Chancellor of the Exchequer George Osborne has given his Autumn Budget Statement, in response to the latest forecasts for the UK economy released by the independent Office for Budget Responsibility (OBR).
Unlike in previous years, the Chancellor did not make any major tax or spending announcements this Autumn, with those instead being put on hold until the next Budget, which will take place on 23 March 2011.
- UK economic growth in 2010 revised up from 1.2 per cent to 1.8 per cent. Growth in 2011 revised down from 2.3 to 2.2 per cent, and in 2012 from 2.8 to 2.6 per cent.
- Job losses from public spending cuts by 2014-15 revised down from 490,000 to 330,000.
- OBR predicts continued recovery from recession, but at ‘sluggish’ pace.
- Public sector borrowing to peak at 69.7 per cent of GDP in 2013/14, before falling to 67.2 per cent by 2015/16.
- Unemployment to peak at 8.1 per cent next year, falling to around six per cent by 2015.
- Inflation set to fall from current level of 3.2 per cent to 1.9 per cent in 2012.
- Consultation on further simplification of corporate tax regime announced.
- New 10 per cent tax rate on income from newly-commercialised patents from April 2013.
- Cross-departmental Growth Review to consider how all areas of government can offer further support to entrepreneurs.
Setting the scene
The OBR was established by the Chancellor shortly after the new coalition government came to power, with a brief to carry out independent assessments of the public finances and economy.
It kicked off its autumn figures with some good news – the OBR anticipated the UK economy will have grown by 1.8 per cent during 2010, up from its previous forecast in June of 1.2 per cent. It also revised down the number of jobs it expected to be lost as a result of the government’s spending cuts from 490,000 to 330,000, as a result of better-than-expected savings on welfare bills.
However, this was countered by lower growth forecasts for subsequent years – down from 2.3 per cent to 2.1 per cent in 2011 and down from 2.8 per cent to 2.6 per cent the following year.
It stated the government’s austerity measures – including £81billion of spending cuts and January’s increase in VAT – would lead to ‘sluggish’ growth in the medium term, with the UK economy recovering more slowly than has been the case after previous recessions.
Despite the spending cuts and tax rises, public sector net borrowing was expected to be £148.5billion this financial year – £1billion less than previously forecast – and £117billion in 2011/12, up £1billion from June’s estimate.
Total public sector debt is expected to peak at 69.7 per cent of GDP in 2013/14, before falling to 67.2 per cent by 2015/16.
Unemployment is set to peak next year, at 8.1 per cent, before falling to around six per cent by 2015, by which time the OBR predicts the private sector will have created an additional one million jobs.
Inflation was predicted to fall from the current annual rate of 3.2 per cent to 1.9 per cent by 2012 as the impact of the VAT increase and other temporary factors such as rising commodity prices faded.
George Osborne said the UK economic recovery remained on track despite ‘challenging’ economic conditions. He told MPs, the UK was ‘moving from an economy based on debt to an economy where we invest and export’.
He also said that the OBR’s forecasts showed the government was right to take the ‘decisive’ action that was needed to shore up the UK’s financial position.
While a so-called ‘double dip’ recession had not been ruled out, Mr Osborne said that the chances of such a scenario were receding.
He added that, in addition to the reductions in Corporation Tax announced in the last Budget, the government would be consulting with businesses on further simplifying the business tax regime, including reforming the rules on Controlled Foreign Companies, which he said had led to a number of firms relocating overseas. He also confirmed that from April 2013, a lower 10 per cent corporate tax rate would be applied to profits from newly-commercialised patents.
A cross-government Growth Review has also been launched, to examine how every part of government can remove barriers for entrepreneurs and innovators, for example by simplifying planning and employment law, offering more support for exporters and inward investors and reforming the competition regime.
Official documents from the 2010 Autumn Budget Statement