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The Budget
23 March 2011
Chancellor of the Exchequer George Osborne billed his second Budget as a “Budget for growth”, telling MPs that it was an “urgent call to action for Britain”. His main ambitions, he said, were to ease the economic burden on families and businesses while promoting Britain as the best place to do business in Europe.
- Summary of key proposals
- Setting the scene
- Duty
- Income tax and National insurance
- Business and enterprise
- Housing and mortgages
- Pensions and retirement
- Tax avoidance
- Charities
- The environment
- Official documents from George Osborne’s 2011 Budget
- Consultation on plans to merge income tax and National Insurance.
- Tax-free personal allowance increased by £1000 to £7475 from April 2011 and by a further £630 to £8,105 from April 2012.
- The planned 1% increase in national insurance rates confirmed from April 2011
- The main rate of corporation tax to be cut by two per cent in April 2011 – more than the one per cent previously announced.
- The small companies rate of corporation tax to be cut by one per cent to 20% in April 2011.
- Business rate relief holiday for small firms extended for another year.
- Ten per cent discount on Inheritance Tax for those who leave 10 per cent of their estate to charity from April 2012.
- Twenty one “enterprise zones” to be launched, backed by tax incentives.
- No new regulation on firms with fewer than 10 staff for three years.
- Tax loopholes to be closed to raise £1 billion this year.
- Fuel duty cut by 1p per litre from 6pm on 23 March and the planned 4p per litre rise due in April delayed until 2012.
- Entrepeneurs relief for capital gains tax on the sale of businesses to be doubled from £5 million to £10 million from April 2011.
Mr Osborne laid out his cards on the table from the start, telling Parliament that “the size of the task of repairing Britain’s finances is unchanged”. However, while this year’s Budget was not about raising taxes, neither was it about “giveaways”, he said. Instead, the 2011 Budget was about “sound money” and encouraging enterprise, export and manufacturing, while also easing the burden for families who were struggling to cope financially.
Britain had lost ground in the world’s economy, he said, and needed to catch up. The Chancellor said Britain needed to become an attractive place to do business – both for overseas companies and for new start-ups.
Mr Osborne also revealed that the growth forecast for Britain in 2011 had been downgraded from 2.1 per cent to 1.7 per cent. The following years had also been downgraded to 2.5 per cent for 2012, 2.9 per cent for both 2013 and 2014, and 2.8 per cent for 2015.
Inflation would remain at between four and five per cent this year, but was expected to fall to two per cent by 2013.
The borrowing forecast was also not as high as previously predicted by the Office for Budget Responsibility. Figures now show this to be £146 billion for this year, rather than the original £148.5 billion. This would go down to £29 billion by 2015/16, Mr Osborne said.
Having been under pressure not to increase fuel duty, which was due to go up by 4p a litre from April this year, the Chancellor instead cut it by 1p per litre as of 6pm on 23 March. The annual fuel escalator was also scrapped until 2015. The cuts will be paid for by a £2 billion tax, known as the Fair Fuel Stabiliser, on North Sea oil producers. This is a supplementary charge which will increase the tax paid on oil and gas production from 20 per cent to 32 per cent. There will be no reduction in VAT on fuel.
There was no further increase in alcohol and air duty, but tobacco tax was increased by two per cent from 6pm on 23 March.
Income tax and National insurance
The tax-free personal allowance on income tax will be increased by a further £630 to £8,015 from April 2012. This is in addition to the £1,000 increase announced during last year’s Emergency Budget, which comes into effect from April this year. Mr Osborne said the 2012 increase would save 25 million people around £45 a year. The measure will affect anyone earning less than £115,000 a year.
Direct tax allowance will be indexed to the Consumer Price Index (CPI) from 2012 rather than the Retails Price Index (RPI).
Income tax relief on the Enterprise Investment Scheme will increase from 20% to 30% from April 2011. There will also be a significant increase in the amount an individual can invest to £1 million in April 2012 together with an increase in the size of company in which the investment can be made.
There were no personal tax increases. The 50% top tax rate will remain, but this will be reviewed to see how much it raises.
The planned increase of 1% to national insurance rates will go ahead as planned from April 2011.
Mr Osborne also revealed that a consultation is to take place into a long-term plan to merge income tax and National Insurance, saying that having two separate taxes imposed unnecessary costs on many businesses.
