Budget 2012 – Public sector pay will reflect local needs

The Prime Minister David Cameron called it a “kaleidoscope” Budget, making reference to Mr Speaker John Bercow’s speech to the Queen which Cameron was said to be unhappy about (or at least that’s what his facial expression seemed to show).

But the Chancellor George Osborne told the House of Commons in his Budget speech that it was a “reforming” Budget that “unashamedly backs business”.

“In the middle of this parliament in difficult economic times this coalition has not settled for a do nothing Budget,” he said. “We have achieved all this and kept to our deficit plan – together the British people will share in the effort and share its rewards. This country borrowed its way into trouble and now we’re going to earn our way out.”

What will interest public servants most, though, was Osborne’s pledge to look at “how to make public sector pay more responsive to local needs”. Mentioning London weighting and throwing back at Labour its idea for regional benefit rates – which would suggest that different areas warranted different payment agreements – the Chancellor said that independent pay review bodies would look into the issue. He also said there would be “the option of moving to more local pay for those civil servants whose pay freezes end this year”.

The Chancellor also had bad news for the Work and Pensions Secretary, telling the House that welfare is set to rise to 1/3 of the overall government spend – so “we will need to make savings of £10bn by 2016″, he said.

Other measures in the Budget included a simpler tax system with taxpayers understanding what they were being asked to pay, a personal tax threshold of £9205 (millions of working people would be £220 better off every year, £170 better off after inflation), a 5p cut in the top 50p tax rate, growth of 2 per cent for 2013 and 3 per cent in 2015/16, 1m more jobs over the next five years, inflation down to 1.9 per cent next year, unemployment claimant counts down, and borrowing going down from £126bn in 2011/12 to £21bn by 2016/17. Osborne said the government was now saving £36bn in debt interest payments compared to what Labour had been paying.

He also made reference to tackling the “lack of airport capacity in the south east”, Chinese investment “pouring” into Liverpool, more help for enterprise areas in Scotland, and “an alternative environmental tax”.

Osborne repeated his doubts about investing too much in renewable energies. An environmentally responsible government also had to be fiscally responsible, he said, and he would be looking to existing revenues with an “alternative environmental tax”. Gas is cheap, he said, and he would introduced a tax package to encourage more north sea work in that area. He would also “open up” large and deep fields to the west of Shetland, which he called “a huge boost for investment in the north sea”.

The Chancellor also pointed out that Italy, the Netherlands and other countries were now in recession while Germany’s economy had shrunk and the forecast for world economic growth had been revised down. Britain is not immune to these issues, he said, and the Office for Budget Responsibility said that the situation in the euro area was a major risk to the UK’s growth, as was the Middle Eastern oil situation.

Calling these problems “headwinds”, Osborne said that the UK economy would avoid a technical recession, it had carried a little more momentum into the new year than anticipated and growth was revised slightly up to 0.8 per cent for this year, 2 per cent for 2013, 2.7 per cent in 2014, and 3 per cent in 2015.

Promising no “deficit funded give-aways” and insisting he was presenting a “fiscally neutral” budget, Osborne said that government borrowing would be £126bn in 2011/12 (“£30bn lower than its peak a year before we came to office”), £120bn next year, £98bn in 2013/14 and just £21bn by 2016/17. However, public sector net borrowing had risen by more than expected to £15.2bn, up from £8.9bn last year. The structural deficit will be eliminated by 2015/16 but will peak at 76.3 per cent at 2014/15, he said.

The Chancellor also told MPs that costs for Afghanistan would be £2.4bn lower than planned by the end of this parliament, that the government was looking to double the welfare grant for families of armed forces personnel and would double the rate of council tax relief, with thousands of veterans getting 100 per cent relief.

Other points that Osborne revealed included gold holdings rising in value to £11bn, but he said this did not include the £2bn of reserves sold off a decade ago that would now be worth £13bn.

He also talked about increasing financial support to encourage more exports, tackling the “lack of airport capacity” in the south east (promising a report in the summer), and Network Rail extending the northern hub – “transport investment in the north of England had been neglected but not under this government”, he said.

