Chancellor George Osborne heralded his second Budget as one ‘for enduring growth and jobs’. Despite revealing significant cuts in the economic growth forecasts for 2011 and 2012, the Chancellor insisted that the Government’s fiscal plans were on course.
The Chancellor’s speech included a range of measures intended to boost business enterprise. Among the key announcements was an increase in the planned reduction in corporation tax, with rates falling by 2% from April, and 1% in each of the following three years, to reach 23%, accompanied by an adjustment in the bank levy to ensure that banks do not pay less tax as a result. The scrapping of £350 million of business regulations and a three-year moratorium on new regulations for firms with fewer than 10 staff were also confirmed, and the business rate relief ‘holiday’ for small businesses will be extended for another year. Sweeping changes to the Enterprise Investment Scheme were also announced, alongside a doubling of Entrepreneurs’ Relief, which rises to £10 million from 6 April. The small companies R&D tax deduction will also rise to 200% in April, and to 225% next year.
Acknowledging that the cost of living and the high price of oil pose a problem for many British families, the Chancellor confirmed a number of measures aimed at providing support. While a postponing of the planned rise in fuel duty had been anticipated, the Chancellor went a step further by cutting the duty by 1p a litre, and introducing a Fair Fuel Stabiliser, measures which will be paid for by additional taxes on North Sea oil firms. In addition to the planned increase in the income tax personal allowance, another future rise will take the allowance to £8,105, in April 2012. Meanwhile, first-time buyers will be offered further help to purchase new property by means of a proposed shared equity scheme, and help for those with mortgage arrears will be extended. Also of interest was the announcement of a 10% inheritance tax discount for taxpayers who leave at least 10% of their estate to charity, and a simplification of the Gift Aid scheme.
The Chancellor stated his intention to make the UK the ‘most competitive tax regime in the G20’, but also outlined plans to abolish 43 tax reliefs. Tobacco duty rises by 2% above inflation. While air passenger duty rates have been frozen, users of private jets will be subject to passenger duty for the first time.
Also of note for the future were plans to consult on a merger of the income tax and national insurance regimes, proposals to review the effect of the ‘temporary’ 50% tax rate, and the long-term creation of a flat-rate state pension worth around £140 a week.
UK economic growth forecasts were downgraded from 2.1% to 1.7% for 2011, and from 2.6% to 2.5% for 2012, which the Office for Budget Responsibility (OBR) put down to the weaker than expected final quarter of last year, the rise in world commodity prices, and higher than expected inflation. However, the OBR said that the effect ‘creates scope for slightly stronger growth in later years’.
Meanwhile, inflation, which is currently at a two-year high, is predicted to stay between 4% and 5% this year, falling to 2.5% in 2012. The Chancellor confirmed that the target for Consumer Price Index (CPI) inflation will remain at 2%.
National debt is expected to be 60% of GDP this year, rising to 71% in 2012 and falling to 69% by 2015. Borrowing is expected to fall from £146 billion this year to £122 billion next year, reaching £29 billion by 2015/16.
The Chancellor also revealed that the OBR will become a permanent fixture.