George Osborne fights to retain confidence in his stewardship of the economy with a crunch mid-term Budget.
By Ben Fenton, Lina Saigol and Tom Burgis on the newsdesk in London with contributions from FT correspondents in Westminster and beyond. All times are GMT.
The sun rises over Number 11 Downing St on another big day for the chancellor. Will George Osborne produce the “boring Budget” that will keep markets and backbenchers sweet or stumble into another omnishambles? We”ll bring you all the build-up, the speech itself from 12.30 and the reaction thereafter.
Here is the FT’s Budget checklist.
Early movement by the £, as reported by the FT’s currency expert: https://twitter.co…314307729764282368
Unemployment increased by 7,000 between November and January to 2.52 million
The Office for National Statistics’ labour market report has the following main points:
The employment rate for those aged from 16 to 64 for November 2012 to January 2013 was 71.5%, up 0.3 percentage points from August to October 2012. There were 29.73 million people in employment aged 16 and over, up 131,000 from August to October 2012.
The unemployment rate for November 2012 to January 2013 was 7.8% of the economically active population, unchanged from August to October 2012. There were 2.52 million unemployed people, up 7,000 from August to October 2012.
The inactivity rate for those aged from 16 to 64 for November 2012 to January 2013 was 22.3%, down 0.3 percentage points from August to October 2012. There were 8.95 million economically inactive people aged from 16 to 64, down 118,000 from August to October 2012.
Between November 2011 to January 2012 and November 2012 to January 2013 total pay and regular pay rose by 1.2%. However as inflation measured by the Consumer Prices Index was 2.7% between January 2012 and January 2013, there continues to be a cut in the real value of pay.
Here are some press previews of Mr Osborne’s options, starting with Benedict Brogan, deputy editor of The Daily Telegraph, on his blog.
Even the Chancellor’s Tory critics now mutter that he has no choice but to soldier on. With Treasury Budget veteran James Bowler now overseeing the process, the chances of a shambles have been sharply reduced. For Mr Osborne, the Budget will be an exercise in political reconstruction.
His hope must be that his very grimness will restore his credibility: by standing firm and not flinching from the pain, he does the right thing. Maybe one day someone will give him credit for it (possibly on Twitter, which he has joined this morning).
And the FT Live Blog offers a warm welcome to Twitter’s newest finance minister [warning: he isn't very funny yet]
Ed Miliband, the Labour labour…
… has called on George Osborne to use his Budget today to change the direction of his economic policy, which he has cast as a failure, writes the FT’s Hannah Kuchler.
In a pooled clip, he said: “What I want to hear from the Chancellor today is a willingness to change course, not more of the same. His economic plan is failing. It’s failing Britain’s businesses and Britain’s families.”
“What he should be doing instead of cutting taxes for a few people at the top, he should be having a recovery made by the many. That means undoing the damage he has done to family budgets, investing properly in our infrastructure and getting growth moving.”
While Mr Osborne is highly unlikely to heed the opposition’s call to change tack, he is expected to announce spending on growth-promoting capital projects — but it will come at the expense of cuts to other departments.
For the second month running, Sir Mervyn King wasn’t going with the flow on money printing:
Danny Finkelstein in The Times urges the Chancellor to grasp two simple realities :
There are, above all the others, two errors that are common among politicians and are particularly vividly on display on Budget Day. The first is to overestimate the amount of attention that voters are paying to the things that politicians do. The second is to overestimate how gullible people are.
The extent to which the Chancellor succeeds or fails today will depend largely upon his appreciation of these mistakes and his ability to avoid them.
Alan Downey, head of public sector at KPMG warns that the Budget could lead to a substantial increase in financial stress in the areas that are not protected.
“Capital investment programmes bore the brunt of the early spending reductions, because they are quick and easy to cut. Unfortunately they also take much longer to revive, because large capital investments typically have a long lead time. So even if the Chancellor had the money to spend on new capital programmes, he would be hard pressed to see a tangible result much before the next general election.
However, it is not just a question of time. If the government wants to give capital spending a major boost, it has to find the money from somewhere. There are only three options: borrow more, raise taxes, or cut more deeply elsewhere.
The first two would be seen as an admission of defeat, so in practice the only option is to squeeze current spending. In doing that, the Chancellor’s room for manoeuvre is greatly restricted by the government’s commitment to protect spending in specific areas, including the NHS.
“So we can expect the Budget to lead to a substantial increase in financial stress in the areas that are not protected. It is not too fanciful to expect some public bodies to feel the pinch to such an extent that they become unsustainable and have to be shut down or taken over.”
Back business, not bow to populism warns Michael Wistow – head of Tax at law firm Berwin Leighton Paisner:
Use tax to deliver business-friendly policies and investment incentives which HMRC must be prohibited from subsequently calling avoidance when used.
Adopt a dynamic approach to tax rather than a revenue-reducing, populist one.
Simon Walker of the Institute of Directors:
“If you suck more money out by borrowing from our children, and their children, you’re actually going to slow growth,”
Through the morning, we’ll bring you sector-by-sector predictions for what the Budget will hold. First up is
Ed Hammond, FT property correspondent
The housing sector is hoping to slip under George Osborne’s budgetary radar.
Rocked by the tough stamp duty measures introduced last year, there is an expectation among property industry insiders that the chancellor will go easy on housing this time round and steer clear of introducing the dreaded mansion tax.
