SUPPORTING BUSINESS AND GROWTH
The Government will provide targeted support for businesses as the economy recovers, and will lay a foundation for sustainable long-term growth, opportunity and enterprise. Budget 2010 announces:
Finance for growing businesses
Launch of UK Finance for Growth, a body responsible for overseeing the Government’s stock of over £4bn of SME finance products, including the Growth Capital Fund (announced in PBR 2009), for which £200m of cornerstone investment has been raised so far from private sector and Government.
The threshold for the Annual Investment Allowance will be increased to £100,000 for expenditure incurred from April 2010 to incentivise business investment.
Entrepreneur’s Relief for Capital Gains Tax will be extended from the first £1m to the first £2m of gains made over a lifetime.
Improved support for SMEs
A new small business credit adjudicator with powers of enforcement to ensure that small businesses are fairly treated when applying for loans.
A temporary increase to the level of small business rate relief, so eligible businesses in England occupying properties with rateable value up to £6,000 will pay no business rates for one year from October, with further businesses benefiting from significant reductions.
A commitment to agree departmental targets and continue to reduce the barriers to public procurement for SMEs - if the whole public sector increased by 15% the amount of procurement that went to SMEs through the supply chain, this would mean up to an extra £15bn of business.
Measures to ensure that the cost to business of new regulation are always fully taken into account and to make further progress on reducing the burdens of existing regulation.
Encouraging investment and collaboration
An investment of up to £25m in a University Enterprise Capital Fund to provide crucial early stage funding for the commercialisation of promising university innovations. The Government is also facilitating discussions between a group of universities to explore options for a collaborative vehicle to commercialise Intellectual Property from their research.
A tax relief for the UK’s video games industry following consultation on design, subject to state aid approval from the European Commission.
Developing skills for growth
£270m Modernisation Fund to enable universities to identify and deliver efficiencies over the next four years, and fund 20,000 extra undergraduate places on courses starting in 2010-11.
The Government welcomes the approval of £350m from the European Investment Bank to finance Higher Education construction and improvement works, in collaboration with Barclays Bank.
Budget also provides updates on wide-ranging improvements to enterprise education, including £15m to extend enterprise education into primary schools and FE colleges.
PROTECTING PUBLIC SERVICES
It is right that borrowing has been allowed to rise in the short term to foster the recovery, but over the medium term, the Government – like any household or business – must live within its means. Therefore, the Government will deliver on its commitment to halve the deficit over the next four years as set out in the Fiscal Responsibility Act.
Reductions in spending growth from 2011-12 onwards
Budget 2010 confirms that Public Sector Current Expenditure (PSCE) will grow by an average of 0.8% a year in real terms between 2011-12 and 2014-15. Public Sector Net Investment (PSNI) will reduce to 1¼% of GDP by 2013-14 and will remain at that level in 2014-15.
As announced at PBR09, the frontline public services that people rely on will be protected:
In 2011-12 and 2012-13, frontline spending on the NHS will rise in line with inflation;
frontline spending on schools will rise in real terms by 0.7% and 16-19s education by 0.9%;
spending on Sure Start will be maintained in line with inflation;
sufficient funding will be provided to police authorities to enable them to maintain the number of police officers and community support officers.
Budget 2010 confirms that this investment will be supported by significant efficiency savings in frontline services to reinvest in priorities, including:
the NHS will achieve its £15 billion to £20 billion VfM target by 2013-14;
schools will deliver £950 million of savings by 2012-13 through greater use of collaborative procurement and sharing back office staff and £150 million of efficiencies in 16 to 19 education and Sure Start Children’s Centres; and
The Government will also shortly set out its long-term plans for a fair and comprehensive reform of social care, building on the new entitlement to free care at home for those with the highest needs already announced.
