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News - 22 March 2012

ABDS Budget Report 2012

The Chancellor had little room for manoeuvre – he could not afford to give much away, but nor did he want to slow down growth. So this was a budget with a lot of reference to everyone paying their "fair share", and a strong focus on anti-avoidance. There was good news for companies with an additional 1% reduction in the rate of corporation tax. For individuals, most will gain from the rise in personal allowances, and the 50% rate will fall to 45% next year.

BUDGET AT A GLANCE

  • Increase in personal tax allowances - the amount of income that is tax free - to £9,205 in April 2013
  • Top rate of tax reduced from 50p to 45p in April 2013
  • Measures to clamp down on tax avoidance
  • Rise in stamp duty to 7% for sales of houses worth £2m
  • Corporation tax to fall to 24% next month - 22% by 2014

George Osborne said his plans would reward work: "This Budget supports working families and helps those looking for work. It unashamedly backs business. And it is on the side of aspiration: those who want to do better for themselves and for their families."

He defended the politically risky decision to cut the top rate of tax by saying five times as much would be raised from the wealthiest by other tax and anti-avoidance measures being brought in.

A report into the highest rate, introduced by Labour in 2010, had found it caused “massive distortions” – and had raised just a third of the £3bn initially predicted, Mr Osborne said.
"No chancellor can justify a tax rate that damages our economy and raises next to nothing."

The BBC political editor Nick Robinson said the chancellor had taken a huge political gamble, that by arguing that overall the rich would pay more, the public would overlook what amounted to a significant tax cut for tens of thousands of wealthy people.

While the Leader of the Opposition, Ed Miliband said: "After today's budget, millions will be paying more, while millionaires will be paying less"

The main points of the Budget:

Income Tax 

  • The top rate of tax will be reduced to 45p from April next year. Talking about abolishing the 50p tax rate Mr Osborne said: "No chancellor can justify a tax rate that raises next to nothing and damages our economy."
  • OBR said that "reducing (top) tax rate is reasonable".
  • He said the 50p tax rate has "caused massive distortions."
  • "This tax rate (50p) is the highest in the G20. It is higher not just than the tax rate of America but also of major European countries like France, Italy, and Germany."
  • Mr Osborne added: "It is widely acknowledged by business organisations and international observers as harming the British economy."
  • Raising the tax threshold will mean two million people will be taken out of tax altogether, he claimed. "Twenty-four million people who earn less than £100,000 will gain from this measure," he said.
  • He pledged “the largest ever increase in personal allowance”, increasing the income tax threshold by £1,100  from April 2013 to £9,205
  • The Government is moving forward with a plan to integrate income tax with National Insurance and will also address loopholes in the VAT system, he said.

UK Economy

  • The Office for Budget Responsibility has revised eurozone growth down to -0.3%
  • The OBR expects the UK to avoid recession in 2012.
  • The OBR has revised up UK economic growth from 0.7% to 0.8% for this year.
  • The growth forecast for 2013 has been revised down by 0.1% to 2%.
  • The Government's deficit reduction plan is on course.
  • "There will be no deficit-financed giveaways in this Budget."
  • Welfare is set to rise to consume one third of all Government spending.
  • London to become new offshore centre for trading Chinese currency.
  • There will also be significant investment in the medicines and drugs sector - £100m support for new research.
  • Public sector pay will be "more responsive" to local situations.

Help for Business

  • Corporation tax cut to 24% from next month. By 2014 it will fall to 22%.
  • Enhanced capital allowances for businesses setting up in new Scottish enterprise zones in Dundee, Irvine and Nigg. A Welsh enterprise zone to be created in Deeside.
  • Simplified tax system for small firms with a turnover of up to £77,000
  • Tax returns are to be simpler for three million firms
  • Government support for £150m  of tax increment financing to help councils promote development and an extra £270m  for the Growing Places fund.
  • Tax relief for the video games, animation and high-end television production sectors.
  • Government considering enterprise loans for young people to start their own business.
  • Relaxation of Sunday trading laws on eight Sundays during Olympics and Paralympics, starting July 22.
  • There will be a huge boost for investment in the North Sea, including a £3bn  new field allowance for large and deep fields to open up West of Shetland.
  • Tax evasion - anti-avoidance measures will increase Treasury revenues by £1bn
  • Plans to pass on low interest rates to small businesses through the National Loan Guarantee Scheme are confirmed.
  • Online gambling - a tax is to be introduced based on where the customer is, rather than where in the world the company is based.

