THE size of the UK economy will finally return to its pre-crisis peak later this year, according to official forecasts revealed in the Budget.
The estimates for growth this year and next have been nudged up, but cut for 2017 and 2018, by the independent Office for Budget Responsibility (OBR), but it came alongside a sober warning from the Bank of England, pictured below, that Britain’s recovery still has “some way to go”.
The OBR delivered predictions of lower borrowing over the next few years, but Chancellor George Osborne admitted that the underlying structural deficit was falling no faster than previously forecast, despite higher growth.
Gross domestic product (GDP) is now expected to increase by 2.7 per cent this year, up from a previous prediction of 2.4 per cent. For 2015 it is expected at 2.3 per cent, up from 2.2 per cent. Latest GDP figures showed the economy remained 1.3 per cent below the level at which it peaked early in 2008.
But Mr Osborne said: “Later this year, the OBR expects the economy to reach the point where it was, finally larger than before it collapsed six years ago.”
However, growth in 2016 is expected at 2.6 per cent, as previously forecast, while in 2017 the figure has been cut from 2.7 per cent to 2.6 per cent, and for 2018 from 2.7 per cent to 2.5 per cent.
The Monetary Policy Committee (MPC) cautioned the recovery was still some way off becoming balanced and sustainable. It highlighted uncertainty among members over how much spare capacity there is in the economy. There are concerns on the MPC that high levels of self-employment in the UK are masking the real level of spare capacity.
Howard Archer, chief economist at IHS Global Insight, said the confusion over labour market slack could add to difficulties in interpreting the Bank’s new forward guidance.
“With the focus now on the amount of slack in the economy rather than just unemployment, we suspect that forward guidance is fuzzier and less easy for businesses and consumers to interpret,” he said.
OIL AND GAS
New allowances have been set out aimed at supporting investment in North Sea oil and gas.
It came as figures from the Office for Budget Responsibility (OBR) revealed that the expected revenues from the North Sea have been cut by £3.3 billion.
The government will consult on a much-needed investment in ultra-high-pressure high-temperature (u-HPHT) oil and gas field clusters.
There will also be a review of the fiscal regime for the UK Continental Shelf, while the new oil and gas body will be tasked with reporting at next year’s Budget on how exploration can be encouraged and decommissioning costs brought down.
The government says this could create and sustain 8,500 jobs and generate more than £6bn of capital investment.
Mr Osborne said the revised estimates for tax revenues was a reminder of “how precarious the budget of an independent Scotland would be” and claimed it would leave a budget shortfall of £1,000 for every Scot.
The Scottish Government has previously questioned the veracity of OBR oil and gas figures, and criticised the UK government for failing to create an oil fund.
Malcolm Webb, Chief Executive of Oil & Gas UK, said: “It is increasingly obvious that the offshore oil and gas fiscal regime has become overly complex, burdensome and uncompetitive.
“The industry faces marginal tax rates of 62-81 per cent on oil and gas production, which are unsustainable in a mature basin.
He added: “The announcement of the review is a very welcome first step which we hope will lead to a simpler regime, more attuned to the industry’s challenges and better able to secure international investment in the many, varied opportunities that remain.”
A NEW £2,000-a-year tax break for childcare will allow parents to choose to work longer hours. It is to come into effect in autumn 2015 in England and will help around 1.9 million families where both parents work.
The package has been welcomed by charities. But it has come under fire from some quarters for excluding couples where one parent does not work, along with being made available to high-earning households with a joint income of as much as £300,000.
Parents will also have access to a full year’s worth of credit to help pay for costs up front, instead of collecting cash monthly. A further £50 million for three- and four-year-olds from poor families will provide up to 85 per cent of childcare costs.
The scheme will not automatically be extended to Scotland. The Barnett funding formula will mean Edinburgh will be handed £5m, but Scottish ministers are yet to determine how the cash will be spent, and are free to use it in any area.
As A result of Budget spending decisions, the Scottish Government will receive positive Barnett consequentials of over £63 million.
This means since the Spending Review 2010, the UK government will have increased Scottish Government budgets by £2.2 billion.
The UK government is in detailed discussions with Glasgow to develop a City Deal to drive employment and economic development across the city region.
A ring-fenced grant of up to £255,000 will be provided to ensure residents in Blanefield, Stirlingshire, will not bear the clean-up costs of historic contaminated land in their area.
The government will contribute £100,000 to the Lockerbie-Syracuse Trust, supporting the scholarship programme.