Darryl Flay, chief executive of Essential Living, said “radio silence form policy makers” was needed to encourage more investment into housing.”If investors feel assured that nothing is likely to unsettle or interfere with the market, then ministers stand a far better chance of encouraging more UK-based institutions into housing”.
Commercial property landlords are keen to see an extension of rates relief for vacant units and an easing of the rules governing change of use from commercial to residential.
The Guardian is taking the Labour leadership to task as they prepare their instant critique of the Budget speech. They say Ed Miliband should have two things on his mind:
The first is that Labour have won the argument on the folly of the government’s deficit reduction strategy. Shadow chancellor Ed Balls has consistently and cogently opposed George Osborne’s plans to make the sharpest spending cuts in postwar history.
He has not always had the full support of everyone on the Labour frontbench, but that warcry of “too far, too fast” has been borne out by the facts. Despite extraordinary monetary stimulus, the economy remains flat on its back. As a result, the chancellor’s borrowing projections have been blown far off course – and the latest outlook from the Office for Budget Responsibility is likely to be even bleaker. It is no longer the usual suspects calling for a fiscal stimulus; it’s business groups, the Tory right and a growing thicket of newspapers.
But the second thing Mr Miliband will be painfully aware of is that Labour has failed to win the argument that it has a better alternative.
While opinion polls show growing disdain for the coalition parties, the support for Labour is surprisingly modest – behind where Michael Foot used to rate in Margaret Thatcher’s first term, and trailing most of Neil Kinnock’s years as leader of the opposition. There is a simple reason for this: the opposition has failed to lay out much of an alternative.
The Bank of England has released the minutes of the Monetary Policy Committee’s March meeting this morning.
Claire Jones, FT economics reporter, writes:
The governor of the Bank of England has called for more monetary stimulus for the second successive month, the minutes showed.
The MPC was split six to three in favour of maintaining the BoE’s main interest rate at 0.5 per cent and the size of the asset purchase programme, often referred to as quantitative easing, at £375bn. Policy has been on hold since last July.
For the second month in a row, three members of the committee – including BoE governor Sir Mervyn King – called for an additional £25bn-worth of money printing.
For anyone itching to read them in full, here are the Bank of England minutes.
Here on the newsdesk, the FT’s Gordon Smith has also been parsing the minutes.
As the chancellor puts the finishing touches to his speech, a reminder from the minutes of the last Monetary Policy Committee meeting of the risks facing the UK economy: If the economy contracts this quarter, the UK officially be in a triple-dip recession.
“Indicators of activity growth in the first quarter of 2013 had been mixed: the PMIs for February had suggested that the weakness of services output before the turn of the year might prove short-lived, but they also implied that some of the recent strength seen in the manufacturing sector might unwind. Those indicators taken together, along with the arithmetic effect of the recent monthly pattern of the manufacturing and service sector output data, suggested that GDP was likely to be broadly flat in 2013 Q1, with a roughly 50:50 chance of a further contraction in headline GDP.”
However, outlook for the rest of the year is slightly more promising, according to the Bank’s network of “agents”.
For the second in our series Things You Wanted To Know About the Budget But Were Afraid To Ask, we turn to
By Mark Odell, FT transport correspondent
Motorists are expected to be the main focus for the chancellor when he addresses the country’s chronic transport problems. He is widely expected to cave in to strong lobbying from MPs to freeze or defer the planned increase in fuel duty this September, as he has done on every occasion since the government came to power, with pump prices back on the rise.
Transport has been a favourite focus for a government keen to be seen to be delivering on its promise of investing in infrastructure in recent spending rounds. But having spent successive budgets announcing plans to fund various rail schemes, which have a ready-made planning and funding stream managed by Network Rail, this area is all but exhausted, leaving the focus on the country’s congested road network.
With plans to bring billions pounds of private money into the road network in disarray as reported by the FT earlier this month, Mr Osborne is likely to have to limit himself to funding some off-the-shelf road schemes that have been held up by the spending cutbacks.
He may also announce a Treasury guarantee for a new £600m toll bridge across the river Mersey — three consortia are on the short-list to build the crossing.
SOME RANDOM FACTS ABOUT THE BUDGET
The word comes from the French “bougette”, a little bag – which is why the Chancellor “opens” his Budget.
The scarlet briefcase was made for Gladstone in 1860 and was used by every Chancellor since, until James Callaghan who in 1965 and 1966 used a “vulgar brown valise” bearing the monogram EIIR.
Sir Geoffrey Howe, Chancellor of the Exchequer from 1979-1983, named his dog Budget.
When Norman Lamont was Chancellor in the early 1990s, the bag which was waved at photographers outside No 11 contained a bottle of whisky and carried the speech in a plastic bag.
The word “exchequer” comes from the Latin “scaccarium” meaning a chessboard.
Derrick Heathcoat-Amory, Chancellor of the Exchequer between 1958 to 1960 said “There are three things not worth running for – a bus, a woman or a new economic panacea. If you wait a bit, another one will come along.”
Preferred tipple of some Chancellors over the years:
Winston Churchill – brandy
Hugh Dalton – milk and rum.
Selwyn Lloyd – whisky and water
Hugh Gaitskell – Orange juice with a dash of rum
Harold Macmillan – tap water.
The longest Budget speech was four hours 45 minutes by Gladstone in 1853, during which he was fortified by a potent mix of egg and sherry.