Other measures included expanding finance partnerships and enterprise finance, and attracting more international investors into the UK for video games, animation and high end TV production. The UK would become “Europe’s technology centre”, Osborne promised. To much laughter from the government benches, the Chancellor said: “It is the policy of this government that we want to keep Wallace and Gromit exactly where they are,” thought to be a dig at Ed Miliband and Ed Balls that the Labour leader seemed to misunderstand when he gave his response later.

Osborne also promised funding for ultra fast broadband and wi-fi in 10 of the UK’s largest cities, Michael Heseltine being asked to review how government departments could work with the private sector on economic development, the expected overhaul of planning regulation, and action on helping young adults who had been “let down by the education system”, including “exploring the idea of enterprise loans – help for young people to start their own business”.

Turning to the tax system, he said it needed to support work and taxes should be predictable and fair – “the rich should pay the most and the poor the least but the current tax system has drifted far from these principles”. Now further reform is needed, Osborne said, with “a modern tax system fit for the modern world”. So he would be “radically changing” the administration of tax for the smallest firms so that those with a turnover of up to £77,000 would be taxed on the cash that passed through their businesses. “We will make filling tax returns dramatically simpler for smaller firms,” he said, also promising to “address some of the anomalies in the VAT system”.

Next, the Chancellor turned to age related allowances saying that many pensioners didn’t understand them and 150,000 pensioners have to fill in self assessment forms. He announced that the government would introduce a new single personal allowance for all but insisted that no pensioner would lose in cash terms. Also, basic state pension would rise by £5.30 a week and the “complicated means testing system” would be simplified. On personal tax, Osborne said that people would get an annual statement from 2014 telling them how much tax and National Insurance they had paid, their average tax rate and how much this has contributed to public services and to the national debt – “a tax system that is simple and transparent”.

Osborne also announced that corporation tax would go down to 24 per cent from next month and would continue down so that by 2014 it would be 22 per cent – “the biggest sustained reduction in business tax rates for a generation, 18 per cent lower than the US and 8 per cent below Germany – an advertisement for investment and jobs in Britain”. However, he quickly added that the bank rate levy would be increased by 0.05 per cent to “make sure these cuts do not benefit the banks”. This would raise an extra £2.5bn a year.

The Chancellor said that he regarded tax evasion and aggressive tax avoidance as “morally repugnant” so anti-avoidance measures would increase revenues by £1bn and another £10bn would be protected that could have been lost. Measures will be introduced in the 2013 Budget.

Osborne also announced that stamp duty land tax charged for properties over £2m will be 15 per cent and take effect today. “If you buy a property in Britain that is used for residential purposes you will be expected to pay, people have been warned,” he said. And from midnight tonight a stamp duty land tax of 7 per cent would be applied to individually owned properties worth more than £2m.

There would be no changes to pensions relief but a new cap on reliefs at 25 per cent of income, and for the reduction in the top rate of income tax Osborne said: “No Chancellor can justify a tax rate that damages our economy and raises next to nothing, it is as simple as that.”

He added: “We will now be getting five times more money each and every year from the wealthiest in our society. So the richest pay more and Britain is competitive again.”

On child benefit, the Chancellor said that instead of withdrawing child benefit all at once it would only be withdrawn when someone in a household earned over £50,000 and it would be gradual so that only those with an income of £60,000 will lose all their benefit – he reckoned this meant that “95 per cent of all families would remain eligible for child benefit”.

Finally, on personal taxes he said that the coalition was “in touching distance of the goal of a £10,000 allowance that we all share” and claimed that people who work on the minimum wage will see their tax bills cut by a half.

In response, Labour leader Ed Miliband went on the angle of millionaires being better off and resorted to pantomime by asking the government front bench several times to nod or shake their heads if they were going to benefit from the top rate of tax being cut. All of them kept their heads dead still, save for the occasional dismissive semi-shake. He then called the Lib Dem leader “calamity Clegg” and said he was now guilty of “rolling on to his back and saying ‘Yes Prime Minister’.

Related Posts Plugin for WordPress, Blogger...
Subscribe today and never miss a story relevant to you!
Did you know we have 8 specialist newsletters for you to choose from?

We have specialist newsletters on HR strategy, Employment Law, Recruitment, Wellbeing, Reward, Diversity, Event News and even Supplier News.  Which one is of most interest to you and your role? You can even choose to receive more than one.

So subscribe to our Daily newsletter today and then choose the news you don't want to miss!