The Finance Bill will confirm that the relevant income of non-UK resident competitors from the Glasgow Grand Prix, a major athletics event prior to the Commonwealth Games, will be exempt from tax.
A PACKAGE of measures to help boost British manufacturing with a “radical reduction” in energy costs has been backed by business
The Chancellor pledged it would result in savings of up to £7 billion by 2018-19 for industry as well as households.
The move will particularly benefit the most energy-intensive manufacturers, around 80 per cent of which are based in the North of England, Scotland and Wales.
Measures will include capping the carbon price floor (CPF), which sets amounts for the carbon tax paid by electricity generators. The government said it was committed to the CPF to stimulate investment in low carbon infrastructure, but will cap the support rate at £18 from 2016-17 to 2019-20 to limit any competitive disadvantage faced by British firms.
The move could save businesses up to £4bn by 2018-19 and a further £1.5bn in 2018-19, while shaving £15 off a typical household energy bill.
Compensation for energy-intensive users for the cost of the CPF and EU emissions trading system will be extended to 2019-20, while a new compensation scheme will be launched. The government said a typical energy intensive business in Britain pays almost 50 per cent more for their electricity than they do in France.
A CBI spokesman said it had pushed for “this significant and much-needed energy package that will help keep manufacturing jobs in the UK, while underpinning vital investment in new energy”.
“Our energy-intensive industries are crucial to building a low-carbon economy and it’s right the government is taking action to mitigate the cost for these firms. .”
Renewable Energy Association chief executive Dr Nina Skorupska said: “By freezing the carbon price
floor, the Chancellor is rowing back on his own policy and once again moving the goalposts for investors in green energy.”
WELFARE is to be capped at £119.5 billion for 2015-16, Chancellor George Osborne has announced.
The basic state pension and some unemployment benefits will be excluded from the cap.
The limit on total welfare spending will be set by the Chancellor at the beginning of each parliament. If the limit is breached, the Chancellor will have to explain why, and a vote would be held in parliament.
“Britain should always be proud of having a welfare system that helps those most in need,” Mr Osborne said.
“But never again should we allow its costs to spiral out of control and its incentives to become so distorted that it pays not to work.”
Pension credits, severe disablement allowance, incapacity benefits, child benefit, maternity and paternity pay and universal credit will all be within the scope of the cap.
Housing benefit will also be capped as will spending on the Employment and Support Allowance, but not spending on Jobseeker’s Allowance.
The £119.5bn cap will rise, in line with forecast inflation, to £126.7bn in 2018-19.
“In future, any government that wants to spend more on benefits will have to be honest with the public about the costs, need the approval of parliament, and will be held to account by this permanent cap on welfare,” Mr Osborne added.
But John Dickie of the Child Poverty Action group in Scotland said it will mean “extraordinary cuts” to the benefits system.
“This is essentially rationing the most basic resources that children, families, working families and the disabled rely on.
“These are levers for tackling poverty which are among the most powerful that the UK government has, so to constrain what you are able to do with social security policy is a real blow for the chances of meeting poverty targets.”
Duty on Scotch whisky has been frozen, while drinkers will also enjoy a 1p cut in beer tax.
Cider firms will also see a duty freeze, while the unpopular alcohol duty escalator is being ditched.
The Chancellor singled out the whisky industry for praise during his Budget address at Westminster. “To support that industry, instead of raising duties on Scotch whisky and other spirits, I’m today going to freeze them,” he said.
He also scrapped Labour’s alcohol duty escalator, a move welcomed by the industry but described by health campaigners as a backward step.
The Scotch Whisky Association (SWA) said the freeze means planned increases, which would have added 4.8 per cent in excise duty, will now not go ahead.
David Frost, SWA chief executive, said: “This show of support for distillers will be warmly welcomed across the Scotch whisky industry.
“We are delighted that the Chancellor and the chief secretary to the Treasury listened to our case for scrapping the unfair alcohol duty escalator and freezing whisky duty. It is a move that supports hard-pressed consumers, a major manufacturing and export industry and the wider hospitality sector.”
Scottish Conservative leader Ruth Davidson had been among those pushing for the whisky tax freeze.
The Scottish Government plans to set a 50p floor price per unit, but the policy is in a court battle with the SWA.
But the end of the alcohol duty escalator met with a frosty reception from campaign groups. Dr Peter Rice, chairman of Scottish Health Action on Alcohol Problems, said: “Scottish politicians have made some ground-breaking policy to reduce alcohol-related harm. It is disappointing to see that some of them appear to have supported this backward step.”
