So, as predicted, the Chancellor failed to hit the debt and deficit targets that were announced in the March Budget. At that time, the Office for Budget Responsibility (OBR) predicted growth for the current year of 0.8%. The latest forecast, as announced in this Autumn Statement, is that the UK will contract by 0.1%. As a result, the austerity measures are to be extended until 2018.
But, according to the Chancellor, that’s alright, because we’re on the right track, we’re making progress and we’re better than everyone else. This would seem to be the kind of illusion normally reserved for the likes of Dynamo and David Copperfield!
By any stretch of the imagination, things do not look good. The forecasts for the next five years have all been downgraded, the level of debt will be higher than previously predicted, but according to the Chancellor this is all because the situation inherited from the previous Government was worse than originally thought.
The pain is going to come through a capping of increases in various allowances and benefits to less than inflation. The higher rate threshold, working age benefits, child benefit, capital gains tax exemption and inheritance tax nil rate band will increase by 1% per year over the next two years. It is anticipated that this alone will generate over £17 billion in the next five years.
Pensions took another hit, with the lifetime limit reducing from £1.5m to £1.25m and the annual allowance falling from £50,000 to £40,000, from April 2014. According to the Chancellor, this only impacts on the top 1% of earners.
What about the good news? The personal allowance is to rise to £9,440 in April 2013, which is £235 higher than anticipated. As a result of this increase, someone on the minimum wage will have a tax bill that is half of that when the current Government came to power in 2010. This is certainly to be applauded and they are now incredibly close to the £10,000 that the Liberal Democrats insisted on as part of the coalition.
Other good news came in the form of a further reduction in the main corporation tax rate from April 2014 to 21%, just 1% higher than the small companies’ rate. Surely this leaves the Chancellor with just one more announcement to align the two rates.
The Annual Investment Allowance, which provides 100% relief for qualifying capital expenditure, is to be increased for two years from 1 January 2013, from £25,000 to £250,000. This had only just been reduced from £100,000 to £25,000 in April 2012, so you have to question whether there was a typing error that missed a 0 off previously!
More positive news came in the form of an extension in the period before empty buildings are subjected to rates, from the current three months to 18 months, to apply from October 2013. What impact that may have on new buildings yet to be completed between now and October remains to be seen.
Finally, the 3p per litre rise in fuel duty planned for January 2013 is to be scrapped. This was the Chancellor’s “rabbit out of the hat” moment, but was originally tabled by Labour.
Will the wizardry work? If the announcements can get the UK growing, increase confidence, reduce unemployment and reduce borrowing, it will surely raise the Chancellor to Harry Potter status!