You’ve probably seen a few news features on the budget on the TV or even scan-read an article or two to get a rough approximation of what George Osbourne’s 2014 UK budget announcement actually means for you, but maybe it doesn’t all quite make sense. To cut to the chase, and make it easier to understand, we’ve put together our simple analysis of Osbourne’s speech, what it means to the everyday people of Britain and how Ed Miliband responded to it.
David Cameron’s pre-speech Prime Minister question time
Before George Osbourne’s budget speech, David Cameron hosted the traditional Prime Minister question time to field answers from all sides of parliament and the overarching point is that he portrayed a very confident Conservative Party basking under the glow of favourable budget numbers. Economic growth for 2014 is up beyond expectation and the recalculated figure sits at 2.7%, with further GDP growth in the coming years to 2018 averaging at 2.5%. Although a few of the later years have been massaged downwards, we’re assuming this is the Conservatives playing safe and planning for more “over target” announcements for 2017 and ’18.
The budget deficit is down to a forecasted £108 billion this year, down from around £115 billion the year before. On the down side, this is more than they’d planned for previously and it obviously still leaves national debt growing beyond its trillion pound mark, but David Cameron is definitely focusing on the upside of a year-on-year reduction of the UK budget deficit.
It’s a similar story with unemployment, which fell by 63,000 between October and December 2013, taking the figure to 2.33 million. The number of people in work or self employed has now hit an all time high of 30.19 million, so all told, David Cameron and the Conservatives have got more than a few favourable stats to back up their confident outlook.
In general, the questions fired at the PM from the opposition were pretty tame, leaving Tory questions to gloat and reinforce the numbers. Cameron had a pretty easy time of it, setting things up well for Osbourne’s speech.
George Osbourne’s 2014 budget speech
With such a positive start to things, Osbourne was allowed to get into the groove of his stats and surprises heavy speech pretty much effortlessly and inevitably he turned to the economy first. Up-weighting the GDP forecast for the year was a big part of his opening discussion, but his main point was that the budget deficit continues to drop with a forecast of £108bn for 2014, £95bn next year, £82bn in 2015/16, £47bn in 2016/17, £23bn in 2017/18 and a surplus in the budget of £5bn in 2018/19.
As well as the pats on the back about the state of the economy, George Osbourne also managed to hurl out a couple of cheap shots at the opposition leader, especially in repeatedly emphasising the “terrible mess” they’d been left to deal with. References to King John, who he referred to as “a weak leader who had risen to the top after betraying his brother, compelled by a gang of unruly barons to sign on the dotted line”, were clear swipes at Miliband’s rise to office as the leader of the Labour Party and they added to the undoing of the opposition in the speech.
Spare change and taxes
Osbourne branded the budget as being devised for workers and savers and that came through with an increase in the amount of earnings you can take home per year that is income tax free from £9,440 up to £10,500 and an increase in the amount you can save in an ISA tax-free to £15,000 from July 2014 onwards.
Fundamentally, the change to income tax will benefit everyone, but clearly it’s predominantly aimed at the lower end of the earnings spectrum to encourage more people into work even where the salaries are low as they will take home more of it. In fact the budget will mean that an even larger portion of the working population will become income-tax-free.
In terms of the ISA’s these are added to by new flexible cash and investment ISA rules, which means you have the choice of how you want your ISA to be made up, instead of being told it’s X for cash and Y for stocks and shares investment. With the new policy you’ll be able to take the entire £15,000 as a cash ISA if you want, which is a pretty unprecedented move that means the public have more opportunities to save, despite the very low interest rate (although on a side note, everyone’s expecting the interest rates to rise over the coming years).
Savings have also been boosted by the 10p tax rate being abolished and the cap on premium bonds being increased by £10,000 this year and a further £10,000 next year. Add to that the fact that the 40% income tax threshold will be going up to £41,865 in 2014 and £42,285 in 2015, inheritance tax will be waived for emergency service staff that lose their life while working and the 10p tax for savers has been dropped in its entirety and you’ve got a whole lot of popular changes on the agenda.
The question is how the government proposes to pay for the kick-backs and one of the more obvious items that could contribute to this is the fact that tax on homes that are owned through a company (which contributes to the empty homes issue where rich foreigners buy up property in the UK through a business and pay less tax) will kick in at £500,000 now, instead of the £2m threshold that we currently have. While this will obviously deter more people from doing this, it should also add a fair chunk of tax revenue for the government.
Other areas that will act as elements of the recoup include the rise in tobacco duty by 2% above inflation, 25% increase in duty on fixed-odds betting, the extra revenue to be made from a growing economy and the potential returns on the changes to pensions.
Tight purse strings
In terms of what’s left in the bread basket, the 2014 UK budget has capped welfare spending and it’s a similar story for spending on the NHS, schools and other public services like the police and military. With the deficit still there to be tackled, George Osbourne is clearly saying that things will stay as they are with public spending to deal with the economy, while the changes to tax and savings, the cynical might argue, take care of the populist vote for another term.
