The detail of the Government’s Mini Budget is likely to be over- shadowed by the Chancellor’s gloomy economic news. Economic growth in 2012 will be less than expected, dropping from 0.8% to -0.1%, meaning the UK economy will contract this year. In the mid-term the Government is now predicting growth of more than 2% won’t return until 2015. Therefore much of this Mini Budget is about efficiencies in Government spending. Even so, it’s now predicted it will take a further year for the deficit to reduce, with the first reduction now set for 2016/17.
It wasn’t a surprise then to learn the Government’s austerity measures will be extended to 2018 with further benefit cutbacks announced to save an extra £3.7bn in 2015/16. As we have heard in recent weeks the Government appears to be pinning much of its hopes on clamping down on tax evasion whether in the UK or through new tax treaties. The Government would argue this is effective as prosecutions for tax evasion in general are up 80%.
It was also important to notice the omissions from the Chancellor’s Statement including the absence of a new tax on property value as championed by the Liberal Democrats.
So what are the key points you need to be aware of?
Tax and Allowances
As far as personal tax is concerned the basic income tax threshold is to be raised to £9,440, slightly higher than expected. For higher rate tax payers the threshold for the 40% rate will rise by 1% in 2014 and 2015, from £41,450 to £41,865 and then £42,285.
The inheritance tax threshold will be increased by 1% next year. For savers, the ISA contribution limit is to be rise to £11,520 from April 2013.
As far as corporation tax is concerned the good news for companies is that from April 2014 it will be cut by an extra 1% to 21%. The temporary scheme to double small business rate relief will also be extended for an additional year to April 2014.
Unemployment may now peak at 8.3%, slightly less than previously forecast and the Chancellor has staked his reputation on employment rising each year of this parliament. The Chancellor also reported 1.2 million jobs have been created in the private sector since the start of this parliament.
The basic state pension will rise by a welcome 2.5% next year to £110.15 a week. However the lifetime pension relief allowance is to be cut from 2014-15. The allowance will fall from £1.5m to £1.25m which means the annual allowance is cut from £50,000 to £40,000. This change affects few people but if you’re caught it’s a significant change.