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News : UK Economy Last Updated: Dec 5, 2013 - 4:20 PM


Osborne says UK economic plan working
By Finfacts Team
Dec 5, 2013 - 4:18 PM

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George Osborne, UK chancellor of the exchequer, today forecast that Britain will run a budget surplus by 2018 for the first time this century as he declared in his Autumn Statement that “Britain’s economic plan is working.” The chancellor also highlighted that the job was not yet done and promised more “difficult decisions” to repair the public finances.

The Office for Budget Responsibility, the official forecaster, raised its growth forecast for this year from 0.6% to 1.4%, and for next year from 1.8% to 2.4%. It also revised the following three years to 2.2%, 2.6% and 2.7% in 2017.

"For all his complacent boasts, for three damaging and wasted years, for most people there is no recovery at all," said Ed Balls, shadow chancellor.

Osborne announced plans for the pension age to "keep track with life expectancy" to save future taxpayers £500bn.

The date when the state pension age rises to 68 will be brought forward to the mid-2030s  -- it had not been due to kick in until 2046 - - and the age could rise to 69 by the late 2040s.

An extra £1bn of cuts will apply to the budgets of government departments for each of the next three years

The chancellor said borrowing will fall more than forecast and employment forecasts were revised up while employer national insurance contributions for under-21s earning less than £42,285 will scrapped from April 2015.

Tax breaks will be introduced  to encourage "fracking" for gas and a cap on total government welfare spending will start in 2015

Autumn statement

David McNamara, economist at Davy, commented: "Today’s Autumn Budget Statement revealed very little in terms of new fiscal measures. The announcements were broadly neutral. Although public sector net borrowing is expected to be £21bn lower through 2013 and 2014, Chancellor George Osborne chose to bank the bulk of this improvement rather than fund any major budget giveaways.

"The Office for Budgetary Responsibility’s (OBR) new projections are for 1.4% GDP growth in 2013 and 2.4% in 2015. This means public sector borrowing is expected to be £21bn lower through 2013 and 2014 than predicted in March. Public sector borrowing is expected to equal 6.8% of GDP in 2013 and 5.6% in 2014. Public sector net debt is expected to be 75.5% of GDP in 2013 and 78.3% in 2014. The government plans to run a cyclically-adjusted surplus by 2016/2017. Net debt (as a percentage of GDP) will begin to fall a year earlier than expected, also in 2016/2017.

"These improvements have allowed the chancellor some wiggle room to fund some small tax cuts and a further increase in capital expenditure. In the main, however, Osborne chose to bank these savings. The budget announcements were broadly neutral – consistent with the OBR’s view that the improvements in the deficit are due to cyclical factors.

"The chancellor did announce some spending increases worth £1.9bn through 2013-2014. In addition to the well-flagged green tax cuts on energy bills (saving households £50 per annum), the chancellor scrapped the planned fuel duty rise in 2014. Other measures included a cap on business rates and tax breaks for shale gas exploration. Capital expenditure will be €1bn higher than planned in 2014 and 2015.

"These giveaways were largely funded by additional cuts to current expenditure. An extra £1bn of cuts from departmental budgets for each of the next three years will now be implemented. The now annual 'tax evasion crackdown' is expected to yield further savings. Similarly, the end of the capital gains exemption on property purchases for foreigners from 2015 will also help revenues.

The bottom line from today's statement is 'steady as she goes'. The chancellor is largely sticking to his plan in maintaining fiscal discipline in the near term despite significantly lower borrowing in the hope that higher growth may allow him to fund tax cuts in 2015 ahead of the general election."

John Cridland, CBI director-general, said: “We have always advocated the dual approach of tackling the deficit and driving growth – the OBR forecasts confirm it is working. Let’s stick with what works.

“The pressure on the high street has been recognised; the 2% cap on business rates and discount for very small businesses are positive, as is the reoccupation relief.

“Abolishing a jobs tax on employing young people under 21 will make a real difference and help tackle the scourge of youth unemployment.

“But it was a missed opportunity not to support our hard-pressed energy intensive businesses which are also struggling with rising costs, and the package on housing supply could have been more ambitious.

“As we enter the festive season, positive news on growth is clearly welcome but much remains to be done if the benefits of economic recovery are to reach every home in every corner of the UK.”

On business rates,  Cridland said:

“Alongside the positive measures to help the high street, including the 2% cap on rates, empty property incentive and £1,000 boost for smaller retailers, we need to see a review of the outmoded business rates system.”

On supporting young people,  Cridland said:

"Reducing the cost of employing 18-20 year olds will help more young people find jobs when it comes into force in 2015. Job centres will have an important role to play and will need to work more effectively with businesses to ensure young people get the right advice.”

On energy,  Cridland said:

“The cost of energy is affecting the competitiveness of our energy intensive firms which support jobs and growth, so it’s disappointing this wasn’t addressed.

“Businesses will now be looking for government action in the Budget and this has to include looking at the impact of the Carbon Price Floor. Shale gas will play a role in delivering a balanced energy mix, but we need action on all fronts to keep costs down and secure our future supply.” 

On supporting growing businesses,  Cridland said:

"Plugging the gap in export finance is essential to growing exports and the economy. UK Export Finance is raising its game and offering growing businesses a stronger, wider range of products. We now need to see a renewed focus on supporting our medium-sized businesses, the unsung heroes of our economy, as they try to crack new markets.