The shortest Budget was Disraeli’s in 1867: 45 minutes
George Ward Hunt is the heaviest Chancellor on record, weighing in at 21 stone. When he arrived at the Commons in 1869 and opened his Budget box, he realised he had left his speech at home.
Amid all the point-scoring, someone with some genuine moral force has weighed in on the Budget (via a UK red-top).
Alex Henderson, tax partner at PwC has just sent this cheery note:
“So today’s Budget coincides with the UN’s first International Happiness Day. Not sure the nation will feel any brighter after this afternoon’s announcement, but some increase in the personal allowance might help. A big crowd pleaser would be a reduction in fuel duty, but this is unlikely to be affordable”.
Sir Geoffrey and Lady Howe with their dog BUDGET:
The Sun, Britain’s biggest selling newspaper and part of Rupert Murdoch’s stable, has put plans to scrap a planned 6p rise on a pint of beer on its front page with much rejoicing:
Enough numbers, what of the raw politics? Over to the FT’s Kiran Stacey at Westminster, who is on the lookout for this year’s Pasty Tax.
George Osborne‘s job today is in some ways relatively simple. Having decided not to change the fiscal course, and with little extra money to play with, his main task is to avoid the catastrophe of last year, when several policies had to be withdrawn amid howls of protest. “Don’t stuff it up,” is the Treasury’s mantra.
Ed Miliband will focus on the government missing yet another of its economic targets, with the chancellor set to admit his goal of having borrowing falling as a proportion of GDP will not be hit until 2018. He will also be on the lookout for revenue-raising wheezes that could fall apart in the way that the “pasty tax”, “charity tax” and “granny tax” all did last year.
Budget Hostages to Fortune, Part III:
By Helen Warrell, FT public policy correspondent
It may seem that headteachers have little to fear from Mr Osborne today, given Downing St’s eleventh-hour confirmation that the schools budget will continue to be protected even as other departments face further cuts of 1 per cent a year.
This special status looked to be in jeopardy earlier this month, when David Cameron pledged to keep the ringfence on NHS spending without mentioning the other two areas which are also exempted from austerity measures – schools and international development.
But even if the schools budget remains unsqueezed, this is still a long way from the capital injection urgently needed for new school places ahead of a capacity crunch expected next year.
The National Audit Office warned last week that over a quarter of a million new school places would be needed by 2014/15 as a result of the birthrate boom which is sending a surge of infants into the education system. In this context, the £1bn announced for 50,000 new school places in the Autumn Statement appears puny – and teachers are hoping that the chancellor will open the Treasury coffers once again.
The PM has set off for his Qs
We have been looking for appropriate drinks the Chancellor could choose to refresh him through his speech as is traditional. (See 10:45am)
Here are some suggestions – we welcome more from readers:
Apocalypse Now (Tequila, dry vermouth, Irish cream liqueur)
Procrastinator ( Frangelico, Wild Turkey, American Honey)
Gates of hell (Tequila, lemon juice, lime juice, cherry brandy)
Downing St, Budget day
The collective voice of British industry is urging the Chancellor to use the Budget to boost the housing market
Another sectoral outlook, this time particularly sensitive…
James Blitz, FT defence editor
One of the questions that needs to be answered today is whether the Budget has dealt another blow to the Ministry of Defence and its plans to reconfigure the UK’s armed forces.
On Tuesday, George Osborne announced that he is ordering an extra 1 per cent cut from Whitehall departments to help find £2.5bn for new infrastructure plans. He protected the MoD by allowing £1.6bn of its current departmental underspend to be rolled over in 2013-14 and 2014-15. That means his new 1 per cent cut has no impact on the MoD in those years.
But the key question is: does that 1 per cent cut still mean that the baseline for MoD spending gets reduced even further after 2015? If so this is bad news for defence secretary Philip Hammond. It means Hammond goes into this summer’s spending review negotiations starting from an even lower notional figure for departmental spending than he had anticipated — creating fresh risks that personnel numbers must be slashed yet again.
Malcolm Chalmers of the Royal United Services Institute, a think tank, has argued that Mr Hammond is already facing a black hole of £1.1bn every year after 2015 thanks to cuts announced in last year’s Autumn statement. This morning he tells me things could now be even worse.
“The Budget pre-briefing suggests that the MoD baseline budget for 2014-15 will be cut further today. If so, the projections in my recent paper could be too optimistic — and the Spending Review even more difficult.”
We need to watch this when the Red Book comes out. The battle between Hammond and the Treasury is one of the major flashpoints of the spending review this summer.
Probably the two hottest of potatoes, courtesy of FT public policy editor Sarah Neville:
Recent weeks have seen a brace of Cabinet members — dubbed the Union of Democratic Ministers for their bullish approach — call for deeper sums to be slashed from welfare in order to spare the defence and home office budgets. But that is likely to be a battle for the coming spending round, which will not be definitively resolved in today’s Budget. The sums set aside for annually managed expenditure — the part of public spending which funds benefits — may, however, give a clue as to whether a further deep raid into the terrain of Iain Duncan Smith, work and pensions secretary, is contemplated.
David Cameron’s decision to pre-announce that the health budget would once again be ring-fenced in the 2015-16 spending round has attracted the ire of some ministers whose departments will not be similarly protected. But he will show no sign of budging in the Budget. George Osborne will make clear that departments face a further 1 per cent squeeze to reflect underspent capital budgets. Health, however, is among departments exempted from the new stricture, despite the fact that it consistently fails to spend its full allocation.
