George Osborne sits down at 13.28 – that’s it, the Budget has been delivered. Now Harriet Harman will respond, but thank you for comments and for joining us.
Jim Pickard, political correspondent: Osborne’s promise to return to “financial prudence”… Could this be a dig at Gordon Brown by any chance? This was in happier days his favourite expression.
Jamie Chisholm, FT Global Markets Commentator: Gilts back to where we started, down 8 basis points at 3.45 per cent. Sterling little changed.
Child element of tax credit to be increased
Matthew Vincent: The chances of exchanging contracts on your second home by 5.30pm today look a bit remote. Best phone your solicitors and give them the hurry up…
Robert Shrimsley, editor of FT.com: Is it my imagination or is George Osbrone saying “coalition government” much more now that he’s got to the nastiest parts.
Chris Cook, FT leader writer: A rise in income tax thresholds doesn’t help poor people. Don’t believe me. Believe cabinet minister David Willetts
From April next year the earnings link on the basic state pension will be re-introduced
Matthew Vincent: CGT rises from midnight tonight – so anyone with a big short position on BP might want to close it out and take profits this afternoon
Income tax personal allowance to increase by £1,000 to £7,475. Government sticks with target to raise personal income tax allowance to £10,000 during the current parliament. Increase on personal allowance takes 880,000 people out of income tax.
Matthew Vincent: Capital gains tax increase nowhere near as bad as expected – and entrepreneurs now get £5m relief allowance. Any business owner who sold up ahead of the Budget will be kicking themselves.
Jim Pickard: CGT at 28 per cent is a compromise. Less painful for investors than the 40 per cent some had predicted. But won’t tax avoiders continue to find ways to pay CGT instead of income tax – the ostensible reason for changing the system in the first place – given it is still markedly lower?
Capital Gains Tax to remain at 18 per cent for basic rate taxpayers
Capital Gains Tax to go up to 28 per cent for higher earners from midnight. 10% CGT rate for entrepreneurs to be extended to first £5m of capital gains from current £2m
Council Tax to be frozen for one year from next April.
Duty on alcohol and tobacco frozen. Government plans to reverse planned tax rise on cider to be introduced later this month.
Propose to switch tax on air travel from a passenger tax to a plane levy
Jim Pickard: The anticipated vat rise in vat to 20 per cent has already enraged the left (it’s regressive) and the right (it’s a tax rise). But it’s hard to disagree with Osborne’s point that it was either that or 13bn a year of cuts.
VAT to increase from 17.5% to 20% from January 4 2011. Planned increase in VAT to generate £13.5bn per year. Exemptions on food, chilren’s clothing and newspapers to remain.
Chris Cook: Given the size of the insurance policy the government is writing for the sector, a bank levy of only £2bn a year seems like a good deal for the City. Andy Haldane, director of financial stability at the Bank, calculated that the subsidy to banks was worth £50bn a year in cheaper funding costs between 2007 and 2009 to the five biggest UK banks.
Government to publish shortly the details of a large regional growth fund
Jim Pickard: A coup in getting French and Germans to agree need to move – without multilateral G20 agreement – on a new bank tax. Let’s wait for the details though; are both of those countries doing exactly the same thing as us (a levy on bank balance sheets raising 2bn a year)?
Proposed tax on land lines to be abolished but government hopes to encourage investment in telecom infrastructure
“Green Investment bank” to be created to invest in environmentally freindly ventures
Jamie Chisholm: Barclays was down 3.6 per cent and then quickly off 4 per cent but now back at minus 3.5 per cent, so not as bad as feared is the very quick diagnosis.
Matthew Vincent: Furnished holiday letting tax relief reintroduced – no-one predicted that – but is this preparing us for punitive capital gains tax on second homes?
French and German governments pledge to join UK and introduce a bank balance sheet levy
Banking sector needs to make a more appropriate contribution to the nation’s finances – a banking levy introduced from January 2011. Tier 1 assets will be exempt from levy which is expected to raise £2bn.
Jamie Chisholm: FTSE 100 is 10 points lower than when he started but this reflects a slip in US futures, to be honest.
