detail on these and other announcements.

Fairness
The government’s long-term economic plan is underpinned by its commitment to fairness.
Distributional analysis confirms that the richest are continuing to contribute the most to
consolidation, even as a share of income and benefits in kind. Office for National Statistics data
show that inequality is at its lowest level since 1986. In April 2014, the income tax personal
allowance will rise to £10,000, and a typical basic rate taxpayer will pay £705 less income tax
per year in cash terms than they would have paid in 2010-11. Fuel duty remains frozen for the
remainder of this Parliament, saving the average motorist £11 every time they fill their tank by
2015-16.

For the full Budget report go to
https://www.gov.uk/government/publications/budget-2014-documents