Well under an hour to go now. Sarah O’Connor, FT economics correspondent, takes a look at some of the best – and the worst – decisions of Budgets past.
Think Tank SMF has done a brilliant looking at what Osborne could do next.
One of the unknowns from the Budget is whether the chancellor will announce a review of — or even a change in — the Bank of England’s mandate. The FT’s Claire Jones again:
The BoE’s mandate is to target inflation of 2 per cent. But with George Osborne relying on ultra-loose monetary policy to spearhead a recovery, the remit could change to something that would allow the BoE to act more aggressively. Such options include a Federal Reserve-style dual mandate, which would place equal weight on growth and inflation. A shift to nominal GDP targeting is considered unlikely.
David Cameron is on his feet for prime minister’s questions, rousing the troops for his chancellor. He is listing past measures fuel-tax cuts and increases in personal allowances, before moving to the crisis in Cyprus.
Midday UK markets, courtesy of the FT’s Mike Hunter on the markets desk:
FTSE 100 is down 0.1 per cent at 6,435.64
FTSE 250 is down 0.3 per cent at 13,995.64
Sterling is up 0.1 per cent at $1.5118
10-year bond yield is up 6.7 basis points at 1.9 per cent
In the Commons, Cameron takes questions on trade unions and the NHS. Some sparring but no pre-emptive Budget detail.
Cameron: difficult road we are travelling … party opposite left huge mess…
What outlook for UK creative types in the Budget? The FT’s Robert Cookson sends this:
British makers of video games and TV programmes will be watching the Budget closely for any details about new tax relief that is due to be introduced at the start of April. In his Autumn Statement in December 2012, the chancellor said that the relief will offer a payable tax credit worth up to 25 per cent of qualifying expenditure on culturally British video gaming, animation and high end TV drama and documentaries. But some of the details of how the scheme will work and who will qualify have yet to be published.
David Cameron is answering questions on non-Budget issues, the usual form for pre-Budget PMQs.
Cameron declines to reverse the decision to cut the top rate of tax from 50p to 45p, a step that comes into force in April.
ITV needs to issue its reporters with longer telephoto lenses for their eyes:
The Evening Standard’s front page seems to be claiming either very detailed foresight or a tremendous scoop
Four minutes or so to go. This is what the markets look like before Osborne’s speech, writes the FT’s Michael Stothard:
The UK markets are just about steady ahead of the big moment at 12:30pm, with sterling reversing early losses up 20 basis points to $1.5134 while 10-year gilt yields are up 8 basis points to 1.92 per cent. The FTSE 100 stock market index is up 0.2 per cent. Earlier moves came as the Bank of England monetary policy meeting minutes were seen reducing the chances of additional quantitative easing in the UK.
The Standard says that growth for 2013 will be downgraded from 1.2% to 0.6%.
The FT’s political correspondent Kiran Stacey is checking out the atmosphere in the House of Commons.
The Commons chamber is packed as usual for Budget day, to the extent that even heavy hitters such as David Willetts are sat in the gallery above. Lord Mandelson meanwhile has placed himself in the peers gallery in George Osborne’s eyeline. The two fell out publicly over leaks from a meeting they had on board Oleg Deripaska’s yacht.
So far the atmosphere is expectant rather than raucous however. Ed Miliband split his questions, and asked solely about foreign affairs, two tactics designed to defuse tensions. The real fireworks will come later.
The third alternative explanation for the Standard’s front page as it is being flashed all over Twitter is that the London evening paper has broken an embargo agreement with the Treasury.
An inadvertent leak of his budget to the Standard cost Hugh Dalton his job as chancellor in 1947.
Cameron sits down
Osborne’s on his feet
“This is a Budget for people who aspire to work hard and get on.”
Osborne says he will “level with people about the difficult economic circumstances we still face”.
To huge jeers opposite, he admits: “It is taking longer than anyone hoped.”
The other details the Standard is claiming to have seen include saying that borrowing will be £61.5bn higher than expected over 6 years, but also that corporation tax will fall to 20% by 2015.
It says Mr Osborne will take 1p off a pint of beer (which The Sun splashed on today).
Income tax allowance will rise to £10,000 by April 2014
An extended metaphor, beloved of Tory high-ups, about winning the global race. This is, Osborne says, a Budget for an “aspiration nation”.
The Deputy Speaker has to intervene as barbs fly across the Commons.
Kiran’s colleague Jim Pickard adds:
Ed Miliband has just been passed a photocopy of the evening standard front page (leaking budget) but was told to put it away by the deputy speaker.
Growth forecasts revised down again by the independent Office for Budget Responsibility. Eurozone to remain in recession all year.
Another promise to be “straight with the country” brings more jeers.
OBR’s 2012/13 growth forecast reduced to 0.6% from 1.2%
2012/14 growth forecast reduced to 1.8% from 2%
UK will avoid a triple-dip recession but growth for this year slashed to 0.6 per cent
The BBC’s political editor analyses the Chancellor’s language:
OBR predicts the creation of 600,000 jobs in 2013, Osborne says, compared to this time last year.
UK budget defecit forecast by the OBR for this year raised to 7.4 per cent from 6.9 per cent, Osborne says
BBC Daily Politics presenter and former Sunday Times editor Andrew Neil detects smoke and mirrors:
Deputy Speaker has already made three interventions and calling on House to be quiet
For every one job lost in the public sector in the last year, six jobs have been created in the private sector
Robert Peston on the gloomy numbers:
The chancellor is revealing the key numbers now.