Mr Osborne announced that the main rate of corporation tax will be cut by 2% in April 2011. This is a bigger reduction than the 1% originally planned. There will also be further 1% reductions for each of the next three tax years to bring the main rate of corporation tax down to 23%. The small companies rate of corporation tax will also fall by 1% to 20% from April 2011.
Tax simplification also played a leading role in the Budget, with 43 tax reliefs being scrapped by the Chancellor following recommendations from the Office for Tax Simplification.
There was also a boost for small firms, with a moratorium on new regulation for firms with fewer than 10 staff for three years. The business rate relief holiday for small firms will also be extended by another year until October 2012.
The lifetime limit for entrepreneurs’ relief which allows a lower rate of capital tax to be paid on the sale of businesses will be doubled from £5 million to £10 million from April.
The useful life period on which capital allowance claims on short life assets can be made will be doubled from four years to eight years in a bid to encourage more investment in new equipment. However it was confirmed that the annual investment allowance on which businesses can claim 100% tax relief on the purchase of certain capital assets will be reduced from the current £100,000 level to £25,000 from April 2012.
Research and Development tax credits for small and medium sized businesses will be raised to 200% from April 2011and to 225% from April 2012 subject to European state aid approval.
The taxable turnover at which business have to register for VAT will increase from £70000 to £73000 from April 2011.
Approved tax free mileage payments for business travel will increase from 40p per mile to 45p per mile for the first 10000 miles driven each year from April 2011.
Twenty one new “enterprise zones” will be launched, backed by tax incentives, while new rules will require planners to prioritise jobs and growth when making planning decisions.
In terms of jobs and skills, there will be funding for a further 12 university technical colleges, as well as 40,000 new apprenticeships for unemployed young people and 100,000 work experience placements.
Science facilities will also receive a £100 million funding boost.
Mr Osborne pledged £250 million to help 10,000 first-time homebuyers purchase newly built flats and houses in England. The scheme, which will be funded by profits from the bank levy, will involve the buyer putting up five per cent of the cost while the Government and home builder would both put up 10 per cent. The move is also aimed at boosting the construction industry.
A scheme to help out-of-work homeowners with mortgage arrears, introduced by Labour, will also be extended.
Council tax will be frozen or reduced this year in every English local authority, Mr Osborne announced.
A new rate of Stamp Duty Land Tax of 5% will take effect for residential transactions worth over £1 million from April 2011.
The expected changes to the furnished holiday let rules were confirmed. From April this year losses will only be able to be offset against other furnished holiday let income rather than against general income. From April 2012 the availability of the property to let and actual days let will increase in determining whether a property qualifies as a furnished holiday let.
The expected changes to the tax regime for pension contribution will go ahead from April 2011 setting a maximum tax allowable annual contribution allowance of £50000. Unused allowances will be able to be carried forward for three years.
The basic state pension will increase to £102.15 per week for a single person and £163.35 a week for married couples from April 2011. There will also be increases to pension credit amounts.
Mr Osborne branded Britain’s pensions system “unbelievably complex”. He said the long-term aim was for a £140 per week flat-rate state pension. This would not apply to current pensioners.
Three forms of Stamp Duty Land Tax loopholes will be among those closed by the Treasury in a move expected to raise £1 billion each year. Capital allowances would also be “tightened” to “shut down open abuses”, said the Chancellor.
There will also be clampdowns on avoidance of PAYE and national insurance through the use of Employee Benefit Trusts and Employer Funded Retirement Benefit Schemes.
Gift Aid will be “dramatically simplified” with the introduction of an online filing system in 2013.
Mr Osborne said changes would be made so that Gift Aid could be claimed on donations up to £5,000 without the need to fill out forms or envelopes. This would see 100,000 charities benefit from £240 million, he said.
The Chancellor pledged an extra £2 billion of funding for a “Green Investment Bank” offering incentives for investment in green technology, to be launched in 2012.
A carbon price floor will be introduced for the power sector in the UK.
Official documents from George Osborne’s 2011 Budget
http://www.hm-treasury.gov.uk/2011budget_documents.htm
View full Budget Report 2011
http://cdn.hm-treasury.gov.uk/2011budget_complete.pdf
