Budget Statement 2012
21st March 2012
Chancellor of the Exchequer George Osborne pulled no punches when introducing his 2012 Budget, telling MPs: “This Budget rewards work. Britain is going to earn its way in the world – there is no other way to recovery.” This year, the Chancellor faced the challenge of trying to get Britain spending while also continuing to reduce the deficit. There were few surprises this year, with much of the Budget being widely reported in the media ahead of his statement to Parliament. As expected, there was a strong focus on simplifying the UK tax system – an issue the Chancellor raised in last year’s Budget – and cracking down on tax evasion.
Mr Osborne told MPs that his 2012 Budget “unashamedly” backed business and was “on the side of aspiration”. However, it was also about dealing with Britain’s record debt, vowing that the country would earn its way in the world with far-reaching tax reforms. This would mean that the wealthier would pay more tax, while the poorest would be taken out of the tax system altogether.
Referring to recent figures which showed that Britain now lagged behind countries such as Brazil in terms of economic growth, the Chancellor reiterated comments he made in last year’s Budget about ensuring the country is open for business to foreign businesses.
Mr Osborne revealed that the Office for Budget Responsibility (OBR) had slightly upgraded its growth forecast for Britain in 2012 to 0.8%. The OBR had originally given an estimate of 0.7% in November.
However, it has slightly downgraded its 2013 forecast from 2.1% to 2%. The economy is then expected to grow by 2.7% in 2014, with 3% growth predicted for both 2015 and 2016, as previously forecast.
It is also estimated that the Government will borrow £126 billion in 2012 (£1 billion less than was forecast last year) with total borrowing up to 2016/17 being £11 billion less than November’s forecast. Mr Osborne said the OBR had confirmed that the Government was on course to meet its target of eliminating the structural deficit by 2016/17.
The UK is expected to avoid a double-dip recession, despite the economy shrinking by 0.2% in the fourth quarter of last year, with positive growth predicted for the first quarter of this year.
UK inflation is expected to fall from 2.8% this year to 1.9% next year, Mr Osborne said.
The Chancellor confirmed that there would be no changes to existing plans for fuel duty, with petrol prices now at an all-time high. Last year, Mr Osborne revealed that the annual fuel duty escalator had been scrapped until 2015. This year, he confirmed that above inflation rises would only return if the price of oil fell below £45 per barrel on a sustained basis.
There were no changes to existing plans on alcohol duty, but tax on tobacco was increased by 5% from 6pm on 21 March 2012.
A new duty on gaming machines was introduced, with a standard rate of 20% and lower rate for low-prize machines at 5% of net takings. Mr Osborne said the current regime, levied on a ‘place of supply’ basis, allowed overseas operators to avoid it and resulted in much of the industry moving offshore. He said the new regime would be based on the place of consumption, rather than where a company is based.
Vehicle excise duty will rise by inflation, but will be frozen for road hauliers.
The tax-free personal allowance on income tax will be increased to £9,205 from April 2013, with the Chancellor noting that the Government was now within “touching distance” of its goal of a £10,000 allowance. This would make 24 million people £220 better off each year, he said.
One of the most contentious personal tax issues of recent years has been the 50p top rate of tax. Mr Osborne said the increase from 40p to 50p had, in fact, raised just £1 billion, rather than the £3 billion anticipated. Reducing the top rate of tax to 45p, Mr Osborne told MPs: “No Chancellor can justify a tax rate that damages our economy and raises next to nothing.”
However, around 300,000 more people will move into the higher rate tax band of 40% from 2013/14 when the threshold is reduced from £42,475 to £41,450.
Consultation into plans to merge income tax and National Insurance – first unveiled in last year’s Budget – will begin next month.
Personal tax statements will be sent to 20 million taxpayers from 2014, detailing what they have paid and how the money is being used.
Corporation tax will be cut to 24% from April 2012. The 2% reduction is double what was originally announced last year. The rate will fall to 22% by 2014.
The Government also plans to consult on proposals to simplify the tax system for smaller businesses. Under the plans, firms with a turnover of up to £77,000 will be taxed based on the cash that passes through their businesses, rather than having to spend time doing calculations designed for large companies.
Mr Osborne also announced a new tax relief for the video games, animation and high-end television production sectors.
The Government is also considering introducing enterprise loans for young people to help them start their own businesses, although no further details were revealed at this stage. It will also provide support for £150 million of tax increment financing to help councils promote development, as well as an extra £270 million for the Growing Places fund.
Turning his attention to the forthcoming London 2012 Olympics, Mr Osborne said Sunday trading laws would be relaxed on eight Sundays, starting from 22 July, during the Olympics and Paralympics.
For businesses in Scotland, enhanced capital allowances will be available for those setting up in new enterprise zones in Dundee, Irvine and Nigg, while a Welsh enterprise zone will be set up in Deeside.
Next year, the Government will introduce an ‘above the line’ research and development (R&D) tax credit. It will also double the Enterprise Management Incentive Scheme grant limit to £250,000.
Mr Osborne had previously vowed to get tough on those who avoid paying their fair share of tax and he certainly pulled no punches in his Budget speech, branding tax evasion “morally repugnant”.
As a result, the Government plans to consult on a new general anti-avoidance rule, which it will legislate for in next year’s Finance Bill.
Stamp duty avoidance is another issue which the Chancellor has been particularly vocal on. On or after the 22 March 2012, a new stamp duty rate of 7% will be levied on residential properties worth more than £2 million. For residential properties of the same value bought through companies, the rate will rise to 15%. Wealthy non-residents have not escaped Mr Osborne’s attention either, with capital gains tax being introduced on residential properties held by non-resident, non-natural persons.
In a move designed to stop unlimited use of tax reliefs, Mr Osborne announced measures which will see reliefs capped at 25% of the total income of anyone claiming more than £50,000 in a single year.
VAT loopholes and anomalies will be removed.
A new single-tier state pension set at around £140 will be introduced for future pensioners, based on contributions. The state pension age will be automatically reviewed to ensure it remains in line with increasing longevity.
Meanwhile, age-related allowances for pensioners will effectively be replaced with a single personal allowance for all. However, Mr Osborne said no pensioner would lose out in cash terms. Allowances for those already of pension age will be frozen.
Child benefit will be phased out when someone in a household earns more than £50,000, falling by 1% for every £100 earned over that amount. Those earning more than £60,000 will lose all their child benefit.
Homes, transport and infrastructure
Extra funding will be made available to help construction firms to build new homes.
Extensive work will be carried out to improve the Transpennine rail route between Manchester and Sheffield, while further improvements will be made to the lines from Manchester to Preston and from Manchester to Blackpool.
Funding will be made available for ‘ultra-fast’ broadband and wi-fi in 10 of the UK’s largest cities – Belfast, Birmingham, Bradford, Bristol, Cardiff, Edinburgh, Leeds, Manchester, Newcastle and London – with a further £50 million being made available for smaller cities.
A report on future airport development in the south east of England will be published in the summer, Mr Osborne said.