Annual investment allowance for small firms reduced to £25,000
Abolishing proposed tax change for video game industry
Reductions in tax must be paid for by other measures in business tax – these include a small reduction in capital expenditure allowances
Corporation tax to be cut by 1% a year over the next four years, taking it to 24 per cent by 2014-15. From April 2011, the threshold for National Insurance will rise by £21 above inflation to ease the cost of hiring new staff. Small companies tax rate to be cut to 20 per cent. Enterprise Finance Guarantee Scheme to be extended
Government to review housing benefit and introduce new limits of £280 for 2 bed properties and £400 a week for 4-bed houses. Government expects these changes to save £1.8bn a year or 7 per cent of total housing benefit spending
Welfare control measures to save £11bn by 2015
Robert Shrimsley: The pension upgrade switch and child benefit freeze: he wasn’t kidding when he said he’d soon be the most unpopular man in Britain.
Housing Benefit system “in dire need of reform”
Chris Cook: The main message of the OBR report of last week was that Britain is not Greece. Oddly, however, the government seems to judge that the only macroeconomic risk worth worrying about is the type of bond market loss of confidence that smashed Athens. They’re not worried about old-fashioned recession, and have gambled that the Bank of England will be able to plump up demand with monetary policy. They might be right, they might be wrong. Who knows? But a wiser head at the Treasury would have announced contingency measures to deploy in case growth comes in weakly.
Medical assessment for Disability Living Allowance to be introduced from 2013
Health in Pregnancy grant to be abolished. Sure Start maternity grant restricted to first child only. Government is to freeze child benefit payments for the next three years, to remain universal.
Jim Pickard: No surprise that the health in pregnancy grant is scrapped next year: 190 pounds for each expecting mother which is meant for the purchase of fruit and veg but which can – in practice – go on anything from pies to televisions.
Tax credit payments for families earning over £40,000 per year to be reduced
From next year, benefits payments will update with reference to consumer price inflation not retail price inflation. Indexation of tax system also to be moved to the consumer price index and away from current linking to retail price index
Matthew Vincent: Updating benefits in line with CPI not RPI is not more realistic, it’s just cheaper. CPI excludes housing costs. Everyone has housing costs, apart from government ministers
Tax credits spending has increased from £18bn in 2004 to £33bn this year – an unsustainable rise
Matthew Vincent: No reference to closing the generous final-salary pension scheme for MPs – that would have been a very easy and quick political win. But Osborne sems to have missed the chance.
Welfare spending has increased by 45 per cent in the last 10 years to £192bn
State pension age to rise to 66, earlier than planned
Public service pensions are one of the biggest burdens on state finances – John Hutton’s interim report, due in September, will allow the issue to be addressed as part of the full spending review in October
Matthew Vincent: Public sector employees with a pension are going to struggle to increase their contribtions
Jamie Chisholm: Gilt markets happy so far. 10-year yield now down 11 basis points at 3.40 per cent. In contrast, Spain at 4.54 per cent.
Government seeks additional £17bn of departmental budget cuts by 2014-15, implying average real cuts of 25 per cent for unprotected departments – and chancellor asks the public sector to accept a two-year pay freeze. The 1.7m public servants earning less than £21,000 a year will recieve a flat pay rise of £250. Government to double servicemen’s allowance to £4,800.
Jim Pickard: Osbourne is excluding 28 per cent of state workers from 2 year pay freeze; all those under 21k a year. This is part of the ‘fairness’ theme. But brace yourself for an attack on welfare benefits.
Spending review to be presented to Parliament on Wednesday, October 20 (get the date in the diary for the FT’s live blog on that day)
Government plans spending cuts of 25 per cent on government departments of the next 5 years but keeps protection for NHS and overseas aid budgets
The amount provided by the Civil List to fund the Queen’s duties as head of state will remain frozen at £7.9m, and will be subject to scrutiny from the National Audit Office
Government will look to sell Nats, air traffic control system, the sudent loan book and Tote, the betting chain. It will also seek private sector investment for the Royal Mail
Jim Pickard, political correspondent: Coalition wants to sell Tote, recently estimated at 400m. I wouldn’t bet on a swift deal however, given it has been on the market for years.
Public spending to rise to £711bn by 2015/16 from £637bn this year
Chancellor confirms there will be no further reductions in capital spending totals in this parliament
Jim Pickard: It’s worth pointing out that in March the Treasury predicted 3.25 per cent GDP growth next year, which was revised down to 2.6 earlier this month. That is now 2.3 per cent. Interesting to know the impact on tax revenues.
