How Treasury gave with one hand and took with other

Fuel duty

A PLANNED 3p-per-litre increase, timed for January, will now be cancelled, after pressure from motoring groups, who claimed the rise in duty would blow a huge hole in the budget of drivers up and down the country.

However, a 2p increase in duty due for next August will still go ahead.

The Treasury argues that, by then, fuel duty will have been frozen for 19 months. It also claims that, compared with plans put in place by the previous Labour government, fuel is now 10p per litre cheaper than it would have been had the fuel price “escalator” been allowed to rise.

By next summer, this will have saved the average Ford Focus driver £144 a year, the Treasury claimed yesterday.

The fuel duty decision was Mr Osborne’s most expensive, removing £375 million from his budget for next year, £975m the year after, and £825m the year after that.

Infrastructure

AN EXTRA £6.3 billion will be diverted into spending on capital programmes over the coming three years.

In addition to this, pension funds have been lined up to provide a further £20bn in private funding.

With other money also being produced, the statement envisages a further £30bn being spent over the coming years.

Big transport projects identified are all south of the Border, such as a new electrified Trans-Pennine route.

Scotland will be impacted, however. About£100 million will be provided to create up to ten “super-connected cities”, with super-fast broadband – Edinburgh is lined up as one of those cities.

Also, £50m will be supplied to improve the Caledonian Sleeper fleet to provide better on-train facilities and improve cross-Border services.

The cash is dependent on the Scottish Government paying a share of the funding. Scottish ministers said last night they “looked forward” to working with UK ministers on the plan.

Youth contract

ANNOUNCED last week, the government will spend nearly £1 billion over the next three years to part-pay the salaries of unemployed 18- to 24-year-olds taken on by a firm. As many as 160,000 people will be hired as a result, the government claims.

The plan will also apply in Scotland, where Scottish ministers have already pledged to fund more modern apprenticeships and offer school leavers the guarantee of a training or education place.

Early years

MORE cash will ensure that two year olds from the poorest 40 per cent of homes get 15 hours of free nursery care a week.

The government argues that spending money on early intervention, rather than on pushing families across “arbitrary” targets on poverty reduction, is the best way to improve life chances.

The move will cost the government more than £800 million over the coming three years, of which Scotland will get a share.

Rail fares

THE Chancellor decided that proposed increases in train fares of 3 per cent over the rate of inflation was “too much” when the cost of living is rising higher than at any time since the war.

So fare increases will instead be kept to 1 per cent over inflation. This will apply to inter city trains running to Scotland, but not to ScotRail services, whose prices are set by Transport Scotland.

The move will eat a further £350 million out of the Chancellor’s budget over the coming three years.

Tax credits

UNDER previous plans, the government was to increase the child element of the Child Tax Credit by £110 above the rate of inflation. It was also preparing to up-rate the couple and lone-parent element of the Working Tax Credit.

Both of these plans have now been scrapped. The Treasury argues that, in doing so, it has been able to pay the inflation-linked 5.2 per cent increase in unemployment benefits, due from April next year.

This has been under review, but it is understood the Lib Dems in the government were opposed to it being reduced.

On cutting tax credit uplifts, the government also says it would rather spend money getting more working people out of tax by raising personal threshold limits, instead of reducing their tax burden through tax credits – which was one of Gordon Brown’s most favoured policy levers.

The two policy decisions handed Mr Osborne his biggest saving yesterday, boosting Treasury coffers by £1.2 billion this year, £1.3bn next year and £1.2bn the year after that.

Pay restraint

WITH the current pay freeze about to run out in 2013, the Chancellor announced indicative plans for a 1 per cent public-sector pay rise for people for the two years after that.

He claimed the country “cannot afford” pay rises of 2 per cent.

While this does not apply across Scotland, the small-print of the Treasury statement yesterday states that, for councils and the Scottish Government “budgets will be adjusted on the assumption of comparable action being taken”.

Scottish ministers said last night they were seeking clarification on exactly how much their own budget may get cut.

Company pensions

THE TREASURY will seek to prevent companies which run pension contribution schemes from gaining any “excessive” tax relief in so doing.

The new measures come in immediately, and will boost the Chancellor’s coffers by £450 million a year, every year, in what represents one of the biggest clawbacks of cash to Whitehall announced yesterday.

Aid squeeze

THE government will continue to honour its commitment to pay 0.7 per cent of GDP in aid to the poorest parts of the world.

However, the Treasury revealed yesterday that this target was about to overshoot – largely because the expectation for GDP has shrunk with the worsening economic conditions. Consequently, the sums due to go to the Department for International Development have been cut, by around £1.2 billion over the next three years.

Bank levy

TO THE irritation of the banking sector, the banking levy will rise to 0.088 per cent from 1 January, in a move which will cream a further £300 million a year off the sector, ensuring it collects £2.5 billion a year for the Treasury.

The government believes the increase will not be so much that it persuades the big London-based banks to move en masse to other parts of the world with lower tax burdens.

And to sweeten the pill yesterday, the Chancellor repeated that the government will oppose the introduction of an EU-wide “Robin Hood tax” – or a levy on financial transactions.