Snapdragon Bulletin – The Kaleidoscope Budget…
Quote of the Day:
“The secret of life is honesty and fair dealing. If you can fake
that, you’ve got it made”
Osborne to the rescue…
Or was it the Robin Hood Budget, as the Government prefers to have it? However, if so, Government has got a little confused with the principle tenet of the Robin Hood approach being to take from the rich and give to the poor, rather than just looking like you’re taking from the rich and giving to the poor. This felt a little more like a game of rearranging the seating plan at a wedding so that family feuds are avoided. Although, all members of the family were happy about the decision not to put any further duty on alcohol so all those top earners can still enjoy their glass of Chablis without incurring further cost on top of their taxes…
A typically childish PMQs preceded what turned out to be a very dull Budget, most of which had already been leaked – perhaps this was the point, bore them to death and they might miss some of the key points. Sitting on the bench behind the Chancellor, Nick Clegg looked slightly constipated, Cameron looked a bit bloated and Danny Alexander just nodded a lot. Not sure where Vince Cable was – he has obviously been relegated to the children’s table due to being too outspoken in previous weeks.
The Chancellor opened with the statement that “This Budget supports work and unashamedly backs business” (read growth, infrastructure and the NPPF??). Veering rather dangerously close to the infamous (and oft misquoted) Norman Tebbit comment of “he got on his bike and he found a job”, Osborne declared that Britain is going to earn it’s way in the world as are individuals.
There were many glum faces on the Tory benches in response to changes to SDLT and tax relief, there may have been some confusion as to which party had put together some elements of the Budget. Arguably, Ed Miliband got a better reception than George Osborne overall – particularly when he asked the Cabinet to nod if they were now going to be better off or shake their head if they weren’t, cue an unusually rigid group of MPs, scared to make any form of movement.
As ever, we won’t really know how the various pieces look until there has been some more scrutiny down the kaleidoscope (why find a new metaphor when you can hammer a badly-used one from earlier this week to death) and there has been more in-depth analysis of the various reams of documents which come out alongside the Budget. According to the monotone Chancellor, it is apparently a reforming budget – maybe the public would prefer a transforming budget (as in a robot in disguise) which turns from a dull, entirely pre-leaked speech, into a superhero conquering the world…However, this is what we think so far:
What we already knew:
Confirmation and flesh on the bones on various trailed announcements as follows:
50p tax rate to be reduced to 45p from April next year on the basis that it is the highest in the international economy and is harming the economy. Apparently huge distortions caused with income being shifted. I suspect that anyone wanting to argue counter to this could probably also find evidence to support their case – a bit like the Bible really.
Increase in the personal tax allowance to £10,000 to be phased over the next few years. This is likely to be funded by future cuts to the Welfare Budget – whilst finishing by declaring that all will be better off, the Chancellor confirmed that the welfare budget remains too high and will need to be confronted in the Spending Review. It is likely that the Spending Review will see some dramatic cuts to fund the current breaks.
A credit-easing scheme for SMEs where the Government will underwrite loans – I suspect this is easier than measures such as cutting corporation tax for small business, or anything else, as it will only affect the public balance sheet if small businesses take up the loans and then default on them anyway, it is by no means a measure to help all SMEs. £20bn of guarantees in total will be available but there was no indication of what the expected take-up of this is.
A personal tax breakdown for all individual tax payers so we can all see where every penny of our money has been spent – clearly in a time of austerity, this is obviously the best use of scarce public funds and won’t at all open up a whole can of worms about spending or which are worthy causes etc etc…
The introduction of regional pay deals – whilst this is being slated by the Labour party, it is something they tentatively introduced and is probably something they would be in support of, if only they were in power…
A building fund for new buy homes, guaranteeing 95% mortgages, a marvellous way of underwriting the debt that people can’t afford. Definitely not better than the extension of the Stamp Duty Holiday…
It always makes the Chancellor feel better when he can start by highlighting how badly the other kids in the playground are doing – Germany, France etc slowing down, my dad is tougher than your dad type of stuff… Many guffaws of disbelief at the comment that the OBR are actually slightly revising upwards the growth forecast for the UK, accompanied obviously by approving nods and supportive ‘aaaahhh’s’ from the Coalition benches. It’s also good to see the delusion of those in power, with Osborne seeming to take credit for keeping interest rates low – he’s obviously forgotten that the Bank of England is independent and, if it was up to him, rates would probably have been hiked up a while ago.
