Some of the pressure was off the Chancellor this time around, with stronger-than-expected growth giving him some breathing room, but the message was clear – the plan is working, the job isn’t done, stay the course.
UK is fastest-growing developed economy
The Office for Budget Responsibility (OBR) revised growth projections upwards, from 0.6% to 1.4% for 2013, and from 1.8% to 2.4% for 2014, putting it largely in line with other economic forecasts. After a pretty grim growth outlook delivered in the Budget earlier in the year, the UK is now growing faster than any other developed economy. The knock-on effect from this growth is a significant improvement on the Government’s debt and deficit projections – the outlook now is for the budget to balance by 2018/19, a year earlier than expected, whilst government debt will peak at 80% of GDP, around five percentage points lower than previously forecast.
‘Fiscally neutral’ changes
In line with the mantra of a “responsible recovery” the Chancellor announced that changes in the statement would be ‘fiscally neutral’ meaning any new spending would be matched by cuts elsewhere. As expected, the main thrust of these cuts were to Whitehall, which is expected to find another £3 billion over the next three years – a lot of which will come from current under-spending. With the education, health and defence budgets largely protected and the security services and HMRC exempted, this means a lot of the cuts will fall on the Department for Work and Pensions, the Department for Business, Innovation and Skills, the Home Office and the Ministry of Justice. The Chancellor introduced a measure that would see a cap on overall welfare spending introduced from next year, though job seekers allowance and pensions would not be included.
The Chancellor used these savings to fund a number of changes that were largely pro-business in flavour, and aimed at promoting continued recovery. Measures included a cap on business rates at 2%, compared to the 3.2% that were expected otherwise, a halving of business rates for firms occupying previously-vacant premises and an extension to the tax relief on small businesses. Infrastructure will also receive a fresh boost, along with housebuilders.
There was some modest support for individuals, with next year’s fuel duty increase cancelled, and regulated rail fare increases capped on average at inflation.