Chancellor George Osborne claims his Budget will “put fuel into the tank of the British economy” as he cuts petrol duty by 1p a litre and unveils a package of measures to boost businesses.
“It’s hurting, but it isn’t working,” he added.
“We have already asked the British people for what is needed, so today we don’t have to ask for more,” he promised.
“We have already asked the British people for what is needed, so today we don’t have to ask for more.” Chancellor George Osborne
The most eye-catching measure was the introduction of what Mr Osborne called a “fair fuel stabiliser”. With world oil prices rising and oil companies making bigger profits, the tax on oil and gas production would be increased from 20 per cent to 32 per cent – raising an extra £2billion for the Exchequer.
That money would be used to scrap next month’s planned 5p per litre fuel tax increase and instead introduce an immediate 1p per litre tax cut, said the Chancellor. The fuel duty escalator introduced by the last Labour Government, which was due to increase petrol taxes over the next three years, would be scrapped. Only if there was a major fall in oil prices would the escalator be re-introduced.
The Big Numbers in the Budget document were all going in the wrong direction, writes Faisal Islam. Growth down, borrowing up, national debt up, unemployment up and inflation up, versus November. The picture of the economy painted by the Office of Budget Responsibility is a picture of pain.
The question that was being asked in the Treasury was nowhere near giveaways. It was whether or not there should be further tax rises and spending cuts. Only the judgement by Robert Chote that this budget hit is cyclical in nature prevented that.
That is why you should ignore the guff about helping ordinary people. All the supposed giveaways were funded by takeaways. The net impact of this Budget this year is £10m or 0.0000067 per cent of GDP. The tax allowance rise, worth in real terms a packet and a third of Maltesers (92 pence per week) wasn't big to start with, but will all be swiped back by George Osborne's signature CPI indexation change.
Read Faisal Islam's blog - Budget: Zero sum game?
And there were two other headline tax cuts in the Chancellor’s package: another increase in the personal tax allowance – up by £630 to £8,105 from April next year – taking more low-paid workers out of tax altogether and worth £48 per year to all taxpayers, and a 2p cut in corporation tax – part of a package of measures aimed at helping business.
But Mr Osborne headed off criticism that this could be another windfall for the banks by announcing that there would be a corresponding increase in the bank levy to stop them from benefitting.
He also announced cuts in regulations, particularly for small and new businesses, and more aid for entrepreneurs. There would be 21 new Enterprise Zones created in depressed areas and more apprenticeships and work experience schemes to help the young unemployed.
MAIN BUDGET MEASURES
Income tax allowance to rise from £7,475 to more than £8,105 in April 2012
Tax avoidance loopholes to be closed, raising £1 billion
50p tax rate stays for now - but to be reviewed
Consultation on merging National Insurance and income tax
A £50,000 charge for non-doms who have lived in the UK for 12 years
Business and jobs
Corporation tax to be cut by 2% from April, and by 1% in each of the following three years, to bring it down to 23%
Bank levy to be raised to offset cut in corporation tax
Extra 40,000 apprenticeships for jobless young people in England
21 Enterprise Zones to be created
Fair Fuel Stabiliser introduced - funded by rising tax on North Sea oil and gas production from 20% to 32%
Fuel duty cut by 1p per litre
Tobacco duty changes to tackle cut price cigarette market
No new changes to alcoholo duty
Air passenger duty rise postponed for a year
£250 million shared equity scheme for first-time home buyers
£100 million to help repair potholes on the roads
Single-tier flat-rate state pension of about #140-a-week to be created
Gift aid administration to be simplified, especially for small donations
The Chancellor began his one-hour Budget speech by announcing that the OBR had down-graded its forecast for growth in the current year from 2.1 per cent to only 1.7. But he said the figure was expected to rise to 2.5 per cent next year and to 2.9 per cent in 2013 and 2014.
The OBR projects that borrowing over the next five years will be £47 billion higher than previously predicted.
Though the figure for this year – £146billion – is £2.5bn below its November forecast, it has upgraded its estimate for next year from £117bn to £122bn. And by 2015/16 it will be down to £29 bn – but this is still £11bn above its previous target.
Similarly, inflation was now expected to remain high – at between four and five per cent – for the rest of this year, before falling back to 2.5 per cent next year and finally returning to the Treasury target of two per cent in two years’ time.
Mr Osborne confirmed that the Government is to consult over plans to merge income tax and national insurance (NI) payments, but he allayed fears that NI would become payable by pensioners. “Our purpose is not to increase tax, but to simplify it,” he said.
He also planned to simplify pensions, aiming at a flat-rate State pension worth £140 per week, although this would not apply to existing pensioners. The age of retirement – which is due to rise to 66 by 2020 – would be reviewed to allow for automatic rises in line with increasing logevity over the years.
'Keep calm, and carry on'
"The Chancellor had to tread a thin line between giving people something to keep their spirits up, but making sure there is enough money in the kitty to keep on paying the bills," Ernst and Young tax partner Caroline Artis told Channel 4 News.
"It's a real kind of post-war, austerity type Budget. It sounds a bit like 1947 - a royal wedding and an austerity Budget...a 'keep calm and carry on' motto."
Read more from Channel 4 News on Budget 2011: the analysis
The Chancellor also confirmed reports that a new £250million “First Buy” scheme would be introduced – helping 10,000 families onto the housing laddeer by providing low-rate loans to help them raise deposits on newly-built houses. And there would be tax incentives to help boost charitable giving.
But Labour’s Ed Miliband said the poor growth figures from the Office for Budget Responsibility showed that “it is hurting, but it’s not working”.
The Chancellor had blamed December’s snowfall for depressing the economy at the end of last year. “It is not the wrong type of snow to blame,” he said. “It is the wrong type of Chancellor in the wrong type of Government with the wrong priorities for Britain.”
The claimed tax cuts were “a Tory con”, he said – particularly the cut in fuel duty. “The Chancellor has cut duty by 1p, but he’s whacked up VAT on fuel by 3p,” he said. “Every Tory tax cut ends up costing (people) more.”