Government borrowing target for this year raised to £114bn from £108bn and then raised for next six years
Debt as a percentage of GDP to to peak now in 2016-17, a year later than earlier forecast.
Budget deficit forecasts raised across the board:
For 2013/14 to 6.8% from 6.1%
For 2014/15 to 5.9% from 5.2%
For 2015/16 to 5% from 4.2%
For 2016/17 to 2.2% from 2.6%
This chart shows these numbers set against the 2010 Office of Budget Responsibility forecasts.
Walter Boettcher at Colliers International comments:
The timing of recovery continues to be pushed back, now to 2014. Increasingly it looks as though GDP forecasts simply rely on an assumption that it will simply revert to trend after some unknown number of quarters.
The Bank of England monetary policy committee’s remit will be updated, says Osborne
The inflation target will remain.
The Bank of England is to assess value of a growth target for the UK central bank and report back in the August 2013 inflation report.
Sir Mervyn King and Mark Carney, the outgoing and incoming governors, have both seen and agreed to the Bank of England Monetary Policy Committee new remit.
Sterling has taken a tumble as the speech starts. Down 10 basis points to $1.5085
FT political commentator Janan Ganesh:
Back to the Standard. Not a tremendous scoop, but a tremendous goof by the London evening newspaper, whose political editor has just had to break off covering the Budget to issue the following apology:
In short, Osborne has said that, if agreed, the Bank of England’s remit would widen to include growth as well as an inflation target under new governor Mark Carney.
Wrapping up his comments on monetary policy, Osborne says that the Bank of England’s asset purchase facility for stimulus measures remains in place for the coming year
Osborne is back onto fiscal matters. Public sector pay increases will be limited to 1% in 2015/16, Osborne says. Then he descends into a coughing fit.
While Osborne is coughing, Claire Jones, FT economics reporter, writes on his BoE remit comments:
Mark Carney will be pleased with George Osborne’s amendments to the BoE’s remit, especially the part on “explicit forward guidance”.
In 2009, Mr Carney’s Bank of Canada became the first G7 central bank to introduce explicit guidance, which involve a commitment to keep rates low for a specific period into the future. The US Federal Reserve later followed Mr Carney’s lead.
Former Bank of England monetary policy committee member Danny Blanchflower on the remit changes. He isn’t bowled over with shock.
Osborne is off and running again, hailing the bravery of soldiers and saying that military personnel will be exempt from new limits on progression pay in the public sector. Proceeds from fines relating to the manipulation of Libor will be used to help veterans.
Now the chancellor is moving to one of his favourite subjects: building things.
Savings from government departments of £3bn will be spent on new infrastructure projects in 2015/16 (after the next election). Long term capital budget spending plans will be set out in June.
The FT’s Kiran Stacey:
Osborne’s delivery has been stilted and slightly nervous so far. His characteristic throat-croak threatened to defeat him entirely at one point. Ed Miliband will feel emboldened watching that. But usually the real crowd pleasers (such as beer tax cut) are usually saved to the end to rally the troops and deflate the opposition.
Yannick Naud at Glendevon King Asset Management has been looking at whether structural reforms can have a long-term impact on growth:
“If we look at France – the country has chosen a very different policy with almost no austerity, but 10 years rates are almost the same with the UK (1.99% in France vs. 1.83% in UK), and growth is also nowhere to be seen (France GDP of -0.2% vs. UK GDP of -0.3%).
Osborne is jumping between sectors, sprinkling what news he has. The government procurement Budget that is spent through small firms is to increase five-fold, he says. Then he comes to energy.
Two major carbon-capture projects will be taken to the next stage of development. But the ceramics industry will be exempted from the climate change levy. There is also to be new tax relief for shale gas investment (which is, the chancellor says “part of the future”).
Alice Ross tweets from the currency desk:
Osborne is making much of improvements in the UK’s competitiveness rankings. On business tax: the capital gains tax holiday will be extended to sales of businesses to their employees. Tax exemption for loans offered by employers to staff for items such as season tickets extended to £10,000.
The editor of the Conservative Home website, and the editor of City AM agree they are not impressed by the tax tweaking the Chancellor just announced.
Greenpeace Energy Campaigner Lawrence Carter responds to the Chancellor’s announcement of tax breaks for fracking:
“The Chancellor is slashing public services with one hand, while gifting tax breaks to the fossil fuel industry with the other. This is unfair on struggling households, especially when everyone from the energy regulator Ofgem to BP to the Energy Secretary say UK fracking won’t bring down bills.
“Bungs to the gas industry make it harder for Britain to meet its climate targets and stifle the low carbon sector, which provided one third of all UK growth between 2011-2012. Green jobs and investment are at risk here.
“George Osborne needs to stop playing Britain’s JR Ewing and instead back the shift to carbon free energy, which will create jobs and be cleaner, safer and cheaper over time.”
With a jibe at European efforts to introduce taxes on financial transactions, Osborne says he will abolish the transaction tax on shares traded on AIM, London’s junior market.
Corporation tax reduced to 20 per cent this year, one year ahead of target.
