Chancellor of the Exchequer George Osborne has admitted the UK government will not succeed in bringing the country’s deficit under control by the 2015/16 tax year. In the coalition government’s Autumn Budget Statement, the Chancellor reported that, having fallen by one-quarter in the last two years, the deficit is expected to decline from 7.9% of GDP to 6.9% this year, and to reach 1.6% by 2017/18. Government spending as a proportion of GDP is expected to decline from almost 48% of GDP in 2009/10 to 39.5% in 2017/18.

The personal allowance – the amount of money an individual can earn before paying tax – was raised by £1,335 to £9,440 from April 2013. However, the threshold at which individuals begin paying higher-rate tax was increased by a below-inflation 1% in 2014/015 to £41,865. Most working-age benefits will rise by 1% during each of the next three years, generating savings of £3.7bn by 2015/16.

Tax relief on the pension pots of the wealthiest will be reduced, generating annual savings of £1bn. From the tax year 2014/15, the lifetime allowance for tax relief will be cut from £1.5m to £1.25m and the annual allowance will fall from £50,000 to £40,000. Meanwhile, the basic state pension will increase by 2.5% to a weekly rate of £110.15 next year.

The main rate of UK corporation tax was cut by another 1% to 21% from April 2014 while the bank levy rate was raised to 0.13% from April 2013. The government also intends to increase its efforts to ensure multinational companies pay “their proper share” of tax.

Having previously forecast growth in the UK economy of 0.8% during 2012, the Office for Budgetary Responsibility (OBR) now expects the economy to contract by 0.1% this year. The OBR cited the effects of the eurozone’s sovereign debt crisis, which has reduced demand for UK exports. Forecasts for growth during the next five years were also reduced.

In general, the short-term outlook for the UK economy appears to be deteriorating. Credit ratings agency Fitch warned that the UK’s failure to meet its target on debt reduction “weakens the credibility of the UK’s fiscal framework” as well as its coveted AAA credit rating. Meanwhile the Confederation of British Industry warned that the government “has everything to prove by delivering”. With a General Election scheduled to take place in 2015, the coalition will be anxious to start delivering sooner rather than later.

DECEMBER 2012

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