Autumn Statement: We mustn’t squander gains, says Chancellor

BRITAIN’S economic plan for recovery is working but the job is still not done and the UK must not squander the gains it has made so far – that was the message delivered by Chancellor George Osborne in today’s Autumn Statement.

Improvements to productivity and an increase in skills levels, especially in young people are still needed if the recovery is to be sustained, he told the Commons.

Based on predictions from the Office for Budget Responsibility he outlined how growth would increase, unemployment would fall and help with the cost of living would be provided for hard-working families.

He began by saying a reassessment of the economic crisis had shown £112bn being wiped off the value of the British economy – far worse than originally thought.

However, austerity measures backed by prudent housekeeping was helping to redress deficit levels.

This has been reflected by growth estimates doubling to 1.4% during the current year. Future estimates show growth rising from 1.8% to 2.4% next year with faster growth over the following years, up to 2.7% over the forecast period.

The British economy is currently rising faster than any other major advanced economy in the world, including the US, France and Germany, said the Chancellor.

However, he said there were continuing weakness with their economies and declines in the Eurozone were continuing to impact British exports, said Mr Osborne.

He said our exports were growing but not as fast as the country needed. He said the UK was still too dependent on traditional markets and exporters needed to target the emerging markets for growth.
 
To help with this he said export finance capacity to support British business was being doubled to £50bn.
 
On employment, he said an additional 400,000 jobs were expected to be created this year. The rate of unemployment is expected to drop from its current 7.6% (UK average) to 7% in 2015 and 5.6% in 2018.
 
He said the encouraging thing was the private sector was creating three jobs for every one lost in public sector and this meant 3.1m more jobs would be created by 2019, more than offsetting public sector job losses.
 
Borrowing levels have fallen to £111bn this year and this pattern will continue, said the Chancellor, dipping by £96bn, £79bn, £51 and £23bn over subsequent years. This means borrowing levels will be £73bn lower than forecast in March. However, Mr Osborne said  reductions in deficit would have to continue in order for this to be sustained.

He said the Government did not intend there to be any let up in dealing with debts and therefore outlined three new steps to “sound finances” and would “fix the roof while the sun is shining”.

The Chancellor said he intended to bring forward an updated charter for Budget Responsibility, cap overall welfare spending to bring benefit bills down – while preserving the state pension – and continue to trim Government departmental spending by £1bn for each of the next two years.

He confirmed proposals released in the National Infrastructure Plan but said if the country was serious about competing with the rest of the world then more needed to be done.

As part of this there is a plan to build more homes and he said to counteract a shortage of housing £1bn of loans would be released to unlock housing schemes in places such as Leeds and Manchester.

To improve skills levels he said the Government would fund employers directly through HMRC and create an additional 20,000 higher apprentices over the next two years. Loans to support 50,000 more start-up businesses will also be implemented, said Mr Osborne.

In addition, to encourage more learning, 30,000 more student places are being created and this will be followed in 2015 with the abolition of student capping levels.

Mr Osborne said it would be “economic madness” to pursue increases to corporation tax and besides, he claimed evidence had shown cuts to CT had increased investment and raised productivity.

Business rate relief is being extended for another year and he said he would relax rules to dissuade firms from opening new premises. He also capped business rates at 2% from next April and said that for greater flexibility, firms would be able to pay these in 12 monthly instalments.

For local retailers facing competition from the internet and in a bid to help the recovery of the High Street, Mr Osborne announced new re-occupation relief for new shop tenants which will see a halving of their rates bills.

Also, for the next two years every retailer with rateable up to £50,000 will get a discount of £1,000 on their business rates.

To help ease the cost of living, Mr Osborne confirmed plans to trim energy bills by £50 and reiterated that next year’s fuel duty increase would also be scrapped.

Also, from April 2015 a new married couple tax relief system will be introduced, which is expected to benefit more than 4m families.

TheBusinessDesk.com’s coverage of the Autumn Statement is brought to in conjunction with EY.

Commenting on the Chancellor’s speech, Graeme Crawford, EY’s head of Midlands tax, said:  “Today’s raid on the pockets of overseas private landlords will align this area of the UK’s tax system with many other jurisdictions, including the US and many of our European neighbours.

“But it will nevertheless send shivers down the spine of institutional investors.

“It will be important for the UK’s competitiveness that such overseas investors realise that this is a targeted measure and not the first stage of a cash grab by HM Treasury.”

The Chancellor has also announced changes to the Principal Private Residence exemption which exempts gains on an individual’s only or main home from capital gains tax.
 
Mr Crawford said: “At present, if an individual has occupied a property as his only or main home at any time, that property is treated as his main home for the final 36 months of ownership – regardless of if he lives there or owns another property. 

“The Chancellor has halved this exemption so that it will only apply to the final 18 months of ownership.

“The change will increase some individuals’ exposure to capital gains tax such as where there is a delay in selling a property. It is a modest measure which indicates further creep into taxing the residential sector.”

On another of the Chancellor’s announcements, Mr Crawford said: “By spending over £1bn next year on business rates, the Chancellor has shown that he has been listening to the pain felt by businesses through a system that has its origins in the Poor Laws of 1601 and was updated in 1990 alongside the introduction of the poll tax.

“By capping the increase next year at 2%, as well as extending small business relief and introducing a measure targeted at lower rated retail properties, the Government has reduced the immediate burden.

“However, the commitment to a review for change in 2017 is arguably as important for driving growth for businesses in the UK – getting the system to be one that drives entrepreneurship, and investment, rather than a being millstone that constrains business.

“The announcement focuses on options for longer-term administrative reform and many will be arguing that review needs to be both accelerated and more fundamental.”