Osborne doesn’t want banks to benefit from that, so will offset it with the increased bank levy
Alice Ross, currency correspondent, writes:
The pound rose after George Osborne, UK chancellor, said that the BoE would retain its inflation target of 2 per cent, gaining 0.3 per cent against the dollar to $1.5141, as traders speculated that monetary easing was less likely in the shorter term.
Mr Osborne said that he had asked the BoE to consider a new remit when it meets in August under the direction of incoming governor Mark Carney, dampening expectations that the central bank might act sooner.
“The market read is that QE is not coming anytime soon. We may have to wait for Mark Carney to see more aggressive easing ahead,” noted Valentin Marinov, foreign currency analyst at Citigroup.
A reminder of what Terry Leahy, former CEO of Tesco said about corporation tax
More on tax — one of the very hottest political topics, just ask Starbucks or Jimmy Carr — from Osborne. Tax evasion measures include new agreements with the Isle of Man and Guernsey, covering £1bn in upaid taxes. Osborne vows that promoters of tax avoidance schemes will be named and shamed.
Pensions: Introduction of new single-tier pension brought forward to 2016. Means testing on pension savings raised from £23,000 to £118,000.
Family: Working families to receive up to £1,200 subsidy for childcare through a national voucher scheme.
Sarah Sands the editor of the Evening Standard, has issued the following statement about the broken embargo on the Budget, which appears to be part of an arrangement that was an open secret in the Press Lobby, but not outside it.
“An investigation is immediately underway into how this front page was made public and the individual who Tweeted the page has been suspended while this takes place. We have immediately reviewed our procedures. We are devastated that an embargo was breached and offer our heartfelt apologies.”
The FT’s Investment Editor James Mackintosh:
Chief Market Strategist Joshua Raymond at City Index:
The pound sterling had originally slumped at the start of the speech as investors took Osborne’s claims for ‘monetary activism’ as a potential indicator that he would remove or change the 2% target in favour of greater growth focused monetary targets. That didn’t come to fruition and so as such, traders started to buy back into sterling, which quickly returned to pre-budget speech levels.
The Evening Standard has suspended an employee after its front page containing details of the Budget was tweeted and widely circulated on the social media site.
Welfare: Social care costs for the elderely to be capped at £72,000 from 2016
Budget experts at Henley Business School analyse what the comments so far could mean for markets:
“Commitment to bring borrowing down and reduce the budget deficit to 3.4% in 2016/2017 coupled with GDP growth forecasts accelerating every year in the next four to five years to reach 2.8% in 2018 should provide encouraging news for markets.
In the current environment markets will apply downside risks to this positive picture at least in the short-run. In the medium term supply side initiatives including regional governments having more control over their economic destiny, changes in planning and initiatives to support small firms, a competitive tax environment and entrepreneurship will be key to the health of the economy and significant factors for the Chancellor’s forecast to be realised “
Now Osborne comes to another area that was tipped as a headline-grabber: housing. He is introducing interest-free loan for buyers of new homes with value up to £600,000. Help-to-buy measures will be extended from first-time buyers to buyers of all new homes and will include equity loans of up to 20% of the home’s value for those with an existing deposit of 5%.
The mortgage guarantee for home-buyers using the government’s balance sheet has a value of up to £130bn from 2014 for three years.
FT business commentator John Gapper expresses some scepticism about the Help to Buy scheme Osborne has just announced.
Osborne: “Help-to-buy is a dramatic intervention to get our housing market moving.”
Douglas Carswell, Tory MP, does not like the Help to Buy scheme at all:
Planned September increase on fuel scrapped
Beer duty escalator set at 2% above inflation abolished (The Sun will be pleased: see 11.05). Instead of the 3p per pint duty rise expected, beer duty is cut by 1p per pint from Sunday night. “We’re taking a penny off the pint.” Cheers in the House.
Personal income tax allowance raised to £10,000 in April 2014, a year earlier than planned
FT Comment Editor John McDermott knows the form on “Help to Buy” schemes:
Political blogger Archbishop Cranmer on housing:
And investment editor James Mackintosh agrees with McDermott see 1.23pm
Tech companies aren’t happy with Osborne. Gary Calcott at Progress Software writes:
“It’s a real shame to see that the Chancellor appears to be neglecting his pledge to make the UK ‘Europe’s technology centre’. Providing a kitty for IT entrepreneurs would have at least been a good first step towards solving a long term IT skills problem.
More should also have been done to put programming skills in schools. This should be the ultimate aim if we’re to solve the issue of a lack of SMB innovation in the IT industry.”
With much fanfare, Osborne unveils what he says is the largest tax-cut in his Budget. A new “employment allowance” worth £2,000 for small businesses will begin in April 2014. The chancellor says he is removing a barrier to small businesses hiring staff.
The chancellor sits down at 13:26, having spoken for just under an hour.
The markets seem mildly cheered by that. This from Neil Dennis on the FT’s markets desk:
FTSE 100 is up 0.2 per cent at 6,455.74
FTSE 250 is up 0.1 per cent at 14,043.72
Sterling is up 0.4 per cent at $1.5151
10-year yield is up 7 basis points at 1.9 per cent
Ed Milliband: Growth this year down. growth next year down, growth in 2015 down. Says Osborne just offers more of the same
The new help-to-buy scheme is sending housebuilders’ stocks higher.
