Autumn Statement: How the Budget will affect Britain

A new three per cent surcharge ons tamp duty for buy to let property and second homes will be introduced. Picture: TSPL

Apprentices

A levy on companies to fund apprenticeships is being set at 0.5 per cent of an employer’s pay bill, the Chancellor announced.

The move, which will apply from April 2017, will raise £3 billion and eventually fund three million apprenticeships.

A £15,000 allowance for employers will mean that the levy will only be paid on employers’ pay bills over £3 million, so fewer than 2 per cent of UK employers will pay it, said George Osborne.

The levy applies to firms across the UK.

However, Scotland will receive a share of the cash raised based on the Barnett formula, the system which distributes cash to the devolved administrations across the UK.

The Scottish Government runs its own Modern Apprenticeship scheme, which takes on 25,000 people each year.

Public finances

George Osborne said the UK would be a country that “lives within its means” as he stuck by his target to move the public finances into surplus by 2020 and unveiled an upgraded growth forecast for the next two years.

Total spending will rise from £756 billion this year to £821bn by 2019-20, under the plans set out by Mr Osborne.

State spending is to hit 36.5 per cent, as a share of total output, in five years – down from 45 per cent in 2010 on capital investment.

The Chancellor said new independent forecasts from the Office for Budget Responsibility (OBR) showed the UK would narrowly beat its borrowing goal this year and move “out of the red and into the black” in 2019-20, with a slightly higher-than-expected £10.1bn surplus.

But he revealed that previous forecasts from the OBR given at the time of the Summer Budget in July have been revised up, helping him meet the target for borrowing in 2015-16. And while growth forecasts were maintained for 2015 at 2.4 per cent and nudged higher to 2.4 per cent in 2016 and 2.5 per cent in 2017, Mr Osborne said the outlook has been trimmed in 2019 and 2020. The OBR forecasts have delivered a £27bn boost to the public finances thanks to £8bn less of borrowing and higher tax receipts, according to Mr Osborne.

The Chancellor said borrowing would total £73.5bn this year, falling to £49.9bn, £24.8bn and £4.6bn in subsequent years, while debt was to be lower in 2015-16 than 2014-15 and to fall every year after that. He said that over the course of the Parliament the UK Government would borrow £8bn less than previously forecast while spending £12bn more. The latest forecasts have confounded many experts, who had predicted the Chancellor would have to push back his target to move into surplus.

The Institute of Directors said the Chancellor had been dealt a “remarkably strong hand” by the OBR.

Pensions

The UK Government said that the basic state pension will rise to £119.30 a week from April 2016, which is an increase of £3.35.

This will be the highest real-terms increase to the state pension for 15 years, the Chancellor said. The “triple lock” on pensions means that the state pension rises every year in line with wages, prices or 2.5 per cent – whichever is highest.

It will mean that someone on a full basic state pension will receive around £570 more a year in 2016-17 than if it had been uprated by average earnings growth alone over the past six years, the Government said. Alongside the increase in the basic state pension, George Osborne confirmed that the starting rate for the new, simplified single tier pension will be £155.65 for those reaching pensionable age from April 2016.

Meanwhile, Isa savings allowances will be frozen at their current levels next year.

Culture

The UK Government will explore the case for introducing a new tax relief for museums and galleries and will increase its funding in elite sport ahead of the next Olympics.

The Chancellor also announced it would fund £1.6 billion of capital investments in culture across the country by 2020/21.

Glasgow’s Burrell Collection stands to receive £5 million to go on tour.

Other attractions earmarked for support are the Factory Manchester which will receive Government investment of £78 million, plus £9 million per year in revenue funding. An investment of £2.5 million will be made in the Museum of Science and Industry in Manchester, £5 million for a new South Asia Gallery at Manchester Museum, £4 million in Birmingham Dance Hub and £500,000 towards plans to celebrate the 400th anniversary of the Mayflower in Plymouth in 2020. The government will also provide £150 million to provide new world-class museum storage facilities to replace Blythe House in London.

Tax credits

The Chancellor performed a major u-turn by abandoning his highly contentious plans to cut tax credits for millions of low paid workers.

George Osborne last month announced he would bring forward measures to ease the transition to the new system after intense pressure from within Conservative ranks as well as the opposition benches.

