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Details below on:
2. Economic forecast
4. Debt and deficit forecast
5. Freeze in petrol duty
7. Road Investment
9. Pension reforms
12. Infrastructure and businesses
George Osborne, Chancellor of the Exchequer, delivered his annual Autumn Statement today, (Wednesday, 3 December), detailing the economic forecasts and Government’s plans for the economy.
There was much speculation on what would be announced, the penultimate speech of this Government before the May 2015 general election and a chance for Osborne to comment on the economy provided by the Office for Budget Responsibility (OBR) forecasts.
He opened up with the expected consumer feel good comments:
“Today, against a difficult global backdrop, I can report:
• higher growth
• lower unemployment;
• falling inflation;
• and a deficit that is falling too.
Today a deficit that is half what we inherited.”
“Mr Speaker, our long term economic plan is working.”
He confirmed the deficit is falling, meaning the 2014/15 forecast is not being revised up above £97.5bn – it could still be upgraded from its March level of £86.6bn.
“While employment is at a record high, we must never give up on the task of finding work for all young people.
“So today we move further towards full employment by supporting the businesses that create jobs and apprenticeships” – A positive step that the RMI was pleased to see featured in the statement.
Undoubtedly, this was all very much a positive start to the speech – a speech that was certainly looking to engage the electorate in the run up to May’s general election!
He also stated that the heart of the Autumn Statement was the Northern Powerhouse.
To take a look in a little more detail…
In brief: the forecast is 3% economic growth from the OBR.
George Osborne stated:
“That brings me to today’s forecast. In the Budget, I reported that the OBR had revised up their forecasts for growth this year. A year ago, we expected GDP to grow by 2.4%. In March we expected 2.7%.Today, the British economy is forecast to grow by 3%. Over the last year we have grown two and half times faster than Germany; over three times faster than the Eurozone; and over seven times faster than France.”
George Osborne stated:
“This balanced growth is creating jobs too – with a record number in work. At the Budget, the OBR expected that over the last year employment would rise by 265,000. Today, I can tell the House they double that number. Over the last year half a million new jobs have been created.
Debt and deficit forecasts
George Osborne stated:
“deficit is falling this year and every year. And not only that, but in the final 4 years of the forecast, borrowing is actually lower than predicted in the Budget. The Office for National Statistics has made revisions to the way the National Accounts are measured – and one of the advantages of having an independent OBR is that they have ensured the figures they present today are comparable on a like-for-like basis with the forecast they made at the Budget.”
Analysis: borrowing has been revised up for this year, but is still falling compared to 2013/14. The March estimate was for £86.6bn in 2014/15; today’s forecast is £91.1bn. But, from 16/17 and beyond, the deficit will fall further than estimated, the OBR is saying.
In conclusion: Osborne’s argument is that he has tweaked his deficit reduction strategy to adjust to circumstances, and that enables him to ensure the economy keeps growing.
Speculation versus reality
Throughout the week there was much speculation on what the Chancellor would discuss. In light of this, the RMI policy department has put together a summary of the key business policies speculated on and the reality of what was said…
Freeze in petrol duty
Petrol – During the 2013 Autumn Statement the Chancellor announced a freeze in fuel duty until the general election. The RMI’s Petrol Retailers Association (PRA) has been communicating with the Treasury pushing for the commitment to be maintained during the recent unexpected falls in global crude oil prices.
Speculation – Media sources reported that the Chancellor had ruled out an increase in the duty on petrol, despite the sharp fall in the price of a barrel of oil.
In response to the PRA’s request in October for the Chancellor to reaffirm his promise of a freeze in petrol duty; the Chancellor stated any further announcements would be made during the Autumn Statement or Budget, a strong indicator that petrol duty would be a topic of discussion.
It was strongly rumoured that Osborne would stress the need for filling stations to pass on cuts in the wholesale oil price at the pump – a reality that is difficult for many petrol forecourt stations.
Reality – “We will keep it frozen!” A short and simple message on fuel duty from the Chancellor.
Competitiveness of the UK tax administration
Tax administration – The Office of Tax Simplification (OTS) published its final report on the competitiveness of the UK tax administration on 9 October 2014. The review set out Office of Tax Simplification’s (OFT) project to improve the competitiveness of the UK tax administration, and includes a wide range of recommendations for consideration.
Speculation – On 5 November, David Gauke MP, Financial Secretary to the Treasury, made a speech to delegates at the Autumn Stakeholder Conference that the Chancellor would respond to the report in the Autumn Statement.
“Last December the Chancellor asked the OTS to carry out a review of what the government can do to further improve the competitiveness of the UK tax administration. Next month, at Autumn Statement, we will respond to that report.”
Reality – A major announcement on tax was the crackdown on tax avoidance by multinational companies.
George Osborne stated:
“We will make sure that big multinational businesses pay their fair share. Some of the largest companies in the world, including those in the tech sector, use elaborate structures to avoid paying taxes.
“Today I am introducing a 25% tax on profits generated by multinationals from economic activity here in the UK which they then artificially shift out of the country.”
Road investment strategy
Roads speculation – On the 1 December, the Department for Transport and Highways Agency announced the launch of its first ‘Road investment strategy’. As explained by the department’s communications team, the documents ‘set out an ambitious, long-term programme for… motorways and major roads with stable funding’.
Announcing the plan, Transport Secretary Patrick McLoughlin said roads were “key to our nation’s prosperity” and had suffered from under-investment for too long.
Chancellor George Osborne said it would “transform some of the country’s most important strategic routes”.
Following on from this, the media reported further news on this was set.
Reality – The road investment strategy was not really mentioned.
What the RMI can confirm however is that £15billion is being provided for 84 new road projects.
