Each Budget day, I send my constituents an analysis of what the Chancellor announced and a summary of the key measures. Here is this year’s offering:
First, the good news
The Chancellor always starts with economic forecasts from the independent Office of Budget Responsibility.
The data he presented today shows just how much the economy has improved in the last 12 months. A year ago, the OBR forecast that the economy would grow by just 0.6% in 2013; it actually grew by 1.8%. And they predicted that it would grow by 1.8% in 2014; they’re now predicting it will grow by 2.7%. That’s the biggest upward revision between Budgets for at least 30 years. Britain is growing faster than Germany, faster than Japan, faster than the US, in fact faster than any advanced major economy. Later this year, the OBR expects our economy to finally get back to where it was before the great recession under the last Government.
The economy has created an additional 1.35 million jobs since the last Election and the OBR forecast that it will create a further 1.5 million jobs over the next five years.
They have revised down their forecasts for the deficit and for total debt. That means that the Government will have to pay less in interest payments, which means more money is available for public services.
And finally, they forecast that earnings will grow faster than inflation this year and will continue to do so for the foreseeable future. This is really important because it means most of us will begin to feel the benefits of the recovery in our pockets.
Now the bad news
But it’s not all good news.
While the deficit may be lower than forecast, it’s still too high. When this Government came to office, it was £157,000,000,000. That was 11% of GDP (Gross Domestic Product - the total value of our economy). The OBR say that this year it will be 6.6% of GDP, down by more than a third but still too much. And the underlying structural deficit - the part of the deficit that won’t disappear however fast the economy grows, a measure of the permanent damage done to the UK economy by the last recession - has fallen, but no faster than forecast. The only way to get rid of that is to continue to take tough decisions on public spending so we’re not out of the woods yet.
We also need to tackle some of the fundamental problems that have dogged the British economy for years under governments of both parties - we don’t invest enough; we’re too reliant on the City of London and don’t make enough things; we don’t export enough; and we don’t save enough.
And finally, many families are struggling to cope with the rising cost of living.
The Chancellor announced a range of measures to tackle these problems:
Continuing to reduce the deficit
• A cap on the welfare budget (excluding unemployment benefits and pensions). If we allow welfare spending to rise by more than the rate of inflation, as has happened in the past, it means less money for key public services like the NHS, schools, the police and the armed services. We should be proud of having a safety net that protects those in need, but it has to be affordable.
• An increase in the Annual Investment Allowance - the amount of money businesses can spend on investment without paying upfront tax - from £250,000 to £500,000. When we came to power it was just £25,000.
• New centres in doctoral training, cell therapy, graphene and big data and algorithm research (the latter named after Second World War hero Alan Turing who was so shamefully treated by this country) to build on our excellence in science, technology and engineering and try to turn it to our commercial advantage.
• 100,000 new apprenticeships.
• A housing package that will help build over 200,000 new homes.
• £200 million to repair our roads (I have already encouraged Croydon Council to bid!)
• A new air ambulance for London.
• A £7 billion package to cut energy bills for British manufacturers (which will also be of some benefit to families and other businesses).
• More financial support for exporters, doubling the amount of lending available and cutting the interest rate by a third.
• A new Pensioner Bond to help those pensioners who have seen their incomes fall as a result of low interest rates. Open to everyone aged 65 or over, it will offer rates of around 2.8% for a one year bond and 4% for a three year bond with a maximum of £10,000 in each bond.
• Simpler, more flexible and more generous Individual Savings Accounts (ISAs) with an annual limit of £15,000.
• Changes to the tax treatment of defined contribution pensions giving pensioners complete freedom to draw down as much or as little of their pension pot as they want anytime they want with no-one being made to buy an annuity; a right to free, impartial advice; and a cut in the tax rate if you want to take more than a quarter of your pot on retirement from 55% at present to normal marginal rates (20% for most pensioners).
• The abolition of the 10p starting rate for income from savings - no-one will pay tax on their first £5,000 of saving income.
Support for hard-working families
• The personal allowance - the amount of money you are allowed to earn before you have to start paying income tax - will increase by another £500 to £10,500 next year. This helps most people, but proportionately it benefits those on the lowest incomes the most. When we came to power, the personal allowance was just £6,475. By 2015, we will have taken more than 3 million people out of income tax altogether and cut the income tax bill of someone working full time for the minimum wage by more than half.
• The higher rate threshold - the amount of money you are allowed to earn before you start paying tax at 40p in the pound - will increase from £41,450 to £41,865 next month and £42,285 next year.
• The fuel duty rise planned by the last Government for September will not take place. Petrol will then be 20p per litre lower than it would have been under Labour’s plans.
• Air Passenger Duty will be reformed, with the unfair banding system introduced by the last Government abolished. This is great news for many of my constituents who have family in the Caribbean or south Asia and now won’t have to pay such high fares to visit them.
• Further measures to tackle tax evasion and aggressive tax avoidance. Just as we target those who abuse our welfare system, we should also target the well-off who seek to avoid paying their fair share.
...in some ways, this Budget was as important for what the Chancellor didn’t do as for what he did do. In the past, Chancellors presiding over an improving economy with an election on the horizon have spent the gains on a pre-election giveaway - and we’ve paid the price down the line. George Osborne didn’t do that today - he cut taxes a little but he paid for it by cutting spending by the same amount. He is sticking to his plan and taking the right decisions for the long term and he deserves a lot of credit for that.
PS Obviously I’m biased so I thought I’d end with a quote from John Longworth, Director General of the British Chambers of Commerce:
“Business wanted a Budget that was disciplined, focused and geared towards the creation of wealth and jobs - and that’s what the Chancellor has delivered”.