Chancellor announces an additional £30bn of spending reductions from this year
Government rules out joining the euro in the current parliament and abolishes the Treasury’s euro preparation unit
Jim Pickard: He’s axed the Treasury’s euro preparation team. Surely this is only one official….?
New debt as percentage of GDP forecast to be 62 per cent this year rising to be 70 per cent in 2013-14 before falling to 67 per cent in 2015-16
Public sector net borrowing to total £116bn in 2011/12. Public sector borrowing forecast to be 10.1 per cent of GDP this year, falling to 1.1 per cent in 2015-16.
Public sector net borrowing to fall to £38bn in 2012/13, then £60bn in 2013/14; £87bn in 2014/15 and 20 per cent in 2015/16
Jamie Chisholm: Sterling a tad stronger as the Chancellor gets into his stride.
77 per cent of the total consolidation plan to be delivered from lower spending; 23 per cent from higher taxation
Measures to deliver accelerated deficit reduction should stem from lower spending, not higher taxes
Consumer price index target remains 2 per cent. It is expected to be 2.7 per cent at the end of this year falling to trend next year
Inflation target remains at 2 per cent
Unemployment forecast to be 8 per cent this year, falling to 6.1 per cent by 2015-16
Matthew Vincent: “Those days (of political forecasting) are gone for good” = “no more boom and boom”?
Jamie Chisholm: As Mr Osborne started speaking the FTSE100 was down 1.4 per cent at 5224, sterling was down 0.1 per cent versus an otherwise weaker euro at 83.34 pence. 10-year gilt yields were down 8 basis points at 3.43 per cent, a bit better than the wider bond market.
Growth for the UK economy predicted to be 1.2 per cent this year (OBR figures), rising to 2.3 per cent next year, followed by growth of 2.8 per cent the year after next, then 2.9 per cent
Jim Pickard: GDP growth forecasts have been revised downwards to take into account the fiscal tightening. 1.2 per cent this year and 2.3 per cent next year. The idea is that growth will subsequently be faster.
Overall debt should be falling as a 2015-16, we are on course to meet this a year early
The Office for Budget Responsibility believes that goal will be reached one year earlier than 2015-16 target
Structural current deficit should be in balance by 2015-16, the final year of this Budget
“Surplus countries” should do more to support international demand, welcomes China’s decision to de-peg its currency
Government’s fiscal mandate will be forward-looking
Set to miss the ‘golden rule’ in this year’s Budget by £485bn
Jim Pickard: Osborne says we have broken gordon brown’s golden rule by 485bn. I thought the beauty of labour’s rule was that you could define the ‘economic cycle’ however you liked. Over a 100 year cycle we may still be doing okay.
The first challenge for this Budget is to set out a fiscal mandate
Robert Shrimsley: A nice swipe at Gordon Brown – we won’t hide the nasty details in the small print.
Matthew Vincent: “Not buried in small print” suggests we’ll get detail of capital gains tax and any relief for holding long-term investments
Matthew Vincent: Gilt investors – ie pension funds – will like what they hear about sovereign debt concerns
This is the “unavoidable budget” says chancellor as he outlines reasons for tough measures.
Robert Shrimsley: George Osborne’s phrase the “unavoidable budget” underlines the political theme here. The messaage is that the government had no choice but to inflict this pain on us.
The power to determine economic forecasts now resides with an independent body – early and determined action to earn credibility with international markets.
Questions asked about the liquidity and solvency of banks are now being asked about the liquidity and solvency of governments… Fear about sovereign debt is the greatest threat to recovery in European countries.
A tough but fair budget promised.
George Osborne, chancellor, stands up at 12.33 to deliver his first Budget
Also – see our full Budget in-depth
Just before the chancellor stood up, the FTSE 100 was trading 1.5 per cent lower at 5,219.57; the mid-cap FTSE 250, seen as more representative of the domestic UK economy, was 1.3 per cent softer at 9,866.93.
The yield on 10 year gilts was trading 6 basis points lower at 3.45 per cent.
Against the dollar, the pound was 0.1 per cent weaker at $1.4740 while against the euro, sterling was up 0.3 per cent at €0.8320.
About this post
Authors: Gordon Smith, and Michael Hunter, with commentators as named. Edited by Rob Minto.