Protecting key priorities in health, education and police requires tough choices elsewhere. So Budget 2010 also provides more details about how the Government will deliver the cuts and efficiencies announced at PBR09, including:
1% cap in 2011-12 and 2012-13 on public sector pay, saving £3.4 billion a year by 2012-13, and reforming public sector pensions saving £1 billion a year from 2012-13. Budget 2010 publishes the results of the Senior Salaries Review Body review of senior pay in the public sector including a new code of practice on senior pay setting;
£5 billion departmental savings identified through the Public Value Programme: including £340 million by improving the targeting of housing and regeneration funding and £360 million by reforming the criminal justice system and legal aid;
£11 billion efficiencies and other cross-cutting savings through governing more smartly: delivered by making operational efficiencies, cutting quangos, cutting consultancy/marketing spend, improving energy efficiency, reducing spend on IT, cutting the costs of staff in the public sector and improving customer channels. Budget 2010 announces that these savings have now been identified department-by-department for the years from 2011-12 and sets out how savings will be achieved;
Savings from more effective asset and property management including the creation of new strategic property vehicles by April 2011 to help realise savings of £5 billion a year in property running costs and £20 billion in disposal by 2020. The Government also intends to relocate a third of civil servants out of London in the next 10 years, starting with the relocation of 15,000 jobs;
Plans to reform regional government and give local areas a greater role in setting priorities and guiding resources, responding to the recommendations of Total Place. Local authorities will have new discretion over £1.3 billion of funding that is currently ring-fenced; co-locating regional bodies will save £255 million by 2012-13; and Regional Ministers will take on an enhanced role in promoting growth and inclusion.
REFORMING FINANCIAL SERVICES
A strong and sustainable financial services sector supports strong, sustainable economic growth.
Following the most severe financial crisis for 60 years, the Government acted to stabilise the financial sector and is now implementing reforms to improve regulation, support better corporate governance and deliver a better deal for consumers. The Government continues to work with international partners to reform the international regulatory architecture and strengthen the financial system for the future.
Budget 2010 announces:
- Intention to introduce a new ‘universal service obligation’, giving people the right to a basic bank account under certain conditions, will consult on the details.
- Consult on options to make sure banks make an appropriate contribution to community lenders through regulatory action or a new community levy to be funded by retail banks.
- Launching the Saving Gateway, where the Government adds 50 pence for each £1 saved by working age people on low incomes, in July 2010.
- A new small business credit adjudicator with powers of enforcement to ensure that small businesses are fairly treated when applying for loans.
- The key principles to guide work on an internationally coordinated systemic tax to ensure that banks make a contribution to costs of financial crises.
- New lending commitments for 2010-11, reflecting economic conditions. Lloyds’ will commit to lend £47bn and RBS will commit to lend £58bn, on commercial terms and subject to market demand, in the 12 months from March 2010. Of the total amount, £41 billion will be lent to small businesses.
The Budget builds on existing measures including:
- A 50% tax on discretionary bonuses above £25,000 paid to bankers between 9 December 2009 and 5 April 2010.
- The Financial Services Authority’s (FSA) new code of practice on bankers’ pay, which ensures pay reflects long-term performance and can be clawed back.
- Improving competition in the banking sector by increasing the number of banks operating on the high street over the next few years as a result of restructuring at RBS, Lloyds and the return of Northern Rock to private ownership.
- National rollout of the ‘Moneymadeclear’ money guidance scheme offering practical, impartial information and advice on money issues.
The net cost to the taxpayer of financial sector interventions has now been reduced to around £6 billion at current market prices, down from the £20-50 billion range provided at Budget 2009, reflecting greater stability and confidence in the financial sector.
SUPPORTING LOW-CARBON GROWTH
The Government is building a platform for strong sustainable growth by playing a key role in delivering investment to drive the transition to a low-carbon economy; providing opportunities for business growth and innovation; and generating new high skilled jobs.
Budget 2010 announces:
- The Government intends to create a Green Investment Bank that will support private investment in low-carbon infrastructure projects, bringing together public and private sector capital and operating on a commercial basis.
- Launching UK Finance for Growth to streamline £4 billion of existing financial support for small and medium-sized businesses, which will include support to businesses to commercialise low-carbon technologies.
- Up to £60 million for the development of UK port sites to support offshore wind turbine manufacturers looking to locate new facilities in the UK.
- Halving the rate of company car tax for ultra-low carbon cars.
- A commitment to reduce Government departments’ carbon emissions by at least 30 per cent by 2020.
- Commitment to reform the energy market to provide clean, secure and affordable energy in the long term, with a White Paper by Spring 2011.
The Government has said that it must live within its means, and plans to halve the level of public borrowing as a share of the economy over four years. The Budget announces:
- The fuel duty increase for 2010 will be staged, with an increase of one penny per litre on 1 April 2010 and one penny per litre on 1 October 2010, then 0.76 pence per litre on 1 January 2011. Fuel duty will also rise by one penny per litre in real terms on 1 April each year from 2011 to 2014.
