Chancellor George Osborne has delivered his "tax net neutral" 2012 Autumn Statement, revealing tax breaks for business and a 4.1% improvement in the deficit since the Coalition took office.
In his speech to Parliament, the Chancellor said there would be no net rises in tax this year with any increases offset by tax cuts elsewhere.
British manufacturers are to benefit from an increase in capital expenditure allowances with eligible investment to increase from £25,000 to £250,000.
The Autumn Statement also revealed a further planned reduction in corporation tax, currently set at 22%. From April 2014, Mr Osborne said, the corporation tax rate will fall a further percentage point to 21%. In addition, for the third year in a row, there will be no fuel tax increase in January 2013.
When the coalition government took office, the Chancellor said, the UK’s deficit was 11%. This fell to 7.9% last year, is predicted to fall further to 6.9% this year and decrease to just 1.6% in 2017/18.
However, the Office for Budget Responsibility downgraded its forecasts for growth in figures released alongside Mr Osborne’s statement. The OBR now expects the economy to shrink 0.1% this year and grow by 1.2% next year, down from its 0.8% and 2% growth forecasts in March. It also downgraded forecasts for the following three years.
The Chancellor revealed that due to the tough global economic conditions, the UK’s debt will continue to rise over the next three years before falling in four year’s time.
“We are making progress. It’s a hard road, but we are getting there. Britain is on the right track and turning back now would be a disaster,” he said.
A deficit is when a government’s total expenditures exceed the revenue that it generates (excluding money from borrowings). Deficit differs from debt, which is an accumulation of yearly deficits.
Mr Osborne has made his statement to MPs against a gloomier economic background than forecast in March’s Budget and Labour has called the government’s economic policy “a terrible failure”.
Labour responded to the Autumn Statement and said that by comparison growth levels achieved in the last 12 months in France, Germany and the US, the UK’s had fallen drastically behind. It also said that the national debt would be higher at the end of the Coalition’s term than when it accepted office.
However, Chancellor Osborne said the coalition government is “confronting the country’s problems”, instead of “ducking them”.
The public know that there are no miracle cures. Just the hard work of dealing with our deficit and ensuring Britain wins the global race,” said Mr Osborne.
“The Chancellor’s analogy that the British economy is ‘healing’ sounds encouraging, but this is just sticking plasters on the symptoms, rather than addressing the underlying problem,” said John Elliott, chairman of dehumidifier manufacturer Ebac.
“The Government cannot continue borrowing money it doesn’t have from other countries, to buy those nation’s exports. We are perfectly capable of domestically manufacturing many of the goods we consume here in the UK, yet we insist on importing them. If we exported an equal value of goods, then it would not be a problem, but we do not.
The MD of the County Durham-based manufacturer, which is building a new washing machine factory and exports many of its air humidifier units, added: “It makes little or no economic sense to continue like this, especially when the answer is as simple as taking people out of unemployment and making some of the things we currently import. The cost would be no more than the tax payer is currently paying out on benefits for these people.”
What is the Autumn Statement
- One of the two major statements the chancellor has to make to Parliament every year
- Since 1997 the main Budget – which contains the bulk of tax, benefit and duty changes – has been in the spring before the start of the tax year in April
- The second statement has tended to focus on updating forecasts for government finances
- Over the past few years this distinction has become blurred, with the Autumn Statement becoming more of a mini Budget
- Under the last Labour government it was called the pre-Budget report
Click here to read in-depth analysis of the Autumn Statement and what it means for business.