“We have been calling for the Government to look at securitisation of SME loans, so we’re pleased they’ve listened. Commitments to review ways to enhance equity finance and retail bonds in the UK are also welcome.”

On universities and skills,  Cridland said:

"Funding apprenticeships through the tax system will mean they are more responsive to the needs of businesses. The system also must work for smaller firms.

“Abolishing the cap on higher education places will help more companies and universities work together to deliver business-relevant courses, and additional support for science, technology, engineering and maths is particularly welcome.”

On housing and infrastructure,  Cridland said:

“House building is critical to a sustainable recovery so the OBR’s concerns about weakness in supply must be addressed. £1 billion of loans to unblock large housing developments is good news, while more lenders getting involved in Help to Buy will benefit people trying to get on the housing ladder. But the Government still needs to do more to free up public sector land for development to build more homes.

“This week’s national infrastructure plan gave us more detail on the timescales and financing of projects, but it still feels like a very long and hopeful Christmas list, rather than a true set of priorities.”

Responding to today’s announcement that the Government will include REITs within the definition of ‘institutional investor’ from 1 April 2014, Ion Fletcher, director of finance at the British Property Federation, said: “We are very pleased that the government has decided to support our request to include REITs in the definition of institutional investors. We believe that this will increase the attractiveness of UK investment property by making it easier for REITs to raise funds through joint ventures and co-investment arrangements. By allowing overseas REITs to take significant interests in UK REITs, the decision will ultimately increase the availability of capital to the UK market and at the same time promote the transfer of expertise, with widespread benefits for the whole industry.”

George Osborne’s 2013 Autumn Statement should serve as the “ultimate reality check” that funding our retirements is now a personal responsibility, says the chief executive of one of the world’s largest independent financial advisory organisations.

The comments from Nigel Green, founder and CEO of deVere Group, come as the chancellor confirmed to parliament that the state pension age is set to rise to 70 after 2050. It will increase to 68 by the mid 2030s and 69 by the late 2040s, with the age increasing again after that. These modifications will mean that someone aged 40 today will be working until they reach 68 and someone aged 30 will retire at 69. The measures, says the government, reflects increased life expectancy.

Mr Green observes: “The world has changed in recent years and individuals must realise that they need to change with it to help avoid the possibility of a financially unstable retirement.

“Considering the ageing population, and all the associated issues that presents, it is simply unrealistic for those under the age of 40 to think that when they reach retirement age the state will be able to financially support them in the same way, or to the same extent, that it has done for previous generations.

“The Autumn Statement is the ultimate reality check for today’s working population who are putting off saving for their retirements. The message should ring loud and clear: you will have to wait longer to receive a state pension, and the amount that you receive is unlikely to be enough to fund the retirement to which you aspire.

“Mr Osborne has made it clearer than ever that retirement planning is increasingly becoming a personal responsibility and a failure or a delay in doing so will put you at risk of a financially insecure future.

“The time to act is now. Remember, for most people, there are only 120 paydays in a decade.”

He concludes: “Government policy must be designed to encourage a shift in attitudes towards pension savings.

“Understandably, establishing a career, homeownership, and raising a family are top priorities for younger people. But with a considered generational perspective, the implementation of ways to boost financial capabilities, plus relevant and compelling communication, retirement planning can go from being an alien or distant concept to an integral part of more people’s financial strategies. This would, without doubt, provide the next generation of retirees with the best opportunity to enjoy the retirement they desire.”

Simon Tivey of PwC said: "The new 50% "reoccupation" relief for small businesses on the high street could reduce the number of vacant shops but has the potential to be unfair to existing businesses who may struggle to pay full rates. Unless it's managed properly, unintended consequences are inevitable, with small businesses just moving shops to take advantage of the relief, creating a merry go round of rate relief relocations.

"Consultation will no doubt be required and local councils will look carefully at how this new relief interacts with charity shop relief of 80%, wary it will lead to a proliferation of charity shops.

"The facility to pay rates by 12 monthly installments instead of 10 is welcome but has always been available on a discretionary basis and has been operated by forward-thinking councils for years.

"The new discount of £1,000 off bills for ratable values under £50,000 is effectively an across the board £2,000 ratable value reduction targeted at retail in the high street and will be a small help.

"The "announcement" that small business rate relief will continue is, in reality, only maintenance of the status quo. The so-called extension and enhancement of this scheme has now gone on for so long that it's embedded in the rating system. Small businesses rely on it and it would be very difficult to withdraw, economically and politically.

"However, the relaxation of rules on small businesses opening up in additional premises is welcome as this will interact well with the 50% reoccupation relief. Those small business that are dynamic and looking to expand have been artificially held back by the steep cut off point of small business relief, but this could now be a real driver in the high street and local economies generally. This could be a real fillip for those regions where the economic downturn and deprivation is very apparent on the high street.

"For larger and corporate business, these changes are not going to make any significant difference to the rates burden they face. The underlying issue is that business rates have increased relentlessly since 1990, when the multiplier was under 35%, to a level of 50% in London in 2014.

"The government collects £26bn annually from business rates. Building flexibility into the tax system at every point is neither desirable nor practical from the Government's point of view, but radical change in the structures underpinning business rates are long overdue. The chancellor has hinted at root and branch reform to coincide with the 2017 revaluation."

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