This is a brief overview of some of the 2014 budget measures with a full report from accountants, Blick Rothenberg.
According to the Chancellor yesterday, Britain’s economic growth this year will reach 2.7% when it was forecast this time last year to be 1.8% – this he claims is the biggest upwards revision to growth forecasts in 30 years.
Stressing that there’s still a long way to go, and that austerity measures and cuts are to continue, nevertheless there are strong signs that sustainable growth is becoming embedded.
The Government is still spending far more than it takes in taxation but its long-term plan is to cut the annual deficit each year until 2018, when it will run a small surplus.
Our overall national debt as a share of GDP should peak around 2016 at 78% of GDP. By cutting the annual deficit and starting to reduce overall debt, savings on interest payments to overseas fund managers will be considerable, but these will still be in the region of £75bn per year by 2018 – equivalent to all the council tax, business rates and fuel duty tax take combined.
The key message going forward from George Osborne is: we are still in a financial bind and until real growth and productivity increases play their part, it leaves little room for any tax giveaways.
His budget is largely aimed at business and those potential Tory voters who may otherwise defect to UKIP: pensioners and savers, but he claims, “If you are a maker, a doer or a saver, this budget is for you”.
Savers and pensioners will benefit considerably from a generous revision of the ISA allowances to £15,000 per person per annum, and pension rule changes which will allow people to draw down the whole of their pension in one go, without the need to purchase an annuity, though some of this draw down (not the 25% tax free allowance) will be taxed at their marginal rates.
After years of interest rates on savings at minuscule levels, affecting savings and annuity rates, these changes will be welcomed from anyone living on a fixed income and savings, or taking their pension in future. Mr Osborne said, “The message from this Budget is this: you have earned it, you have saved it and this Government is on your side.”
Although the Liberal inspired personal allowance change – the amount you earn without paying the basic rate of tax – rises to £10,500, the 40p higher rate for those earning above £41,450 goes up by just one per cent, a below inflation rate amount which will mean thousands more middle income workers coming into the high rate tax band this year.
On house prices, Government estimates on house prices forecast rises of 9 % by the 3rd quarter of 2014 with a prediction that the value of homes will increase by 30% by 2018.
A cynical move, some would say, is Osborne’s “welfare trap” for any potential future Labour Government, with a call for MPs to introduce a total cap on Britain’s welfare spending bill at £119bn in 2015, rising to £127bn in 2018.
There’s some evidence to show that those with the broadest shoulders are taking the brunt of the austerity burden, with the top 10 per cent left considerably worst off under tax and benefit changes since 2010 – followed by those in the bottom 10 per cent.
Although people are likely to feel just a little better off, with employment improving, and incomes growing at around 1.5%, predicted until 2018, it’s still well below the pre-crisis level of wages growth at around 2.8%, a cost of living factor Labour under Ed Miliband are emphasising at every opportunity under their guise of “The Cost of Living Crisis”.
On the whole, small and medium size businesses (SMEs) should benefit from increased tax relief on investments in equipment, and further measures benefit exporters by way of increase export guarantees. The annual investment allowance, currently fixed at £250,000 per year, will double to £500,000 from 1 April 2014 until the end of next year.
Government recognise the necessity to shift the economy away from its almost total dependence on the house price feel good factor and consumer spending towards corporate and infrastructure investment. As such the forecast from The Office of Budget Responsibility of a 50% increase in capital spending over the next five years implies a dependence on record levels of risk appetite and that businesses, big and small, really are optimistic and poised for growth.
Following on from previous budgets, the corporation tax ‘roadmap’ will see a further step reduction to 20% by 1 April 2015, reaching one of the lowest levels in the developed world, further re-enforcing the drive for competitiveness in the UK economy vis-à-vis the rest of the world.
Emphasising the still volatile global economic and political climate, the Chancellor said that threats to macro-economic stability could very quickly threaten the rise in confidence that Britain has experienced of late. He reminded us that UK energy prices are roughly double those in the US, a fact he intends to address in the coming months with the aim of reducing these costs to British industry and households.
Property does not escape unscathed from this budget, though most of the pain will fall at the very top end of the market.
The scope of taxes on so called top-end “luxury houses” that for tax reasons are “wrapped in corporate envelopes”, owned by companies in other words, will hit properties valued at £500,000 or more. This is a measure intended to prevent investors avoiding stamp duty and inheritance tax, and targets many of those so called mansions owned by absent owners left empty.
However, some are pointing out that these new measures are aimed at “normal homes” in some locations, not mansions. If a mansion tax were to be introduced these measures raise fears that any non-wrapped property of a certain value could come into a threshold which could be set well below £2 million.
It seems the government is keen to be seen to make sure that the super-rich are paying more tax, and by targeting residential properties held in companies this is a relatively easy way to achieve it.
Overall this budget seems to have been well received from the business community and a large section of the wider community, and some of the feared changes to buy-to-let investment taxation have not materialised.
For a full review of the detail of this Budget’s changes see this Budget Report by accountants Blick Rothenberg – www.blickrothenberg.com
By Tom Entwistle