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Autumn Statement: ‘No miracle cures’ as Osborne misses debt target and extends austerity
Economic forecasts revised down and one of two public finance targets missed as chancellor sticks with his Plan A.
Brits were today told to expect ‘no miracle cures’ as chancellor George Osborne revealed the full extent of the damage to the UK economy, while admitting that he had missed one of two coalition budget targets.
Osborne, who started his Autumn Statement with a confident assertion that the British economy was ‘healing’ and ‘on the right track’, revealed lower economic growth forecasts from the government’s budget watchdog, the Office for Budget Responsibility (OBR).
The economy will have contracted by 0.1% this year – down from the OBR's 0.8% forecast in March – the independent body predicts, primarily blaming a decline in exports to struggling European countries. The UK will then grow 1.2% next year and 2.0% in 2014, the OBR says.
While the chancellor said he was on course to meet his target to eliminate the structural deficit in five years – with a better than 50% chance according to the OBR – his aim of getting Britain's debts falling as a share of GDP has been delayed by one year to 2015.
He delivered a ‘fiscally neutral’ statement, with no net tax rises, despite announcing a string of tweaks in a statement designed to raise money from the rich and unemployed.
Today's budget update was seen as acknowledgement by the chancellor of advice from the International Monetary Fund not to further extend his austerity plans amid such a weak economic recovery.
Osborne announced a plan for infrastructure spending, a 1% cut to corporation tax and scrapped a planned 3p rise to fuel duty in an attempt to boost the economy. He also pledged to crack down on tax evasion and further cut back Whitehall budgets.
There will be no 3p fuel tax rise this January, cancelling previous plans.
The threshold for paying the top 40% rate of income tax will rise by 1% from 2014
There will be no new tax on property
Benefits will be ‘uprated’, essentially freezing rises in state support at less than the rate of inflation.
The inheritance tax (IHT) nil rate band, which has been frozen since 2009 at £325,000, will increase by 1% in 2015-16 to £329,000
The annual allowance for pension contributions will be cut from £50,000 to £40,000 and the lifetime allowance from £1.5 million to £1.25 million, in an attempt to save £1 billion in tax relief each year.
The income limit on capped drawdown arrangements on pensions will be increased from 100% to 120%, restoring the 20% uplift.
The ISA limit is being raised to £11,520, while the government is consulting on allowing stocks and shares in AIM companies to be held directly in ISAs
The income tax personal allowance will go up to £9,440 next year, which is £235 more than previously announced.
The government has increased the capital gains tax (CGT) allowance by 1% to reach £11,000 in 2014/15.
The threshold for paying the top 40% rate of income tax will increase by 1% from 2014. The threshold will go from £41,450 to £41,865 in 2014 and another 1% to £42,285 in 2015.
The basic state pension will rise by 2.5% next year to £110.15 a week.
Child benefit, currently frozen, will now rise by 1% for two years from April 2014.
Osborne said three one-off events affected the government finances:
- the transfer of the Royal Mail pension fund to the public sector as part of its privatisation cuts the deficit by £28 billion this year;
- bringing bailed-out banks Bradford & Bingley and Northern Rock back on the country's balance sheet adds around £70 billion to the national debt;
- this is offset against the transfer of cash from the Bank of England’s quantitative easing scheme which will add up to £35 billion to the Treasury's coffers.
Osborne will be waiting for the rating agencies' verdict on his plans, with the UK's prized AAA rating under threat.
Previous economic forecasts from the OBR have proven too optimistic. Today's lowered forecasts from the watchdog, which underlay the chancellor's plans, remain under threat, with the average City and independent economic forecaster polled by the Treasury expecting weaker growth in 2012 and 2013.
Markets were little moved in response to Osborne's statement, with the pound slipping a little, as economists get to work on reading the small print.
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