Chancellor's Autumn statement 2012
Overview
The Chancellor of the Exchequer delivered his Autumn Statement to Parliament on 5 December 2012, alongside the publication of the Office for Budget Responsibility’s updated forecasts for growth and borrowing.
The Government’s economic strategy is focussed on reducing the deficit, restoring stability, rebalancing the economy and equipping the UK to compete in the global race. In his statement, George Osborne set out how this strategy will be maintained by taking further action in three areas: Protecting the economy; Growth; and Fairness.
Protecting the economy
Because of the ongoing impact of the financial crisis, the euro area crisis and the effect of inflation on incomes and business costs, the OBR is predicting a more subdued and uneven recovery than expected with growth weaker and inflation higher than forecast. In response, Autumn Statement sets out:
• A further £6.6 billion package of savings from welfare, overseas aid and Departmental spending - funding £5.5 billion of additional infrastructure investment and support for businesses;
• A spending envelope for 2015-16 consistent with the announcement in 2011 that spending for 2015-16 and 2016-17 will continue to fall at the same rate as the Spending Review 2010 period;
• Tax measures that support growth, reward work, help with the cost of living and ensure that those with the most contribute the most.
Growth
To enable the UK to compete with emerging economies such as China, India and Brazil, the Government is taking action to rebalance and strengthen the economy while supporting those who want to work hard and get on, including:
• Meeting the needs of businesses with a £5.5 billion infrastructure package and support for long-term private investment in new roads, science investment, free schools and academies;
• A further one per cent cut in the main rate of corporation tax from April 2014, to 21 per cent;
• A significant temporary increase in the Additional Investment Allowance, from £25,000 to £250,000 for two years to support small and medium-sized businesses;
• Devolution of a greater proportion of growth-related spending to local areas from April 2015, in response to Lord Heseltine’s review of economic growth;
• Creation of a £1 billion Business Bank to help smaller businesses access finance and support;
• Enabling UK Export Finance to provide up to £1.5 billion in loans to finance small firms’ exports;
• Increased funding for UK Trade and Investments and extra support for the GREAT campaign to showcase Britain’s capabilities.
Fairness
Fairness is a fundamental aspect of plans to reduce the deficit and protect the economy. The Government will help to ensure that it pays to work, supporting pensioners and those most in need, and delivering a progressive tax and welfare system that is affordable and encourages growth, by:
• Supporting those on low and middle incomes by increasing the personal allowance by a further £235 in April 2013, taking it to £9440;
• Cancelling the 3.02 pence per litre fuel duty increase that was planned for 1 January 2013. The 2013-14 increase will be deferred to 1 September 2013 – meaning fuel duty will have been frozen for nearly two and a half years;
• From 2014-15, reducing the lifetime allowance for pension contributions from £1.5 million to £1.25 million and the annual allowance from £50,000 to £40,000;
• Uprating most working age benefits and tax credits by one per cent for three years from April 2013 - excluding disability and carers benefits;
• Increasing the higher rate threshold for income tax by one per cent rather than inflation in 2014-15 and 2015-16;
• Increasing the basic State Pension by 2.5 per cent;
• Targeting the promoters of aggressive tax avoidance schemes and the closure of loopholes;
• Tackling offshore tax evasion by the creation of a dedicated HMRC unit, maintaining the momentum from the Government’s recent agreements with Switzerland and the US.
Summary of changes
Personal Tax/Benefits and Credits
For the tax year 2013-14 the Personal Allowance will increase to £9,440 and the basic rate limit will be set at £32,010.
For 2014-15 and 2015-16 the increase in the higher rate threshold will be capped at 1%.
Child Benefit rates are frozen in 2013-14 and will increase by 1% in 2014-15 and 2015-16.
Tax credits disability elements are increased in line with Consumer Price Index (CPI).
Other elements are either frozen or will increase by 1% in 2013-14.
All rates are increased by 1% in 2014-15 and 2015-16.
Guardian's Allowance is increased in 2013-14 in line with CPI.
For 2013-14, there are no changes to the percentage rate of contribution for Class 1 and Class 4 National Insurance contributions (NICs) but there are changes to all of the thresholds and limits.
Pensions Savings - Tax Relief
For tax year 2014-15 onwards:
the annual allowance for pensions tax relieved savings will be reduced from £50,000 to £40,000
the standard lifetime allowance for pensions tax relieved savings will be reduced from £1.5 million to £1.25 million
a transitional 'fixed protection' regime will be introduced for those who believe they may be affected by the reduction in the lifetime allowance
Legislation will be introduced in Finance Bill 2013 to make these changes and will be published in draft on 11 December 2012.
The Government also announced that they will discuss with interested parties whether to offer a personalised protection regime in addition to a fixed protection regime.
This note provides further information on the changes including contact details for questions.
Business Tax
In addition to the Budget 2012 announcement, the main Corporation Tax (CT) rate for Financial Year 2014 will be reduced by a further 1% to 21%.
As already announced, the main CT rate for Financial Year 2013 is 23% and the Small Profit rate is 20%.
The Annual Investment Allowance will be increased from £25,000 to £250,000 per annum for a 2 year period commencing from 1 January 2013.
A simpler income tax scheme for small unincorporated businesses will be introduced for the tax year 2013-14 to allow:
- Eligible self employed individuals and partnerships to calculate their profits on the basis of the cash that passes through their business. They will generally not have to distinguish between revenue and capital expenditure
- All unincorporated businesses will be able choose to deduct certain expenses on a flat rate basis
Other Taxes - Fuel Duty, Air Passenger Duty (APD), Inheritance Tax (IHT)
The 3.02 pence per litre fuel duty increase that was due to take effect on 1 January 2013 will be cancelled and the increase that was planned for 1 April 2013 will be deferred until 1 September 2013.
APD rates will increase by the Retail Price Index increase for September 2012 from 1 April 2013. .
The IHT nil-rate band was frozen at Budget 2010 at its current level of £325,000 until April 2015. For 2015-16 the band will be increased by 1% rounded up to £329,000.
Anti Avoidance and Evasion
HMRC's approach to closing in on tax evasion was launched on Monday 3 December.
- Foreign bank levies - which are not allowable deductions for Income Tax or Corporation Tax purposes.
- Tax mismatch scheme - which reduce Corporation Tax liability through asymmetric tax treatment of loans or derivatives.
- Property return swaps - which convert capital losses into income losses.
- Manufactured payments - where schemes involve stock lending arrangements.
- Payments of patent royalties - relief for non trade payments to be abolished.
The following documents which include the Tax Information and Impact Notes (TIINs), draft legislation and explanatory notes have been published.
Other Announcements
Reducing tax credit error fraud and debt
A number of initiatives have been announced aimed at reducing the levels of tax credit error and fraud and recovering tax credit debt. They include:
Requiring claimants to provide more evidence to support certain claims for tax credit claims for children and childcare
Trialling the use of debt collection agencies to collect tax credit debt
The announcement of legislative changes to enable the collection of existing tax credit debt from a new tax credit award.
Recovering Debt
New initiatives aimed at recovering debt owed to central government include:
Trials and pilots with the Department of Work & Pensions and Debt Collection Agencies.
An increase to HMRCs debt management resource for the rest of this year and for 2013-14.
Digital Services
Over the next three years, HMRC will significantly expand the range of digital services to include:
20 million taxpayers will receive a Personal Tax Statement, showing how their tax is calculated and spent by government, and
A more joined-up digital experience for our business customers, providing an overview of their HMRC 'account', links to all their online transactions and a facility for accessing tailored help and asking HMRC questions.
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