But he used yesterday’s Autumn Statement and Spending Review to reveal that he was dropping the £4.4 billion of planned cuts

altogether.

Mr Osborne insisted he would still be able to deliver £12 billion in welfare cuts over the next five years while balancing the books by the end of the Parliament.

Treasury officials said the cost of reversing the tax credits cuts was “more than off-set” by cuts to a “variety” of other benefits.

Oil and gas

The SNP’s independence plans have come under fire, with George Osborne saying that there would have been “catastrophic cuts” if Scotland have voted for independence last year.

Chancellor Mr Osborne made the claim after the independent Office for Budget Responsibility (OBR) warned North Sea oil revenues could fall to just £130 million this year.

The figures, revealed as the Chancellor made his Autumn Statement, said this compared to £2.2 billion in 2014-15 and just under £11bn four years ago.

With the OBR now predicting oil revenues to raise about £0.1bn for 2015-16 and the next three years, Mr Osborne said public services would have been severely cut in an independent Scotland.

Housing

A new 3 per cent surcharge on stamp duty for buy-to-let properties and second homes will be introduced from April 2016, raising almost £1 billion, the Chancellor said.

From April 2016, they will have to pay the 3 per cent surcharge on the stamp duty band for the property.

George Osborne said the new surcharge would raise £1bn extra for the Treasury by 2021.

The change will not apply in Scotland, but it may lead to suggestions there could be a surge in activity in the buy-to-let sector north of the Border.

The stamp duty surcharge will lift each band by 3 per cent. That means that for properties worth between £125,000 and £250,000, where the stamp duty is 2 per cent, buy-to-let landlords will pay 5 per cent.

HS2

Work on the HS2 high-speed railway linking the north of England to the south will now get underway after the Chancellor announced investment in major transport projects will rise by 50 per cent to £61 billion.

But there is still no commitment to extend the key strategic link north of the Border to Scotland. Mr Osborne said the hike was part of “the biggest increase in a generation” on road and rail projects.

The Scottish Government will enjoy a £1.9bn increase in capital funding for building schemes over the next four years as part of the measures unveiled yesterday.

The electrification of three major rail arteries – the Trans-Pennine in northern England, Midland Mainline in central England and Great Western route from London across south-west England to Wales – will go ahead.

Council Tax

The Spending Review creates a “social care precept” to give local authorities south of the Border who are responsible for social care the ability to raise new funding to spend exclusively on adult social care. The precept will work by giving local authorities the flexibility to raise council tax by up to two per cent above the existing threshold. If all local authorities use this to its maximum effect it could raise nearly £2 billion a year by 2019-20.

Local councils in England are to be encouraged to sell off millions of pounds’ worth of property – including shops, pubs and golf courses – to help plug gaps in funding for frontline services.

Changes introduced in the Autumn Statement will allow authorities to use 100 per cent of cash raised from such sales to fund services.

Government departments

The Chancellor said that on average, day-to-day spending for departments would fall by an average of 0.78 per cent a year compared to 2 per cent in the last parliament.

However, with health, schools, defence and overseas aid all protected, it meant big cuts for other Whitehall departments. Budgets in unprotected departments will by slashed by around one fifth over the coming years.

Better than expected financial predictions mean George Osborne has had to find £2 billion less than previously expected, according to Treasury officials.

But cuts for budgets that have not been ring-fenced amount to 19 per cent on average over the spending period, falling to 3.3 per cent once protected areas such as English schools and the health service, as well as overseas aid budgets, are factored in.

The Chancellor said the savings needed were “considerably smaller” in the latest spending round, with annual average cuts of 0.8 per cent compared to an average fall of 2 per cent over the last five years.

Mr Osborne announced that he was protecting the Foreign Office budget in real terms from 2015-16. Under one study – which does not factor in inflation predictions – the department is set to see a reduction of 41.2 per cent compared with 2014-15.

The Government will meet its commitments to spending 0.7 per cent of national income on international aid and 2 per cent on defence

Analysis of the plans, which examine the change in day-to-day spending from the final year of the last parliament to 2019-20, shows the Department for Communities and Local Government is hit hardest, with a 60.3 per cent fall in funding for local government and a 42.9 per cent fall south of the Border.

