BCC BUSINESS POLICY TEAM: EMERGENCY BUDGET, 22nd JUNE 2010    AT-A-GLANCE
 
ISSUEBUDGET OUTCOME
  
MACROECONOMY &PUBLIC SPENDING
Growth forecast

·         Office of Budget Responsibility to be formalised through legislation – formal forecasts to be made by them

·         GDP growth: 1.2% (2010/11); 2.3% (2011/12); 2.8% (2012/13)

·         Unemployment to peak later in 2010

·         Bank of England inflation target to remain at 2% (on CPI measure)

Deficit cutting plan

·         Structural current deficit should be in balance by 2015/16 – five years to reduce the deficit

·         Fixed target for debt: falling as a percentage share of GDP by 2015/16

·         OBR: on track to meet these goals in 2014/15 (end of current Parliament)

·         77% of cuts through spending reductions (£32bn pa by 2014/15), 23% through tax increases (£8bn pa by 2014/15)

·         Borrowing f’cast: £149bn (2010/11), £116bn (2011/12), £89bn (2012/13), £60bn (2013/14), £37bn (2014/15), £20bn (2015/16)·         Public sector net debt will peak at 70% of GDP in 2013/14, then fall thereafter.

Current spending

·         Additional current spending reductions of £30bn pa by 2014/15 - £22bn from departments, £11bn from welfare spending

·         Departmental expenditure: average real reduction of 25% over four years for all unprotected departments. NHS, overseas aid protected. Final settlements will be set in the Spending Review.

Capital investment(infrastructure)

·         No further reductions to capital spending above Labour plans – MAJOR WIN for BCC and Chamber lobbying

·         All projects to be reassessed; many assets to be sold off; Royal Mail part-privatisation

·         Regional Growth Fund to provide finance for regional capital projects – likely to be funded by diverting current RDA budgets. White Paper on Local Enterprise Partnerships this summer – BCC AND CHAMBERS TO FOLLOW CLOSELY.

Infrastructure

·         National Infrastructure Plan to be published in the autumn – WIN for BCC lobbying

·         Green Investment Bank to be created

·         Broadband will not be funded by fixed-line duty – support private broadband investment using TV licence fee

·         Regional transport projects – Tyne and Wear metro, Birmingham New Street Station, Manchester Metrolink, Midland Mainline Electrification; Manchester-Liverpool Electrification – WINS FOR CHAMBER LOBBYING

Regulation·         Major review of employment regulation announced – WIN for BCC lobbying
Banking

·         Extend enterprise finance guarantee scheme with additional £200m available before March 2011 – WIN for BCC

·         Further proposals on Access to Finance expected over the summer

Public sector pay and pensions

·         Two-year public sector pay freeze, except for those earning less than £21,000 per year – WIN for BCC (OUR POLICY WAS A TWO-YEAR FREEZE ON THE OVERALL PUBLIC SECTOR WAGE BILL)

·         Will Hutton to chair a commission on public-sector pay

·         Public-sector pensions: £10bn gap by 2014/15. Measures to be introduced in Budget 2011.

·         State pension age rise to 66 to be accelerated; consultation on abolition of Default Retirement Age

Benefits

·         From next year, benefits to be up-rated in line with CPI not RPI – savings of £6bn pa by 2014/15. Proposals by Budget 2011.

·         Tax credits: reduce payments to families earning over £40,000. Further restrictions on family, pensioner benefits

·         Child Benefit: frozen for the next three years. Housing Benefit reformed to improve incentives to work

TAX CHANGES 
Income Tax

·         Higher rates of income tax remain frozen until 2013/14 – MORE TO DO ON THIS

·         Personal allowance to increase by £1,000 from April 2011 for basic-rate taxpayers

Capital Gains Tax

·         Increases for higher-rate taxpayers goes up to 28% as of 23rd June 2010 – NOT AS PUNITIVE AS EXPECTED

·         All basic-rate taxpayers will continue to pay at 18%

·         Allowances will remain at £10,100 and will rise with inflation - POSITIVE·         10% Entrepreneurs’ Relief rate will now apply to first £5m of lifetime gains (up from £2m) - POSITIVE

·         No taper relief or indexation

Pensions

·         Basic state pension earnings link to be restored from April 2011

·         ‘Triple lock guarantee’ – rise in line with earnings, prices, or 2.5% per year·         Work on alternatives to proposed abolition of higher-rate pensions relief – but higher-rate taxpayers will still be hit.

VAT·         Standard rate of VAT to rise to 20% from 4th January 2011 – Date is a WIN (BCC LOBBIED FOR A 4TH JANUARY DATE FOR THE LAST VAT CHANGE)
IR 35·         Small business tax review announced
R+D Tax Credits·         Review of R+D tax credits, IP regime announced
Ins Premium Tax·         Will rise from 5% to 6%
National Insurance Contributions

·         Employer contributions: thresholds rise, taking out half the cost of the April 2011 NICs rise. PARTIAL WIN – COST OF NICs INCREASE TO BUSINESS SIGNIFICANTLY REDUCED

·         NICs holiday for start-ups outside Greater SE. £5000 exemption on employer NICs on each of first ten employees hired

Corporation Tax

·         Headline rate cut by 1% every year for the next four years starting in April 2011. Will go from 28pc to 24pc by 2014/15.

·         Small companies rate cut to 20% from April 2011 – WIN FOR BCC AND CHAMBER LOBBYING

·         Capital allowances cut from 20% to 18%; long-lived assets from 10% to 8% from April 2012 – PARTIAL WIN (ALLOWANCES REMAIN, NOT ABOLISHED COMPLETELY)

·         Annual investment allowance reduced to £25,000 from April 2012 – PARTIAL WIN (NOT LOST COMPLETELY)

Business Rates

·         Measures to cancel back-dated bills for port businesses – WIN FOR BCC AND CHAMBER LOBBYING

·         Businesses that have already paid back-dated bills must keep up the pressure to get their money back

Council Tax·         Government to work with councils to freeze council tax – though this requires councils to fund changes
Banking Levy·         Bank Levy from January 2011 – details to follow. Global Financial Activities Tax under exploration.
Fuel Duty·         No changes – investigating stabiliser further
Alcohol/Tobacco·         No changes. Cider tax abolished
Aviation·         Consultation on switch from per-passenger to per-plane duty
Tourism·         Furnished holiday lettings to continue to retain favourable tax treatment