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Budget Preview 2013

Ahead of the 2013 Budget, Portland’s George Pascoe-Watson offers his political insight into what the Chancellor will say and what he’s trying to achieve. We also give you a comprehensive rundown of the key announcements we expect to be made tomorrow, as well as a handy glossary of the key terms and what they mean.

The Budget 2013

POLICE officers, teachers, civil servants and NHS staff will see their salaries raided to pay for a Budget for families tomorrow.

Chancellor George Osborne will challenge Labour leader Ed Miliband to back an end to automatic pay rises for millions of state workers.

He will say the days when the police, teachers, health workers and others should enjoy pay rises denied to private sector workers are over.

The fiercely political move is designed to force the Labour leader to choose between supporting state workers or be on the side of the “common ground”.

Tomorrow’s Budget is the last real chance the Chancellor has of shaping Britain’s political and economic landscape in time for the 2015 General Election.

Measures announced tomorrow will give him just enough time – if they work – to show he is making a positive difference.

David Cameron has already decided to run a Presidential campaign, relying on the fact that voters will choose him over Mr Miliband in a straight shoot-out.

This means the Budget will be loaded with measures designed to force the Labour chief to make choices.

He must either back the Chancellor’s measures or be seen to be siding with vested interests.

The biggest shock will come when the Chancellor orders an end to automatic pay hikes for millions of state workers.

The little-noticed scheme called “pay progression” entitles workers to pay rises throughout their careers.

It explains why government pay bills have continued to rise despite the “freeze” on state pay.

The Chancellor will also make complex changes to pensions and national  insurance rebates for the same army of workers.

Together the measures will net him around £6billion although they won’t be introduced until after the next General Election.

But he won’t end his assault on the public sector there.

Government departments will be ordered to raid their own budgets yet again to find savings and cuts.

There is no doubt the moves will provoke fresh cries of anguish from shadow ministers and trade union leaders.

But the Tories believe they are right to rebalance the economy away from the years when Labour grew the size of the state by 300,000 workers.

Figures the Chancellor will use already show a rise in private sector jobs and a 25% reduction in the deficit since he took over in the Treasury.

The cash saved by tomorrow’s measures will be ploughed into policies aimed at making family life better in Britain – and boosting business.

Working parents are to get £1,200 tax breaks for childcare.

The move is designed for couples who are both working – signalling the PM’s support for working women as he fights to win the all-crucial female vote.

Fuel duty will be frozen but it is likely that booze and cigarettes will rise by their normal escalator.

Some are pressing for higher than normal rises on alcohol to demonstrate the government has not gone soft on the issue since dropping a minimum price plan last week.

The amount people can earn before tax will rise to £10,000 in another sign that the Chancellor wants people to keep more of their earnings.

And there’ll be a mortgage guarantee scheme for first time buyers in an attempt to get the housing market moving swifter.

Hundreds of millions of pounds of building projects will be fast-tracked to inject more life into the economy.

Paul Deighton, the man who delivered the Olympics on time,  has orders to speed up hundreds of crucial infrastructure projects.

This will mean fresh contracts for building contractors and the construction industry is gearing up for filling order books.

Corporation tax will also feature in tomorrow’s Budget with the Chancellor tipped to signal a 20p rate.

It’s not clear when that rate will come in – he has already announced a 21p rate is due.

But Mr Osborne wants the world’s investors to know Britain is on course to be a low tax economy for wealth and job creators.

It’s thought that the Chancellor will trigger a debate on the Bank of England’s role in driving Britain’s economy.

Some are urging him to hand new Bank governor Mark Carney powers to use monetary policy to drive growth.

Its Funding for Lending scheme will also get a boost as the Chancellor seeks to inject more funds into small and medium sized enterprises.

Mr Osborne faces a tough task in tomorrow’s Budget.

Government borrowing is expected to be £10billion higher than was forecast only three months ago.

Growth is likely to be below 1%, despite predictions in December it would be 1.2%.

Labour will seize on these numbers and accuse ministers of failing Britain.

Mr Miliband is already planning to call for a raft of tax cuts which would embarrass the PM as many Tory MPs want the same thing.

Budget 2013: what to expect

The Chancellor will tomorrow deliver his budget statement alongside the latest growth and borrowing forecasts from the Office of Budget Responsibility (OBR). Below we give you an essential overview of the figures that form a backdrop to Budget 2013, and a round-up of the key announcements to look out for tomorrow.