Devolution (and corporate tax)
Talks of the Scottish referendum dominated the political landscape for most of 2014. As a result, many promises of policy devolution were promised to Scotland (providing they remained part of the Union); and as another result of this, further policy devolution was promised to Wales and Northern Ireland.
Speculation – Deloitte’s head of tax in Yorkshire, Andrew Coticelli, stated at the beginning of the week he expected the Chancellor to “concentrate on the outcomes” of announcements in previous years.
Following the publication of the policy paper: Building a prosperous and united community by the Northern Ireland Office in June 2013, The Financial Times reported (Monday 1 December), that ‘George Osborne will signal his backing this week for the devolution of corporation tax to Northern Ireland, in a politically significant move which would allow the province to compete with super-low business taxes in the Republic of Ireland’.
Alok Sharma MP, in a sitting of the Treasury Select Committee, claimed that should the Government decide to devolve corporation tax powers to Northern Ireland, it would be very difficult to deny similar powers to Scotland and Wales.
Reality – Devolution was a topic of conversation! In brief, this is how it played out:
1. A full agreement has been made and full devolution of business rates will be given to Wales.
2. UK Government has confirmed devolution of Corporation Tax to Northern Ireland but not to Scotland – “can be implemented provided the Northern Ireland Executive can show that it is able to manage the financial implications”.
3. Following the proposals of Lord Smith’s Commission on Scotland, announced last week, devolution of income tax rates and thresholds will be devolved to Scotland.
He reiterated that “we will also respect and fully implement the devolution settlements across the nations of our United Kingdom”. Again, emphasising the points the electorate wanted to hear. A draft clause will be published in the New Year.
He finished with:
“The sheer scale of the devolution to Scotland now makes the case for English Votes for English Laws unanswerable” – this will be unpopular with Labour.
Pensions have been a big policy area for the coalition government, in the March Budget, George Osborne’s standout announcement was a plan to make it easier for people ‘to dip into their pension pots when they want’, ending the requirement to buy an annuity. Pension reform was again reiterated during the 2014 Queen’s Speech in June (4 June 2014). The speech explained that the two bills, Pension Tax Bill and Private Pensions Bill, would look to create a new freedom for pensioners who will be able to ‘cash in’ their pensions, again emphasised, rather than buy an annuity.
Speculation – The pension reforms are set to begin in April 2015, but as the BBC reported, in the weeks prior to the Autumn Statement, many questions had been asked in regards to the rules governing the new police and the guidance that will be available in regards to pensions. The National Association of Pension Funds recently raised 101 “questions and uncertainties” about the changes with the government.
Alan Higham, retirement director at the investment company Fidelity, told the BBC he expected to hear more information in the Autumn Statement about the pension reform regulations and Tom McPhail, head of pensions research at Hargreaves Lansdown, predicted that an assessment of the impact of the new policy would be published at the same time as the statement.
Other significant changes for pensions that have already been announced include the end of a 55% tax charge on inherited pensions. From April, any money left in the pension pot of someone who dies before the age of 75 can be inherited tax-free.
Reality – In short, the speculations were right in that pensions were again, a big topic of discussion for this government.
George Osborne stated the following:
• 55% death tax that currently applies when you pass an unused pension pot on to your loved ones will be abolished.
• People who die before the age of 75 with a joint life or guaranteed term annuity can pass that on tax free too.
• Next week the Government will publish “the market leading rates on our new 65 plus pensioner bonds, which will be available from January”.
• Next April, ISA’s limits will increase to £15,240.
• From today Osborne stated “that when someone dies, their husband or wife will be able to inherit their ISA and keep its tax free status”.
Other important topics that were covered
The RMI was extremely pleased to see apprenticeship reforms discussed in the Autumn Statement. Apprenticeships were mentioned in the 2013 Statement and here is what the Chancellor had to say this time:
“To support businesses who take young people on we are already, from next April, abolishing national insurance contributions for employing anyone under the age of 21.
“Today, I can go further. Since 2010, almost two million people have taken up an apprenticeship.
“The Prime Minister has set this country an ambition of three million apprentices in the next Parliament”.
“Today I can announce that the jobs tax on young apprentices will be abolished altogether.”
The Chancellor also announced the introduction of £10,000 loans for Masters degrees:
“A year ago, I abolished the arbitrary cap on the total number of undergraduates at our universities. Today, I am going to revolutionise the support for our post-graduate students too. Until now there has been almost no financial support available, and the upfront costs of postgraduate degrees deters bright students from poorer backgrounds.
So today, across all disciplines, we will make government-backed student loans of up to £10,000 available, for the first time ever; to all young people undertaking post-grad masters degrees.”
Infrastructure and Businesses
In brief there will be:
• Extended funding for the lending scheme for a further year.
• Small business rate relief doubled for another year.
So in essence, small businesses support was a focus:
“Today we take steps to back business, support science, and invest in infrastructure. This government has succeeded in making Britain the most entrepreneurial economy in Europe…
“We’ll strengthen Entrepreneurs’ Relief and the Social Investment Tax Relief. We’ll accept almost all the recommendations of the Office of Tax Simplification to reduce the administrative burden on firms”.
“We will double Small Business Rate Relief for yet another year…
“I will also continue to cap the inflation-linked increase in business rates at 2 per cent.
“And I am announcing a full review of the structure of business rates, and I urge business groups to engage with us.
“Last year to help our high street shops, pubs and cafes, I introduced a new £1,000 discount on their rates.
“With the brilliant Small Business Saturday this weekend, I am increasing that help for the high street by 50% to £1,500 next year.
For more information or further analysis on any of the above, please contact the RMI’s Policy Officer, Katy Recina via email@example.com