The Chancellor confirmed that borrowing is falling – that’s probably because, grossly misappropriating another well known quote, the country is ‘being squeezed until the pips squeak’, you don’t need to borrow a lot if you’re not spending anything. Osborne reiterated that the government is not wavering from the austerity package – this Lady is certainly not for turning. But apparently it’s all okay as inflation will fall, unemployment will fall and growth will increase according to the OBR. The markets may be thrilled but the excitement of the upgrading of the growth forecast by 0.1% doesn’t seem to be translating onto the streets…
The Chancellor said that ‘some’ would have been tempted to spend the windfall from the Royal Mail pension scheme apparently (would that ‘some’ specifically be Gordon Brown??) But instead, Little Osborne is paying off debt with it – well, slowing the rate of interest in existing debt, not exactly paying debt off.
Don’t get old or ill…
Osborne announced the need for the Government to address the rising costs of the ageing population; this contains a myriad of measures:
Reduction in age-related allowances
The publication of a White Paper on Social Care – following the smooth and easy passage that the NHS Reform Bill had, I’m sure all of the relevant organisations will be looking forward to that one. Perhaps Cameron will have a reshuffle, stick Andrew Lansley in charge of this one as well and then throw him overboard when he’s become as unpopular as it’s possible to become.
Anyone under the age of about 45 can probably kiss goodbye to retiring, ever. Basically, we will all work until we drop. Although, in another few years we will probably be working on the basis of a Government work scheme meaning we get to stack shelves at Tesco in exchange for receiving a pension, or perhaps for free, just to get old people out of hospital beds and off the social care bill…
Transport, infrastructure and planning
Osborne declared that, “You can’t earn your future if you can’t get planning”
Much disappointment here at Snapdragon, we had focused our entire week around the NPPF coming out today; we had sharpened up our razor wit and had clever thoughts at the ready. However, alas, we have to wait for that excitement for another day – Tuesday apparently. The comments made by Osborne in relation to the NPPF were very much growth focused and strongly gave the indication that it would remain fairly similar to the draft. The Chancellor reconfirmed that the document will remain short and that the Presumption in Favour of Sustainable Development would remain. It also seems that the publication of the NPPF will actually also be the official implementation so it will come into effect on publication. This will certainly ruffle some feathers…
On the upside, Hezza is coming back - again – he’s a bit like a boomerang, the Government regularly throw him out there with the hope that he will come back with some marvellous ideas and successes which they can notch up as their own. This time he is to work with government to see how they can work better on development projects with the private sector.
Transport investment in the north of England to be significantly increased, quite a remarkable step for a Conservative-led Government. Working with local areas to support their ideas to grow the private sector. The Government made an announcement earlier this week about a new deal with Manchester on the basis of an ‘Earn Back’ model to boost jobs, infrastructure, training etc.
The intention is to unlock £1.2bn of infrastructure investment across the city region. Key additional points on infrastructure include:
The Government will remove duplication in the consenting regime for major infrastructure development by bringing forward legislation to adjust the scope of Special Parliamentary Procedure, and will shortly publish draft revised guidance to make the regime clearer and easier to use;
To take forward many of Alan Cook’s recommendations for the roads, including developing a national roads strategy and setting a renewed focus on the level of performance expected from the Highways Agency. The Government will also consider whether to go further and will carry out a feasibility study into new ownership and financing models for the national road network, learning lessons from the water industry, to report on progress by Autumn Statement 2012;
To make Belfast, Birmingham, Bradford, Bristol, Cardiff, Edinburgh, Leeds, London, Manchester and Newcastle super-connected cities, as part of the £100 million investment announced at Autumn Statement 2011. By 2015 this will deliver ultrafast broadband coverage to 1.7 million households and 200,000 businesses in high growth areas as well as high-speed wireless broadband for three million residents. The Government will also provide an additional £50 million to fund a second wave of ten smaller super- connected cities;
To invest £60 million to establish a UK centre for aerodynamics which will open in 2012–13 and support innovation in aerospace technology, commercialise new ideas and spin-off technologies with wider applications in other sectors;
To support the establishment of a new Pension Infrastructure Platform owned and run by UK pension funds, which will make the first wave of its initial £2 billion investment in UK infrastructure by early 2013. A separate group of pension fund investors has also presented proposals to the Treasury for increasing pension plan investment in infrastructure in the construction phase;
To make up to £150 million available from 2013–14, including through additional funding, for larger scale projects in core cities to be financed through Tax Increment Financing (TIF 2), which enables local authorities to borrow against future growth in business rates. Further details on a competition for allocating funding will be announced in the coming months;
Subsidies will also be forthcoming for nuclear power and renewables. The Government will also be publishing a new Gas Strategy, seeing this as the way forward for energy in the UK. Unclear at this stage whether this also include fracking, but one to watch.