Fuel, Cigarette and Alcohol Duties.

  • Duty on all tobacco products to rise by 5% above inflation from 18:00 today - the equivalent of 37p on a packet of cigarettes.
  • No change to existing plans on alcohol duty.
  • New duty on gaming machines at a standard rate of 20% and a lower rate for low-prize machines of 5% of net takings.
  • No change to existing plans on fuel duty. Vehicle excise duty to rise by inflation, but frozen for road hauliers.
  • Existing fair fuel stabiliser means above-inflation rises in fuel duty will return only if price of oil falls below £45  ($75) a barrel.

Other Taxes and Allowances.

  • Bank levy to be increased to 0.105% from January 2013 "to ensure that corporation tax cuts do not benefit the banks". The levy will raise £2.5bn  a year.
  • New cap on tax reliefs set at 25% of total income for anyone claiming more than £50,000  in a year, but no significant change to pensions relief

Borrowing

  • Borrowing this year to be £126bn - £1bn  less than forecast in the autumn. Forecast to fall to £21bn by 2016-17.
  • Consultation to be held on offering gilts - government bonds - with maturity terms of more than 50 years.

Jobs and Skills

  • OBR forecasts unemployment to peak this year at 8.7% before falling each year to 6.3% by 2016-17.
  • One million more jobs to be created in the economy over five years, OBR says.

Pensions.

  • Automatic review of state pension age to ensure it keeps pace with increasing lifespan.
  • New single-tier state pension for future pensioners to be set at about £140 and based on contributions.
  • There will be no change to pension tax relief for higher rate taxpayers.
  • The basic state pension will rise to £5.30 a week.
  • There will be an automatic review of the state pension age.


Families. 

  • Child benefit is to be withdrawn from families in which one parent earns more than £60,000 . Some 90% of families will retain their child benefit.
  • "All sections of society must make a contribution to dealing with the deficit."
  • "We've capped benefits, now it is right to cap tax reliefs too."
  • VAT exemptions to remain on food, clothes and books.
  • Some 20 million people are to receive a new tax statement outlining how their money is spent.
  • Pledging a far simpler tax system, Mr Osborne said one million low paid people have been taken out of tax. He said we want "a modern tax system for the modern world".

Transport and Infrastructure.

  • Extend electrification of the Transpennine route between Manchester and Sheffield. Further improvements to the lines between Manchester and Preston, and Manchester and Blackpool.
  • Funding for superfast broadband and wi-fi in the UK's 10 largest cities.

Property. 

  • Stamp duty on properties worth over £2m is going to increase to 7% from today.
  • Planning regulations are to be overhauled - a national framework will be published next week. "There will be a presumption in favour of sustainable development," he said.

Technology.

  • Mr Osborne wants the fastest broadband for 90% of the UK and the best technology infrastructure.
  • There will be a new fund for TV production and video games.
  • Mr Osborne wants to turn Britain into Europe's "digital centre".

Infrastructure.

  • Renewable energy is to play crucial part in the UK.
  • There is to be more investment in London transport.
  • Roads, railways, clean energy and broadband networks will be prioritised by the National Infrastructure Plan.

Defence.

  • The Government will give an extra £100m for Armed Forces housing and 100% relief on council tax for Armed Forces overseas.
  • The cost of operations in Afghanistan is £2.4bn lower than planned.

Public Sector

  • Government evidence to be published on the case for regional public sector pay.
  • Option for government departments to move to regional pay structures for civil servants when current freeze ends.

Energy

  • "Major package of tax changes" to boost oil and gas extraction in North Sea, along with £3bn new field allowance west of Shetland.


Mr Osborne concluded by saying: "This country borrowed its way into trouble, now it's going to earn its way out".

If you need any help and advice with any of the matters arising from the Budget, contact Lavinia Newman Stuart Coleman or Tonmoy Kumar now to discuss how ABDS can help bring their experience to these matters.

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