Barratt leads the FTSE 250, up 4.5 per cent to 250.75p, Redrow up 3.6 per cent to 191.6p and Persimmon up 3.5 per cent to £10.05
Miliband says Osborne didn’t need to even come to the house because the whole Budget was in the Evening Standard
Miliband: This is a dpowngraded budget from a downgraded chancellor. The only upgrade he achieved this year was a first class train ticket.
The only time we were all in it together was when the Chancellor was booed by 80,000 people at the Olympic Games.
Milliband says he should stay away from the FA Cup final.
Miliband: British people worse off in 2015 than 2010
Miliband: Three years on, Chancellor saying exactly what he said four years ago – after all the medicine, suffering, everything is the same.
Chancellor has had to borrow £200bn more than he said he would.
Miliband: The blame game has begun in the cabinet
Miliband now making the Tory elite jibe:
The Bullington Boys are really in it together. You need a recovery made by many, not just the people at the top.
The Bedroom Tax punch:
The Chancellor is giving with one hand and taking away much more with the other
Miliband now taunting Cameron into confessing whether he will get the 50p tax rate cut.
The FT’s news editors and reporters have just held their customary post-Budget huddle in the middle of the newsroom. A one-sentence summary of the Budget comes from economics editor Chris Giles:
“It’s business and housing amid nasty conditions.”
The FT’s Kiran Stacey:
Ed Miliband is storming his response to the chancellor’s speech – good jokes, sparky rhetoric, fiery delivery. Just a shame for him the chancellor’s advisers always brief reporters when the opposition leader starts to speak, meaning most are out of the room.
Miliband: This is a failing economic plan from a failing chancellor
Here’s the full text of George Osborne’s Budget
Miliband says Osborne could have got the whole budget into 140 words on Twitter @downgraded chancellor.
Immediately after the Budget speech, FT economics editor Chris Giles briefs the newsroom on what he thinks are the main points for the paper to focus on, what is a surprise, what isn’t and why didn’t we get a pre-briefing of the Budget like the Standard?
Joe Burnie, head of tax at Baker Tilly says there were more tax cuts than were expected given the state of the economy.
“It was definitely more geared towards business, and concentrating on supply side reform means he focussing on making the UK the most competitive economy in the G20.”
Andrew Tyrie, Conservative chairman of the treasury select committee that will weigh the Budget, is on his feet, opines: “There’s certainly more to digest in this Budget than many people thought.” He singles out four measures that will require his committee’s scrutiny: the Bank of England’s remit, the employment allowance, the housing initiative and the accelerated reduction in corporate tax.
The Spectator’s editor Fraser Nelson has tweeted a chart of how the debt/GDP ratio has refused to bow to the government’s forecasts.
Robert Peston, the BBC business editor says the fact that all the Chancellor could do was off-balance sheet promises to boost first-time buyers and a relatively small refund on NI for small businesses, shows how little room the government has for movement.
At least one punter is pleased…
From the Twitter feed of the FT’s editor:
The BBC’s political correspondent Norman Smith points out that the OBR says the unemployment rate is not coming down any time soon.
The Chancellor chose to concentrate on an absolute number of jobs – 600,000 – over that period.
Danny Alexander, Osborne’s deputy at the exchequer, has gone on the BBC, where he remaining serene despite being baited from several directions. In the grand scheme of things, this is a non-event, says Stephanie Flanders, the BBC’s economics editor. She asks the minister whether he can name anything in the Budget that will make a measurable difference to growth over the coming year. “All of the things that we are doing will make a difference,” comes the response.
Partners from Deloitte’s have been assessing the impact of the Budget on the public finances, education and policing.
“The extra squeeze on a number of Government departments outlined by the Chancellor today increases the pressure on a public sector already facing immense challenges. Those departments being asked to find savings will have been through this process two or three times already and cuts alone simply won’t be enough to tackle the long term strains on public finances.”(Rebecca George, public sector partner)
“While schools funding has a reprieve, for now, we may still see skills and higher education funding come under pressure as the Department for Business, Innovation and Skills faces an extra squeeze. Investing in skills and education during times of low economic growth is critical if we are to continue to develop young people and the future workforce. It will be important to ensure that schools are investing in the right things to improve the outcomes and value for young people. More needs to be done to ensure that the money available is delivering a great education to all.” (Julie Mercer, head of education)
“The Home Office has been exempted from extra spending reductions but still faces a challenging period ahead. The new National Crime Agency and College of Policing will both need to earn credibility quickly, and the effectiveness of border and immigration operations will remain a key focus area. In doing so, the department will still need to continue to drive out savings in the longer term.” (James Taylor, policing and home affairs)
Francesca Lagerberg, head of Tax at Grant Thornton, thinks the Chancellor sborne should have stayed in bed today.
“The way that this Budget was down played in advance made you wonder if the best policy was to stay in bed throughout the speech, with the duvet firmly over your head and the radio on low. Debt in the UK was rising. Youth unemployment remained high. The economy was stagnating and the longed for ‘green shoots of recovery’ were stubbornly dormant. The growth forecast for 2013 of 1.2 per cent was to be halved. Against this backdrop, the pressure was on the Chancellor to find something to make us peek out from under the covers.
The partners over at KPMG give their scathing verdict:
It is now clear that ambitious deficit reduction is stunting growth. Hemmed in by what is left of ‘Plan A’, today’s measures amount to little more than rearranging the deckchairs – this budget may be technically neutral but the fiscal stance remains strongly contractionary.
