Budget 2013: Osborne bid to restart housing market
The Chancellor said he was presenting a Budget for an “aspiration nation”, even as growth forecasts were slashed and official forecasters warned that deficit reduction had “stalled”.
Giveaways included a penny off the price of a pint of beer and scrapping September’s planned 3p rise in fuel duty.
But the Chancellor put his strongest emphasis on measures to encourage home ownership, with a radical scheme for the government to underwrite mortgage lending to the tune of £130 billion.
The announcement immediately raised fears that Mr Osborne could start “a new housing bubble”, bringing the spectre of the bad debt which helped cause the 2008 economic crisis and ushered in the age of austerity.
In a further sign of a Chancellor running out of options, Mr Osborne gave the incoming Governor of the Bank of England, Mark Carney, sweeping new powers to do whatever is necessary to get the economy moving.
The Chancellor insisted the coalition government’s “tough decisions” had cut the deficit by a third and helped create 1.25 million new jobs in the private sector since the general election, while keeping interest rates at record lows.
He brought forward to 2014 a planned increase in income tax thresholds to £10,000, which Tory aides said meant everyone who paid the 10p tax rate under Labour will next year be taken out of the tax altogether.
But forecasts published by the Office for Budget Responsibility halved its prediction for GDP growth for this year from 1.2 per cent to 0.6 per cent and trimmed next year’s forecast from 2 per cent to 1.8 per cent.
And the independent body said that the decline in borrowing seen in the first years of the coalition government “now appears to have stalled”. Mr Osborne was forced to admit his key target of bringing debt down in line with spending had to be put back another year to 2017-18.
He had already postponed it 12 months from the original target which led to the markets downgrading the UK’s much-vaunted triple-A credit status.
Mr Osborne yesterday insisted that the UK would avoid a triple-dip recession and blamed the struggling eurozone and previous Labour government for the UK’s continued problems.
With his voice croaking to an unusually rowdy Commons for a Budget statement, he added: “I’m going to level with people about the difficult economic circumstances we still face and the hard decisions required to deal with them.”
In what appeared to be an aggressive plan to boost growth and create an “aspiration nation”, Mr Osborne also took another penny off corporation tax, bringing it down to 20p, the lowest level in the G20.
He announced a holiday in National Insurance contributions worth £900 million, mainly aimed at small and mediumsized companies.
Mr Osborne also set up a £3.5bn scheme in England to provide interest-free loans for anybody who wants to buy a new-build house worth up to £600,000, with £266m provided to the Scottish Government to set up a similar scheme.
The Help-to-Buy scheme, which has echoes of Margaret Thatcher’s Right-to-Buy initiative which boosted home ownership in the 1980s, will see the government offer loans to reduce the size of the deposit homebuyers need to raise.
As part of the scheme, the government will also offer to carry some of the risk of mortgages, guaranteeing up to £130bn in a move intended to encourage lending.
But in a sign that the Chancellor now has little room for manoeuvre, his Budget of net tax cuts was paid for by extra public spending cuts of £2.5bn.
It also emerged that Mr Osborne’s Liberal Democrat coalition partners have vetoed any further welfare cuts before 2015-16, limiting his opportunities for further savings before the next election.
The Chancellor insisted: “It is a Budget for a Britain that wants to be prosperous, solvent and free.”
His opponents were unmoved, with Labour leader Ed Miliband attacking the Chancellor’s measures to boost growth: “It’s a failing economic plan for the failing Chancellor,” he said.
“The Chancellor has failed the test of the British people – growth, living standards and hope – but he’s not just failed their tests, he has failed on his own as well.”
SNP Treasury spokesman Stewart Hosie branded the Budget “a timid and unimaginative response to the UK’s economic stagnation”.
On the key measure of underwriting mortgages, there was a warning from National Housing Federation chief executive David Orr. He said: “The danger is that if we don’t tackle the fact we’re still not building enough homes, we’ll just create another housing bubble that will continue to push house prices up and out of reach of the majority.”
Labour shadow chancellor Ed Balls added: “Unless you get the house-building market moving, there is a risk this starts to work in a perverse way.”
The Chancellor’s claims that his measures have hit the richest hardest were also met with scepticism. But business groups were pleased with the measures which have seen a simplification of the corporation tax system.
CBI director-general John Cridland said the extra cut will make the UK “one of the most internationally competitive locations in which to do business”.
The building sector also welcomed the Chancellor’s moves to boost the housing market, with trade body Homes for Scotland saying the measures were “likely to have a major positive impact”.
However, John Longworth, director-general of the British Chambers of Commerce, said: “While there is much to welcome … he and his colleagues should have gone further to support enterprise and growth, such as scrapping damaging increases in business rates.”
The budget in 60 seconds
• GROWTH forecast for 2013 halved to 0.6 per cent. Expected to be 1.8 per cent in 2014.
• UK predicted to avoid triple-dip recession.
• 1p cut in duty on a pint of beer. Rises for all other alcohol maintained.
• FUEL duty rise scrapped.
• PUBLIC sector pay cap of 1 per cent extended by one year.
• WHITEHALL budgets to be cut by 1 per cent.
• INFRASTRUCTURE plans to be boosted by £3 billion a year from 2015-16, a total of £15bn.
• NEW tax regime to promote early investment in shale gas
• CORPORATION tax to be cut by 1 per cent to 20 per cent in April 2015.
• HELP-to-Buy scheme for homeseekers.
• PACKAGE of measures on tax avoidance and evasion to bring in £3bn.
• ALLOWANCE will take first £2,000 off employer National Insurance bill.
• RISE in personal allowance brought forward to 2014.