- An £8 per tonne increase in the standard rate of landfill tax on 1 April 2014, to encourage alternatives to landfill.
ACHIEVING FAIRNESS AND OPPORTUNITY
The Government is committed to promoting fairness so that everyone can take advantage of opportunities to fulfil their potential.
The Government has taken action to support people through the global downturn. Budget 2010 announces further targeted support for families and individuals as the economy recovers, including:
- Extending until March 2012 the guarantee of a job, training or work placement for every 18 to 24 year old out of work for 6 months;
- Increasing tax credits for families with children aged one and two;
- Continuing additional payments alongside the Winter Fuel Payment next winter, worth £100 to households with someone aged over 80, and £50 to households with someone over female State Pension age;
- A two-year Stamp Duty holiday for first-time buyers on residential property transactions up to £250,000;
- Maintaining the Standard Interest Rate applied to the Support for Mortgage Interest scheme until December 2010;
- Launching the Saving Gateway, where the Government adds 50 pence for each £1 saved by working age people on low incomes, in July 2010.
These new measures build on action already being taken, including:
- Helping 330,000 people stay in their homes and avoid repossession by providing financial support and advice.
- Extending eligibility for free school meals to primary school pupils in low income working households in England from September 2010.
The Government has said that it must live within its means, and plans to halve the level of public borrowing as a share of the economy over four years, with those on the highest incomes making the greatest contribution in tax. The Budget announces:
- A new 5% rate of stamp duty for transactions over £1 million from April 2011;
- Freezing the threshold for inheritance tax until 2014-15;
- Action to ensure that everyone pays their fair share of tax, including increased penalties for those who do not comply with tax disclosure rules, and closing tax loopholes;
- Above inflation increases in tobacco duty and alcohol duties. Tobacco duty rates will increase by 1 per cent above inflation from today and by 2 per cent above inflation for the next four years. Cider duty rates will increase by 10 per cent above inflation. Other alcohol duty rates will increase by 2 per cent above inflation as announced at Budget 2008. Budget 2010 extends these to 2014-15.
This follows previously announced measures, including:
- From this April, a new 50% rate of tax will apply to incomes above £150,000;
- From April 2011, tax relief on pension contributions will be restricted for those incomes of £150,000 and over;
- Employee, employer and self-employed rates of National Insurance contributions will increase by 1% from April 2011. However, the 15 million people on incomes below £20,000 will not pay any extra National Insurance contributions.
It is becoming clearer that the Conservatives pose a grave risk to recovery. Their commitment to cut now regardless of the impact will wreck the recovery. And their secret plans to cut spending in just a few months time are creating real uncertainty among the business community and hard working families.
The Conservatives continue to oppose real Government action to create jobs and to drive growth. In recession, they opposed the real help we gave to homeowners, small firms and the unemployed. And they oppose it now in recovery. They even favour increased taxes on business investment. Millions in Britain whose aspirations we share reject their promise of a decade of austerity
The Conservatives lack even the beginnings of a "credible plan" to tackle the deficit. It's time for them to come clean. All they will say is that they will go "further and faster." They won't say what they'll cut this year. They won't say when they'll halve the deficit. They won't say how much further they will cut the structural deficit. If they were to match our deficit target in 3 years instead of 4, it would cost them £26 billion: that's equivalent to half the schools budget or a VAT rise to 23%
And yet again, the Tories have proved to be not the party of the many, but the party of the privileged few. They will not protect vital public services that are vital to every community: Sure Start, Schools, Post 16 Education, Police and the NHS. They will have tax giveaways for the wealthy - through inheritance tax and an unfair marriage tax relief. And their first target is the child trust funds and tax credits enjoyed by families on modest incomes.
The Tories policies would wreck the recovery. They would:
- cut spending in just a few months time
- Their proposed cuts to spending in just a few months time have been lambasted by the IMF, the IFS, UBS, the CBI, 2 Nobel Economists and now even now their own independent fiscal forecaster, Sir Alan Budd (for full quotes from these commentators see below)
- Even David Cameron admitted the night before PBR 09 that 'there is a danger if you did too much too early you would choke off some demand' (David Cameron, Newsnight, December 8 2009)
- raise taxes on business investment in a few months time by cutting investment allowances for manufacturers. This proposal to fund a corporation tax cut has been widely condemned:
- As the Institute of Fiscal Studies said recently: such a policy would be 'at the expense of businesses that are investing heavily in the UK"
- GE have come out against it saying it was 'a real own goal' and warned the Tories: "I'm afraid that doesn't say to me that Britain is open to business." Will Morris, GE, 5th March 2010
- The business group representing manufacturers - the EEF - was even blunter, calling this policy 'a disaster' and warning that under the Tories plans: "Any business would have to think twice about investing in the UK." Jeegar Kakkad, EEF, 5th March 2010
The Tories oppose Government intervention to create jobs and drive growth
- The Tories have been clear about their opposition to Labour's fiscal stimulus.