With remarkable alacrity and managing to avoid choking on his words, Osborne commended Boris for the marvellous way in which he has handled management of London. Government will be reviewing airport capacity in the south east and working with the Mayor to improve infrastructure. The Mayor is also to create a new, £70m development fund to create new business and jobs. The Royal Docks Enterprise Zone will have enhanced capital allowances to facilitate job creation..
Whilst there was scant mention of property and development in the speech itself, the supplementary documents contain quite a few points which are likely to be covered in the NPPF next week and certainly point to the direction of travel. Specifically:
Government will consult on the potential for reconsidering planning obligations agreed prior to April 2010 where development has stalled – likely to be controversial in some local authorities but may address some key blockages;
Key statutory consultees are to be held to account for the delivery of sustainable development in line with the NPPF;
The Government will consult on proposals to amend the Use Class Order and the associated permitted development rights to make change of use easier – more detail on this is likely to be within the NPPF;
To increase the Get Britain Building Fund by £150m;
To publish a progress report on the release of public sector land before summer 2012 and have two (yes, a whole two) sites ready for marketing on the basis of land auction pilots by the end of 2012 – this seems to be a very slow moving initiative for something which was such a high profile announcement in the first instance;
To publish a consultation on the potential for a social housing REIT and the support it could play in terms of investment in the social housing sector – this moves the debate onto wider territory from standard resi REITs to specific social housing REITs, certainly with the dramatic increase in the thresholds for Right to Buy the government need to look at measures to replace housing stock. In line with this, the Government will review the tax treatment of REITs when they choose to invest in other REITs;
To increase the Growing Places fund by £270 million to empower local communities and businesses to lead development in their own areas, including £70 million for the Greater London Authority, in recognition of London’s position as the largest regional economy in the UK and unique devolution arrangements. This will be funded from within existing departmental budgets;
In the small print, the Government are getting rid of SDLT relief on a host of things including:
Stamp Duty relief for transfers to registered social landlords;
Stamp Duty relief for disadvantaged areas;
Stamp Duty Land Tax relief for disadvantaged areas;
Stamp Duty relief for shared ownership transactions;
Stamp Duty relief for certain leases granted by registered social landlords;
Stamp Duty relief for visiting forces and allied headquarters;
Referencing the ghost of Adam Smith about making taxes fair, apparently, the changes to personal taxes will raise five times as much as the previous system…
Osborne opened by saying that “My goal is a system where the lowest paid are lifted out of tax altogether and the wealthiest pay more” (errr, I’m sorry, do I know you, I thought you were George Osborne??) He also declared that tax avoidance is ‘morally repugnant’, which may well mean he has problems with many of his friends when he visits them on their yachts this weekend, not sure how the Tory donors will feel about this… Although he really did look and sound repulsed by tax avoidance, I can only imagine what would happen if he came across a repugnant individual, he may melt.
As expected, Stamp Duty avoidance targeted – taking action by increasing SDLT on properties over £2m bought into a corporate envelope to 15% with immediate effect. Also consulting on the introduction of a large annual charge on those £2m properties which are already contained within corporate envelopes. Plus Capital Gains Tax on property held in overseas companies. A new SDLT of 7% on properties worth more than £2m, effective from midnight tonight.
Instead of withdrawing child benefit all at once, it will only be withdrawn when someone (currently assuming that means individually not household income) in the household earns more than £50K, this will be gradual. Only those with an income of more than £60K will lose it completely. 90% of all families will remain eligible for child benefit.
Lots of cheers on the media and film announcements – keeping Wallace and Gromit in the UK – wow, a joke from the Chancellor, that was actually funny!
Cut in corporation tax by 1% for large business – no further cuts for small business though, given that SMEs are suppose to be saving the world this seems a little remiss (although, I am biased). Reducing the rate of the bank levy so that Corporation Tax cuts do not benefit the banks.
The grand finale:
“This country borrowed it’s way into trouble and now we’re going to earn our way out”
Thanks, well said, unfortunately it leaves us with an image of a small mole trying to burrow it’s way out of the darkness into light but, as moles are blind, the daylight may not help much anyway…
We are now going to relax and get ourselves ready for the excitement which is sure to be the NPPF next Tuesday…