What were the main points to come out of George Osborne’s Budget speech?
Put simply, it was that the country’s recovery from recession is, once again, going slower than predicted. The halving of the projected growth rate from 1.2% to 0.6% in 2013 indicates that it will take until around 2017/18 for the government to reach its targets on reducing the country’s deficit – 2 years longer than expected. But the country is set to avoid a much-feared ‘triple-dip’ recession, if just barely.
Which groups have the most to gain and lose as a result of the changes mentioned in the Budget?
House builders arguably got the biggest benefit from the Chancellor’s speech after he unveiled a plan called Help to Buy. This allows the government to pay a loan of up to 20% of the mortgage on a newly built home and allows buyers to put down a budget of just 5%, much lower than it was before. The result could lead to lending of around £130bn, according to the Chancellor.
On top of this, low-wage workers will benefit from changes to the income tax system, with personal allowance rising to £10,000 from 2014. The PA is the highest amount of income needed to avoid paying income tax and the move will ensure more low-paid workers will find themselves exempt. However, this came with the news that more people are being moved into the 40% upper rate of tax.
Employers, particularly those running small businesses, will benefit from a new Employment Allowance, which allows them to knock £2,000 off National Insurance costs for every company and charity. Over 450,000 businesses are expected to pay no National Insurance at all as a result. Business will also be supported by a drop in corporation tax rates to 20% – one of the lowest in Western Europe.
On the other hand, the public sector was badly hit, with workers experiencing just a 1% rise in wages – well below the figure of inflation. The Chancellor’s commitment to backing shale gas production and fracking may increase business in the energy sector, but incur the wrath of climate change groups who have campaigned against these measures. Airlines will also experience a rise in costs due to the decision not to reduce air passenger duty.
On a more positive note, the scrapping of yet another planned rise in fuel duty will mean savings of around £1bn for the nation’s motorists. And, in one of the more publicized changes, a 1p cut in beer duty will be great news for pubs and home drinkers alike. Duties will, however, rise slightly on wine and spirits.
What effects will the Budget have on young people?
On the surface, not all that much – the 2013 Budget fails to make any mention of education or changes to the apprenticeship system. Changes to the National Insurance benefits given to employers could see an increase in the amount of young people in work, particularly in small businesses. But with house prices holding up and the government offering extra support to those entering the property market, the effect could be a rise in rent prices for young people.
What has the main reaction to the Budget been, both from politicians and the City?
The news of yet another slowdown in the rate of recovery has frustrated economic experts and politicians alike. Labour were particularly critical, with Ed Miliband saying the Chancellor had been ‘downgraded’, had ‘failed the test of the British people’ and that ‘more of the same was not the way to go’. The Green Party was also opposed to the plans, with leader Natalie Bennett describing changes to the income tax system as ‘superficial’ and critical of the Government’s support for increased fossil fuel production, while UKIP leader Nigel Farage said the budget had not helped to tackle the UK’s major economic issues.
Responses from taxpayers’ groups have been mixed, with the Taxpayers’ Alliance welcoming changes such as the cuts to corporation tax and the employment allowance but expressing concern that the Chancellor failed to simplify the tax system enough. The Confederation of British Industry praised the decision to focus on housing as a way to stimulate the economy.
One of the more interesting responses has come from international groups such as Unicef, who applauded the decision not to reduce foreign aid.
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