"That's why I'm a fiscal conservative. That's why, when it came to that big decision to oppose the VAT cut and the so-called fiscal stimulus, I didn't consult a focus group or an opinion poll I just knew it was the right thing to do." David Cameron, Speech to Conservative Spring Forum, 26 April 2009
- Support for the construction industry was a key part of the fiscal stimulus. For example 115,000 jobs were secured, and a further 45,000 created, because of the action on homebuilding in the fiscal stimulus. £940m of the Housing Pledge money has allowed housing associations to build new affordable housing. Almost £500m is being used to 'kickstart' building sites stalled by the recession and the collapse in construction - none of which would have happened under the Conservatives.
- The Strategic Investment Fund was a key part of the stimulus. This Fund has made key investments across the UK to stimulate growth for example with Airbus, Nissan, Ford and Sheffield Forgemasters
- The Conservatives have also promised to divert funding from all Labour's existing employment programmes - including the Future Jobs Fund. The Fund aims to create 170,000 additional jobs, mainly starting next year and primarily aimed at 18-24 year olds who have been out of work for six months to deliver real benefits to communities - those jobs would not be created under the Tory plans.
The Conservatives have emphasised the importance of a "credible plan" to reassure financial markets but their plans are in chaos
- Their plans for 10/11 have gone from saying anything less than ‘tearing up’ spending plans was ‘moral cowardice’"; to "just make a start"; to now describing their £1bn of damaging cuts as just "a few examples"
- The Shadow Business Secretary endorsed the European Commission's proposals to take over £25bn more out of the economy by the end of the Parliament:
- They have yet to come clean on the three most basic questions in any plan:
- how much will they spend in 2010/11?
- By what year will they halve the deficit?
- how much more than our 2/3, will they reduce the structural deficit?
- They continue to give everyone a nod and a wink about their plans for national insurance & marriage taxes; funding for new school places and hospital single rooms
- Their proposed efficiency savings have been shown to release nowhere near what they claim (see http://www.labour.org.uk/credibilitygap)
- And now they are planning to sell off bank shares at a discount rather than maximising the value to pay off debt
Tory plans on tax are grossly unfair and their cuts to public services will hurt the many who rely on them, not the privileged few who don't
Their inheritance tax plan is doubly unfair - not just because 97% of the population get nothing and it gives £200,000 to the wealthiest 3,000 estates - but also because it's the rest of the country that pays for it. Anyone who stands to inherit less than £650,000 would gain nothing but those inheriting £2m or more would be gifted a £520,000 tax cut, funded by cuts to public services.
By refusing to match our protections they would have to find deep, wide and immediate cuts to public services:
- they would cut the education budget and let underperforming schools wither on the vine;
- they would cut the Sure Start budget by removing its outreach workers;
- they would fail to protect funding for 16-19 year olds
- they would cut the policing budget, by guaranteeing only NHS and ODA funding;
- they would cut guarantees in the NHS to cancer treatment within 2 weeks.
In a few weeks time, they would scrap Child Trust Funds: for families with a combined household income of £16,040 or more, who they describe as "the better off" [source Osborne]
In a few weeks time, they would cut Child Tax Credits for 1.3 million families: George Osborne says he wants to take back £400m from child tax credits. He claimed he could do this by cutting child tax credits for those earning over £50,000. But that would only recoup £45m. Instead, he would need to cut child tax credits for all families where each parent earns as little as £16,000 each.
Criticism from experts
On February 19 2010, more than 60 leading economists wrote to the Financial Times to warn of the dangers of cutting public spending before the recovery is secure.
- In the first of two letters, eminent figures such as Professor Richard Layard of the LSE, Professor Robert Solow of MIT and Professor Alan Blinder of Princeton University, described existing government spending plans as "sensible" and argued that more immediate and drastic action would be "positively dangerous".
