THE key message from this year’s Budget was that growth is improving better than expected at 2.7 per cent for 2014-15. This leads to an improvement in tax income and VAT and income tax revenues are both predicted to grow by 7.7 per cent. Overall income is predicted to improve by 5.8 per cent, whereas spending is only up by 1.6 per cent.
This still leaves us with a Budget deficit of £95.5bn next year, which means that for every £100 the government gets in income, it spends £113.
THE key message from this year’s Budget was that growth is improving better than expected at 2.7 per cent for 2014-15. This leads to an improvement in tax income and VAT and income tax revenues are both predicted to grow by 7.7 per cent. Overall income is predicted to improve by 5.8 per cent, whereas spending is only up by 1.6 per cent.
This still leaves us with a Budget deficit of £95.5bn next year, which means that for every £100 the government gets in income, it spends £113. The predictions are that by 2019 we will have eradicated the deficit and be running at a surplus.
Government policy over the next few years appears to be to stimulate growth in order to improve its revenues, while maintaining strict control over its spending. Tax revenues can be increased through tax policy, economic growth, or increased personal spending.
There has been very little substantive change in tax policy but quite a few measures to stimulate growth:
– Annual Investment Allowances of 100 per cent on capital purchases for businesses is to be extended to £500k (from £250k) pa
– The Help to Buy property lending scheme has been extended to 2020 (from 2016)
– £500m of finance is to be provided to small housebuilders
– An extension of discounts and enhanced capital allowances in enterprise zones for a further three years
– An additional £1.5bn of finance to be provided to exporters, along with a one third reduction of interest rates
– Under 21s removed from employers NI contributions
These measures are intended to stimulate growth, but the Opposition point out that that the average person is still suffering from falling living standards. People don’t have the cash to spend. The Office for Budget Responsibility (OBR) has warned that recovery could falter if labour productivity and wage growth do not improve. The growth needs to translate into pay increases.
Rising salaries are needed to support consumer spending and help drive growth.
The OBR predicts that average earnings will start to outstrip inflation later this year, but also that household debt will soon return to pre-crisis levels.
Alongside some of these measures to improve growth, there are several very positive measures to continue pension reform. There are improvements in tax breaks for childcare and the scrapping of planned fuel duty rises.
From a leisure point of view, flights to the Caribbean will be cheaper, bingo duty is halved, duty on beer is a whole penny less but cigarettes continue to be hit. The big winners are theatre productions with tax breaks worth £15m a year.
In response to the Budget, Ed Miliband said it was a Tory con, giving with one hand and taking much more with the other. I think we can all see the irony of that comment.
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