The world of pension savings will “be turned upside down” by a radical programme of measures unveiled in the Budget, experts said yesterday.
Mr Osborne said people would be “trusted” with far more control over their pension pots, and no longer obliged to buy an annuity at low rates.
Those approaching retirement will get free financial advice, and they will be able to draw down as much of their defined contribution fund as they want, even if they are in line for relatively small incomes.
Instead of being hit with punitive 55 per cent tax on sums they extract from funds, they will instead pay normal tax rates.
“What I am proposing is the most far-reaching reform to the taxation of pensions since the regime was introduced in 1921,” Mr Osborne said.
“People who have worked hard and saved hard all their lives, and done the right thing, should be trusted with their own
A new state-backed Pensioner Bond will also be launched to help people who have suffered low returns since interest rates were slashed to keep the wider economy afloat. Up to £10 billion of the bonds will be issued, with individuals able to save up to £10,000 with interest likely to be 2.8 per cent on the one-year version and 4 per cent if they lock in for three years.
Donald Fleming, pensions partner at KPMG Scotland, said: “The Budget turns the world of pension savings upside down. With almost unrestricted access to pension pots in future, this will radically affect the way today’s workforce saves for tomorrow. From limited choices, individuals now have greater flexibility to decide how they save for the future, but with more decisions to be made, comes more responsibility and greater risk.”
Radical measures to ease the plight of hard-pressed savers were among the key announcements.
Interest rates have been anchored at a record low in recent years to help mortgage payers, but the Chancellor unveiled big changes to the tax-free Isa savings scheme.
The cash and stocks elements of Isas will be merged into a larger tax-free vehicle, with savers now allowed to stash up to £15,000 – up from the current level of £5,000 – in whatever form they want.
The cap on Premium Bonds will also be lifted from £30,000 to £40,000 in June, and to £50,000 next year.
In a final flourish, the Chancellor declared that the 10p starting rate for income from savings would be abolished.
“It is complex to levy and it penalises low-income savers,” he said. “We will almost double this zero-pence band to cover £5,000 of saving income.”
One-and-a-half million low-income savers of all ages are expected to benefit. Sean McCann, personal finance specialist at NFU Mutual said: “Isa independence day will be celebrated by savers and investors on 1 July as the restrictions on how much can be saved in cash Isas and transferred between stocks and shares to cash will be lifted.
“The dramatic increase to £15,000 in the total amount that can be saved or invested in each tax year is very welcome too.”
David Nicol, chief executive of Brewin Dolphin, said: “We have long campaigned against the iniquities of the annuity market and so we are delighted to see savers freed from those restrictions.”
He added: “The increased Isa allowance and the new flexibility for Isas is significant too for our clients and the industry – we have nearly £5 billion in Isas out of our £28bn funds under management and this figure will likely increase again next year.
“This is welcome commitment from the government that Isas too are a core long term savings vehicle for UK citizens.”
THE level at which working people start paying income tax rises to £10,500 from the current level of £10,000. This has been going up gradually since the coalition came to power, when it stood at £6,475.
The threshold for the 40p income tax is to rise below the inflation rate from £41,450 to £41,865 next month and by a further 1 per cent to £42,285 next year. The uplift in the personal allowance was in line with expectations, despite speculation that the Chancellor could go further. It will take an estimated 25,000 low earners in Scotland out of income tax altogether as 2.2 million people see an average real terms gain of £62. Overall, this government’s personal allowance increases will have lifted 263,000 people out of the income tax system, with 2.3 million people in Scotland benefitting from changes since 2010.
While expensive, the rise in the personal allowance has been justified on the basis that it helps the low-paid. But as wages are frozen, some commentators say this is increasingly not the case. Someone earning £8,000 a year, for example, gets no benefit, as they are paying no income tax. The Institute for Fiscal Studies says one in six workers is in this situation.
But the measure won a surprise welcome on the Opposition benches yesterday. Scottish Labour’s Tom Harris, the Glasgow South MP, said: “The raising of the tax threshold to £10,500, I know, is not a policy supported by my own front-bench and that’s a matter of regret for me. It’s a policy I’ve supported for some time, because I do think the lowest paid should be taken out of tax altogether.
“One of the arguments against raising the bottom of the threshold is that it also has a benefit for people higher up the income scale. Well, actually, I support it not despite its tax-cutting effect on the better-off, but actually because of it.”