The UK high street has been suffering for months, and the Budget isn’t going to help them recover, says David McCorquodale, head of retail at KPMG:
“Retailers are now left facing a 2.6% hike to their business rates bill, a move which will add £175m to their overheads. Amongst a backdrop of flatlining sales and continued austerity, this is not a welcome move by the Government.
“With its extensive property portfolios the sector is particularly vulnerable to rate rises, and today’s decision to do just that will undoubtedly have a negative effect on those businesses in distress.
As the dust settles, the emerging highlights:
Growth forecast for this year cut to 0.6 per cent from 1.2 per cent in December and next year is now expected to grow by 1.8 per cent rather than 2 per cent
Borrowing to rise to £114bn in 2012-13 fiscal year, up from earlier forecast of £108bn
Borrowing to rise for next three years to 2015-16, a year longer than forecast
Borrowing as a percentage of gross domestic product to peak in 2016-17, a year later than earlier forecast
UK will need to borrow an additional £61bn over the next six years
Review of the Bank of England’s remit to see whether it should be expanded to include growth under Mark Carney, the new governor
Interest-free loans worth 20 per cent of the value of new homes on properties worth up to £600,000
Government to offer guarantees from start of 2014 for three years on £130bn worth of mortgages
Corporation tax cut by 1 percentage point to 20 per cent from 2015
New employment allowance to cut national insurance bills by £2,000 for every firm
Government procurement from small firms to rise fivefold
Tax relief for investment in social enterprises
Stamp duty axed on shares traded on growth markets like Aim
From April 2014 personal tax allowance rises to £10,000
Single flat-rate pension of £144 a week brought forward a year to 2016
The capital gains tax holiday is to be extended
Planned fuel tax rise abolished, maintaining freeze for two more years
Neil Prothero of the Economist Intelligence Unit seems to be echoing Ed Miliband’s lines: new budget, same story:
“Growth forecasts revised lower for many years to come, government borrowing forecasts revised higher for many years to come and consequently total UK public debt will continue to trend higher at an alarming pace. The government had initially hoped this debt burden would stabilise in 2015 but there is now little prospect of this occurring before at least 2020. The government response to more years of anaemic growth and rocketing debt? A new remit offering the Bank of England even greater freedom to ignore its inflation target (which it has exceeded in each of the past 39 months) and official subsidies and guarantees to entice an over leveraged private sector facing many more years of squeezed incomes to enter an increasingly distorted, overvalued and supply-constrained housing market.”
The FT’s energy correspondent Guy Chazan has been looking at the impact of Mr Osborne’s plan to introduce a “generous new tax regime” for shale gas to help transplant the North American shale boom to the UK.
Mr Osborne said the package of support for the UK shale gas industry included a new shale gasfield allowance, as well as other tax breaks.
The government will also produce technical planning guidance to provide clarity around planning for shale gas during the exploration phase, and launch proposals to allow local communities to benefit from shale gas.
The gas industry welcomed the changes, saying they would help shale gas in the early exploration phase. “Anything that brings down the cost of exploration will really help get the industry off the ground,” said Ken Cronin, head of UKOOG, the UK onshore operators’ group. “And the quicker we can get the exploration phase done, the quicker we can work out how much of our gas is technically recoverable.”
Supporting documents said the UK shale gas industry had the potential to “provide new employment and support UK energy security, benefiting the economy, taxpayers and communities”.
The documents said that by the end of the year, the government would produce guidance for the industry to ensure the planning system was properly aligned with the licensing and regulatory regimes.
The Budget also provided clarity on tax relief for decommissioning costs, a key concern for the North Sea oil industry. It said the government would enter into contracts known as decommissioning relief deeds with oil and gas companies to provide certainty on the relief they will receive when decommissioning assets, and added that the first contracts with industry would be signed later in the year.
Robert Chote of the OBR confirms that government is likely to miss its secondary target for beginning to reduce the deficit and he expects 3 YEARS of zero progress on reduction.
Has Osborne dragged the bottom rung of the property ladder within reach of millions of new potential home-owners? Very possibly not, reckons Ed Hammond, the FT’s property correspondent.
While housebuilders were quick to welcome the government’s decision to use £12bn to underpin £130bn worth of mortgages, not all estate agents were enamoured with the idea.
“If someone goes in with a 5 per cent deposit alongside the government’s 20 per cent equity loan, many banks will be nervous. It doesn’t instil the confidence to turn on the taps,” said James Moss, managing director of Curzon Investment Property, the estate agency. “Fundamentally, the banks are still in a lot of trouble through the knock-on effects of Europe. Unless lending is rock solid, we’ll see no net improvement in the situation”.
Jim Pickard, FT political correspondent, has been digging for the detail:
Richard Threlfall of KPMG reckons help-to-buy is “the perfect ‘get-out-of-jail’ card”.
“It’s a bold move, perhaps a desperate one, but one that will be undeniably welcome by the beleaguered construction industry.
“The Government has finally recognised that housing might offer the fastest acting pain relief for our economic woes and, perhaps despairing of local authorities to be proactive in supporting new house building, has decided to focus stimulus on demand.
“By opening the scheme to all buyers of new-build houses up to £600,000 in value, the chancellor has thrown the UK house-building industry a new lifeline. Ultimately, the construction industry and all trades that support construction of new houses in the UK will benefit from the new scheme.”
And so we bid your farewell for another Budget day. See FT.com through the afternoon and evening for extensive analysis.