Issue Autumn Statement Expected Impact  
Deficit OBR had forecast borrowing at £120.3bn (2013), £100bn (2014), £79bn (2015) and £53bn (2016).
Public sector borrowing was forecast by the OBR to be £80bn in 2012/13.
Indications are that borrowing will rise this year to £122.9bn.
Estimates suggest that public sector borrowing will increase by £8bn in 2012/13 to £88bn.
A £1.2bn shortfall from the 4G spectrum auction and lower than expected tax receipts from sluggish growth have contributed.
If correct these figures leave the Chancellor with a £2.6bn borrowing black hole.
Growth forecast OBR forecast growth of 1.2% in 2013 and 2% in 2014. It is believed that this figure will be revised down again. More realistic estimates now stand at 0.9% in 2013 and 1.9% in 2014. The Chancellor is likely to come in for significant criticism from Shadow Chancellor Ed Balls for the Government’s inability to deliver growth. There have been increased calls for infrastructure spending to kick start growth.
Debt In December, the Chancellor extended his target for public sector debt to be falling as a % of GDP by one year to 2015/16. There is speculation that the Chancellor may now concede another delay to meeting this target to 2017/18. This would be an embarrassing change by the Government particularly given that the Chancellor has staked his reputation on bringing down UK debt as a % of GDP.
Public Sector Spending Most government departments have to cut spending by a further 1% this year and 2% in 2014 to free up money for capital projects, as announced in December. Osborne looks set to demand further cuts in departmental spending of 2% over the next two years, taking total cuts to 5%. DFID, DH and DfE look set to stay ring fenced, despite calls from many to include them in the cuts. The MoD is expected to get ‘exceptional flexibility’ to roll over £1.6 billion over the next 2 years. DWP could take a significant hit.

Taxes and duty

  • The Chancellor is expected to announce a further reduction in the corporation tax rate to 20p to help attract international investment. Along with this, we can expect more details on how the Government plans to tackle corporate tax avoidance, such as the National Insurance avoidance loophole announcement over the weekend.
  • Further to the rise due to take effect in April, the Chancellor looks set to announce another increase in the tax-free personal allowance to come into effect in April 2014, as well as a faster move to the £10,000 ceiling.
  • Following the minimum pricing u-turn, it is thought that Osborne may increase the alcohol duty escalator above the normal 2% in an effort to stay tough on irresponsible drinking.
  • The planned September 3p rise in fuel duty is likely to be scrapped or postponed again in an attempt to ease the cost of living for the ‘strivers’.
  • As has been announced, the Government will be introducing a new childcare voucher scheme, which will provide support of up to £1,200 per year per child where both parents are in work and earn less than £150,000 each annually.
  • There is continued speculation that the Chancellor might cut Capital Gains Tax down to the pre-2010 level of 18%, or extend the CGT holiday under the EIS for another year.

Infrastructure

  • George Osborne is expected to unveil plans to extend government support for mortgages as part of measures to boost house building. More resources are to be put into the “NewBuy” scheme under which builders and the government provide a guarantee to banks that offer 95 per cent mortgages on new-build homes.
  • Other measures could include: releasing more public land for house building, more work on the £10bn housing infrastructure guarantee scheme and a promise of new ‘garden cities’.
  • As the Chancellor faces calls to increase infrastructure spending to stimulate growth, Lord Deighton will publish a progress report on the Coalition’s high-priority infrastructure projects. It is expected that a number of smaller ‘shovel ready’ projects have been singled out as success stories, such as road upgrades for M3 (Surrey), M6 (West Midlands), A63 (Yorkshire), A38 (Derby).
  • There has been some speculation Osborne will announce funding for wi-fi networks and mobile network access on trains.

Departmental spending

  • Following pressure from the Cabinet and Tory backbenchers, the Chancellor is expected to announce cuts of a further £2.5 billion – equating to 1% a year over the next two years. This is on top of 3% already announced at the Autumn Statement. These savings will be used to fund capital investment in an effort to increase growth.
  • Ring fenced departments will remain protected and the MoD will get ‘exceptional flexibility’. Councils and police budgets are also protected for 2013/14, because local grants have already been made.

Public services

  • The Chancellor announced at the weekend that he plans to bring forward a proposed cap of £72,000 on social care costs instead of the £75,000 the Government announced in February.
  • The Chancellor has also announced that a new flat-tier pension, worth about £144 a week, will now start in 2016, a year earlier than previously planned.
  • Osborne is also expected to announce an end to contractually obliged pay rises for public sector workers, which have been causing the public wage bill to increase despite a pay freeze across the board.

Buzzwords and Shorthand: a Quick Guide

Gross Domestic Product (GDP): the monetary value of all goods and services produced within the UK each year, as estimated by the Office of National Statistics.

Structural Deficit:  A budget deficit refers to the amount by which government spending exceeds income within a financial year. The structural deficit is the calculation of the element of the deficit not attributable to the economic cycle, i.e. the extent to which the deficit would remain even under better economic conditions.

Government Debt: Government debt is the total amount owed by government (in contrast to a deficit which is the amount of overspend in a set period). Interest is paid on the debt.

Spending Review/Spending Envelope: The spending envelope is the overall level of public spending, covering all areas of government activity, within a fixed period. The spending review then breaks this down by department, setting fixed multi-year budgets for government departments.

The next Spending Review is scheduled to take place on 26 June and will cover government spending for 2015/16. However, the Spending Envelope for the period is likely to be set in this Budget.

Fiscal consolidation: refers to the process of reducing and eliminating the deficit, such as through increasing revenue (including taxes) and reducing expenditure.

Monetary Policy: is the control of the supply of money through interest rates and other monetary tools, usually by a Central Bank.

Fiscal Policy: is the use of government spending and tax policy to influence and control economic conditions.

Quantitative Easing is a process whereby money is injected directly into the economy in order to stimulate bank lending.

Supply side reform: is used to refer to policies that are seen to make it easier for businesses to operate and become more productive – such as reducing corporation tax or lifting planning regulations.

Written By

George Pascoe-Watson