- In the second letter, Professor Skidelsky of Warwick University, Professor Robert Rowthorn of Cambridge University, Professor Brad DeLong of UC Berkeley and other international economists argued that the government's first priority must be "to restore robust economic growth" and that the timing of measures to reduce the deficit should be determined by the strength of the recovery:
"A sharp shock now would not remove the need for a sustained medium-term programme of deficit reduction. But it would be positively dangerous. If next year the government spent less and saved more than it currently plans, this would not "make a sustainable recovery more likely. The weight of evidence points in the opposite direction."
Lord Layard et al, Financial Times, 19 February 2010
"There is no disagreement that fiscal consolidation will be necessary to put UK public finances back on a sustainable basis. But the timing of the measures should depend on the strength of the recovery. ...But for the good of the British people - and for fiscal sustainability - the first priority must be to restore robust economic growth."
Lord Skidelsky et al, Financial Times, 19 February 2010
Getting the recovery properly underway is central to reducing the deficit in the coming years.
"Let me address some of these challenges. I'll begin with exit strategies. As the recovery gathers steam, the question of when and how to exit from the accommodative fiscal, monetary, and financial sector policies will top the agenda. Exit too soon, and you kill the recovery. Exit
- As Dominique Strauss-Kahn of the International Monetary Fund has set out, there is a "delicate balancing act" as to when to reduce spending without creating a "double-dip" recession. The point has been echoed by, amongst others the CBI, IMF, international financier George Soros and the independent Institute for Fiscal Studies.
too late, and you sow the seeds for the next crisis. As I said, it will be a delicate balancing act. Right now, I think it is still too early for a general exit. Exit should instead await a sustained recovery in private demand, as well as entrenched financial stability-a key litmus test. We recommend erring on the side of caution, as exiting too early is costlier than exiting too late."
Dominique Strauss-Kahn, Managing Director, International Monetary Fund, Speech to the CBI, 23 November 2009
"Let's be clear, we're completely not political and, I don't think of myself as shouting Mr Osborne's song here. No, what we feel is that the public finances have to get back on to a more stable course over time. I think the Government is right to say that it would be a bad idea to slam on the brakes right now because the economy's still so fragile."
Richard Lambert, CBI Director General, Radio 4 Today Programme, 26 January 2009
"I think that since the adjustment process to the recession is incomplete, there is a need for additional stimulus. The political resistance to it increases the chances of a double dip in the economy in 2011and after that."
George Soros, Guardian, 27 January 2010
Robert Chote: So our view is that, given the continued fragility of the economic recovery, the fact that monetary policy is very loose, that it doesn't make sense to announce more tax increases or spending cuts that would take effect over the course of the coming year.
Martha Kearney: So the Conservative pledge to go further and faster then the government this year is unwise, do you think?
Robert Chote: Yes, we are basically saying that there is a good case for further over the course of a Parliament but not a particularly good case for going further over the course of the coming year. The World at One, BBC
Not only are the Tories isolated internationally, they are isolated among the mainstream political parties in wanting to cut immediately:
Andrew Marr: Are we close to a double dip, do you think, recession?
Vince Cable: That's certainly a risk, and what any incoming Chancellor has to bear in mind is that on one hand we need to maintain market confidence - absolutely crucial, the country has to be financially responsible and being seen to be responsible dealing with the deficit - but equally we've got to have recovery, we've got to have growth because unemployment is going up and if we don't have economic growth then the deficit actually gets even wider. And that's one of the reasons why I'm very much opposed to the Conservative approach of rushing into cuts without ... regardless of the condition in the economy. That's not sensible.
Vince Cable, Andrew Marr Show, 7 March 2010
- Even David Cameron when under pressure has had to admit that "if you do too much too early, you would choke off some demand", although his judgment is that there should be a reduction in spending in a few months time.
- His nominee for advice on public spending, Sir Alan Budd, has also warned that "if you go too quickly then there is a risk that the recovery will be snuffed out and we will go back into a recession."
"During Tuesday's interview, Mr. Cameron called for tackling the deficit aggressively. But he added: "Of course, there is a danger, if you do too much too early, you would choke off some demand." Thus far it has been the Labour government, aiming to draw battle lines before the election, that has warned against rushing the deficit pullback."
David Cameron, Wall Street Journal, 9 December 2009
"If you go too quickly then there is a risk that the recovery will be snuffed out and we will go back into a recession, this is when the Americans say, 'Remember 1937''
Sir Alan Budd, Dispatches, 9 March 2010