The Transport, Energy and Climate Change, Work and Pensions and Justice departments are all in line for cuts of more than 22 per cent over the period, the analysis shows.

Banks

A further £25 billion of Royal Bank of Scotland shares are being sold off as ministers accelerate their disposal of taxpayer stakes in high street banks.

The shares will be sold over the course of this Parliament, which ends in 2020, with a further £5.8bn of RBS shares to be sold in 2020-21. RBS and bank of Scotland owner Lloyds were saved from collapse by a Government bail-out during the financial crash of 2008. The move comes after the Chancellor fired the starting gun on returning RBS into private hands in August with a £2.1bn share sale, but faced criticism that the taxpayer has been left short-changed after making a £1bn loss. The Government also reiterated its plans to sell around £2bn worth of shares in Lloyds Banking Group to retail investors next spring and expects to sell a total of £7.5bn of Bradford & Bingley assets during this Parliament.

The Treasury sold £13bn of Northern Rock mortgages earlier this month.

Economy

The Chancellor said that while growth forecasts were maintained for 2015 at 2.4 per cent and nudged higher to 2.4 per cent in 2016 and 2.5 per cent in 2017, the outlook has been trimmed in 2019 and 2020.

George Osborne also revealed a surprise economic boost for Britain, saying new independent forecasts from the Office for Budget Responsibility (OBR) showed a £27 billion improvement for the public finances over the course of the parliament.

He said this was thanks to higher tax receipts and lower interest payments on the country’s debts and would mean the UK borrows £8 billion less over the parliament and can spend £12 billion on capital investments to “build the infrastructure our country needs”.

Britain’s growth outlook is also looking rosier, with the OBR forecasting that growth will be 2.4 per cent in 2016, rising to 2.5 per cent in 2017, up from previous predictions of 2.3 per cent and 2.4 per cent respectively. But growth is set to ease back to 2.4 per cent in 2018 before edging lower again to 2.3 per cent in 2019 and 2020 – this is less than the OBR’s July forecast for growth of 2.4 per cent in each of those years.

Mr Osborne also said the world growth outlook had worsened. The 2015 borrowing forecast is more than the £69.5bn target outlined in July, but Mr Osborne said the OBR has since revised its previous predictions to £74.1bn after a statistical change means housing association debt is now accounted for in overall UK public finances.

Borrowing is set to fall to £49.9bn in 2016-17, £24.8bn in 2017-18, £4.6bn in 2018-19, before reaching a £10.1bn surplus in 2019-20, remaining in the black in 20-21 with a £14.7bn surplus. This is better than the upwardly revised £8.5bn and £10bn previous forecasts from the OBR.

Britain’s growth outlook is also looking rosier, with the OBR forecasting that growth will be 2.4 per cent in 2016 rising to 2.5 per cent in 2017, up from previous predictions of 2.3 per cent and 2.4 per cent respectively.

Security

Britain’s armed police contingent is set to be boosted after forces were spared further spending cuts in the wake of the recent Paris terror attacks, Chancellor George Osborne has announced.

The beefed up counter-terror regime will include “enhanced intelligence coverage” in prisons, an improved ability to share biometrics data with partner countries, increased aviation security at airports, improved facilities for detecting threats at borders and a new National Digital Exploitation Service to analyse growing volumes of seized media for evidence and intelligence leads.

Security and intelligence agencies counter-terror operations are also set to be boosted, by £1.4 billion.

The Chancellor also announced a 30 per cent increase in the dedicated counter-terrorism budget. This will see £500 million invested to increase the capacity of the police to pursue terrorists, counter “poisonous ideologies” and ensure Britain is properly prepared in the event of an attack.

The Chancellor also ruled out any reductions in police budgets south of the Border in his spending review.

The Government says protecting overall police spending in real terms will mean an increase of £900 million in cash by 2019-20.

Additional funding will allow forces to adapt to changing crime threats and train more firearms officers to “ensure the country extends its capability to protect its citizens from terrorist threats”, officials said.

The announcement on policing numbers was for forces and services south of the Border, with justice devolved to Holyrood.

However, the Scottish Government will receive funding as part of its annual block grant as a consequence of the Chancellor’s decision.