Bills, bills, bills
There’s not too much joy here, but the fuel duty won’t be going up in September as it had previously been forecast and the government will put together a £7bn package to reduce energy bills. This includes a cap on the £18 per ton on carbon price support, but the estimated benefit of this to the average family over a year is little more than the price of a KFC bargain bucket, so don’t expect the cost of living to change dramatically.
Home grown
If you’re looking to get on the property market over the next few years, but struggling to save up enough for the deposit, the fact that the Help to Buy scheme is being extended for new build homes until 2020 might be some consolation to you. It means you’ll be able to get the government to provide up to 20% of the equity value of the property to combine with a 5% deposit of your own to allow you to get a 75% mortgage with just 5% of your own money. The good news is that you don’t pay anything on the equity loan for the first five years, but after that fees kick in at 1.75% and rise yearly thereafter. If you want more information on the scheme, visit the Help to Buy website.
Osbourne has also promised to support the build of 200,000 new homes, which includes the plan to create the first new Garden City since the 1920s at Ebbsfleet in Kent. In terms of infrastructure, there will be a £270m guarantee for the Mersey Gateway bridge to support economic growth in the area, moves to give the Welsh Assembly Government the opportunity to improve the M4, and the provision of £140 more funding for flood defense repairs.
Have an ale on the house
In yet more populist moves, beer will be getting a penny downed off the top of the duty, plus spirits and ordinary cider duty will be frozen to support the Scotch Whiskey and British cider industry. While gaming in general will continue to get hit hard, Bingo halls across the land will be waddling two fat ladies-like to the bank as their duty will be halved to just 10%.
Pensions
Osbourne claimed during the speech that the reform to pensions is the biggest in years and in all fairness there’s a lot in there to consider. Firstly, the biggest change is that pensioners will now have much more flexibility in terms of deciding how much and when to draw down cash from their pensions. However, the downside is that pensioners that opt to take lump sums early could end up paying more tax on their earnings in the long run, which is the potential budget revenue from pensions that George Osbourne mentioned in his speech.
The BBC has a pretty good in-depth report on the changes to pensions going forward with some working examples, so visit www.bbc.co.uk/news/business-26653312 for more information.
Big Business
On the face of things, business appeared to be one of the more significant beneficiaries of the budget as the Conservatives aim to further boost the potential for GDP growth in the coming years. However, to make things a bit more focused, the changes will centre on exporting businesses as Osbourne announces twice as much funding (£3bn in total) to support export. In addition to the extra funds, businesses that take up the loan opportunities will benefit from a 33.33% reduction in interest rates on the lending to help them become more competitive internationally.
There will also be tax-breaks for business to help with buying new equipment, as the tax-free annual investment allowance doubles to £500,000. While this will also aid exporters, it’s predominantly designed to help boost the manufacturing economy to get Britain back to making things once again to increase the GDP even further.
Businesses will also benefit from the steps to cut energy bills, which could shave in the region of £50k a year off their bottom line.
Forging ahead
As you might have seen in the image above, the speech was used to announce the upcoming launch of a new Great British pound to replace the slightly ailing incumbent. Apparently, somewhere in the region of far too many pound coins (1 in 30) are actually counterfeit, which costs quite a lot to tackle, but the new coin has been designed to increase the difficulty of forgery, which will help to save the economy money over time.
However, it’s the manufacturers of vending machines that we feel sorry for. They’ll be needing some of that new equipment support before the new pound coin comes into operation in 2017.
T’gither we’r strronga
Osbourne also found time to reference the Scottish referendum in a bid to support a unified UK. He made a pretty significant point about the drop in North Sea Oil output, while also giving a special shout-out to Scottish Whiskey when he mentioned the cap on spirit duty.
Ed Miliband’s response
The leader of the opposition launched into his response like a bookish bulldog that’s been stung by a wasp. Coming out fighting was his only option really and despite not mentioning any of the main points from Osbourne’s budget speech, he had a lot to criticise. That’s not to say it was easy, there was a lot of heckling for the deputy speaker to quieten down intermittently, but when Milliband got into the full flow of things he had a good few stinging shots of his own.
Big areas for credible retaliation lay with the cost of living debate, missed Conservative budget promises and the lack of new homes, and they’ve all got a fair bit of meat about them. With the cost of living up and a lot of people on lower wages, Miliband argues that despite the growth in the economy, people are worse off under the coalition government. It’s coupled with the fact that while the budget deficit is down year-on-year and new house builds are up, they’re both far from being close to where Osbourne had previously predicted, giving Miliband the opportunity to lay the foundations of doubt over the veracity of coalition government forecasts.
However, the problem is that the Tories pulled off a bit of a coup with Osbourne’s speech, on the back of the improvements to the economy, so while Miliband had some good points they felt a little flat under the weight of Conservative confidence. With the changes to income tax, and the steadily growing economy, the point about the cost of living could start to feel like a bit of a moot point in the not so distant future, and it’s a similar situation with new house builds and the Tory plans to tackle the issue.
The reality is that if Osbourne can hit the budget deficit target set for next year, and the changes announced in the 2014 UK budget speech do what they’re supposed to do, Labour is going to struggle to put up much of a fight in the next election.
