Emergency Budget 2010 at a glance

The key points from the Chancellor's speech:

The Budget is tough, but it is also fair, said Mr Osborne. The coalition Government had inherited the largest budget deficit of any European economy except Ireland. 

Unless the Government delivers concrete measures to tackle debt, the consequences would be "higher interest rates, more business failures, sharper rises in unemployment and potentially a catastrophic loss of confidence and the end of the recovery".

Britain is set to miss the Labour government's "golden rule'' target by £485 billion.

The Government's "formal mandate" is that the structural current deficit should be in balance in the final year of the five-year forecast period, which is 2015/16.

A fixed target for debt will also be created, which in this Parliament is to ensure debt falls as a share of GDP by 2015/16. The Office for Budget Responsibility's judgment is that the Government is on track to meet these goals and Mr Osborne said "we are set to meet them one year early in 2014/15''.

OBR forecasts show growth in the UK economy for the coming five years estimated to be 1.2% this year and 2.3% next year; then 2.8% in 2012, followed by 2.9% in 2013; then 2.7% in 2014 and 2015. Consumer Price Inflation is expected to reach 2.7% by the end of the year, before returning to the 2% target in the medium term.

The OBR says unemployment will peak this year at 8.1%, then fall each year to reach 6.1% in 2015.

The coalition Government believes the bulk of debt reduction must come from lower spending, rather than higher taxes - roughly 80% through spending cuts and 20% through higher taxes. Measures today mean that 77% of the total consolidation will be achieved through spending reductions and 23% through tax increases.

Current expenditure will rise from £637 billion in 2010/11 to £711 billion in 2015/16.

The Government will look at how to dispose of its shareholding in air traffic body NATS, the student loan book will be sold and the future of the Tote will be resolved.

With the full agreement of the Queen, the Civil List will remain frozen at £7.9 million for the coming year and a new means of support for Her Majesty will be proposed at a later date.

Mr Osborne said his Budget today implies further reductions in departmental spending of £17 billion by 2014/15, with unprotected departments facing an average real cut of around 25% over four years.

The Government is asking public sector workers to accept a two-year pay freeze, with protection for the 1.7 million public servants earning less than £21,000. Those low-paid workers will receive a flat pay-rise worth £250 in both years.

The OBR today forecasts that by 2015/16, we will be spending over £10 billion a year to meet the gap between pension contributions and payments to the unfunded pensions they support.

The Government will accelerate the increase in state pension age to 66.

From next year - with the exception of the state pension and pension credit -benefits, tax credits and public service pensions will rise in line with consumer prices rather than retail prices, saving over £6 billion a year by the end of the Parliament.

Tax credits will be reduced to families earning over £40,000 next year, the taper rate at which awards are reduced will be increased, the baby element will be removed for new children from April 2011 as will the one-off payment to new workers over 50 from April 2012.

The Government will abolish the health in pregnancy grant from April 2011, restrict the Sure Start maternity grant to the first child only and expect lone parents to look for work when their youngest child goes to school.

Child benefit will be frozen for the next three years.

The Government will introduce a medical assessment for Disability Living Allowance from 2013 for new and existing claimants.

Housing Benefit will be reformed with a maximum limit of £400 a week, in a package saving £1.8 billion a year by the end of the Parliament

The total welfare shake-up will save the country £11 billion by 2014/15.

From April 2011, the threshold at which employers start to pay National Insurance will rise by £21 per week above indexation.

Corporation Tax will be cut next year to 27%, and by 1% annually for the next three years, taking it down to 24%.

The small companies' tax rate will be cut to 20%.

Corporation Tax will be cut next year to 27%, and by 1% annually for the next three years, taking it down to 24%.

From January 2011, the Government will introduce a bank levy, which will apply to the balance sheets of UK banks and building societies and the UK operations of foreign banks. From January 2011, the Government will introduce a bank levy, which will apply to the balance sheets of UK banks and building societies and the UK operations of foreign banks.

Reform of the corporate tax regime "will help rebalance the economy away from household debt and government consumption'', said the Chancellor.

Labour's landline tax will be abolished and instead the Government will support private broadband investment with funding in part from the digital switchover under-spend within the TV licence fee.

The Government will commit to the upgrade of the Tyne and Wear Metro, extension of the Manchester Metrolink, redevelopment of Birmingham New Street station, improvements to the rail lines to Sheffield and between Liverpool and Leeds.

On January 4 next year, the main rate of VAT will rise from 17.5% to 20%. The VAT rise will generate more than £13 billion a year by the end of this Parliament and zero-rated items will remain exempt from VAT over the course of this Parliament.

No new increases in duties on alcohol, tobacco or fuel after the "substantial increases'' announced in Labour's March Budget. Labour's plan to increase the duty on cider by 10% above inflation will be scrapped from the end of this month.

The Government will help low-spending councils in England to freeze council tax for one year from next April.

Capital Gains Tax remains at 18% for low and middle-income savers but from midnight taxpayers on higher rates will pay 28%. The 10% CGT rate for entrepreneurs which currently applies to the first £2 million qualifying gains will be extended to the first £5 million. The CGT changes should bring in almost £1 billion extra, the great majority from additional income tax, said the Chancellor.

Personal income tax allowance to be increased by £1,000 in April to £7,475. Some 23 million basic rate taxpayers will gain up to £170 a year. The higher rate income tax threshold will remain frozen to 2013/14, with a long-term objective to increase the personal allowance to £10,000.

The basic state pension will be linked once more to earnings from April next year, with the pension guaranteed to rise in line with earnings, prices or 2.5%, whichever is the greater.

The child element of the Child Tax Credit will rise by £150 above indexation next year in a £2 billion-a-year "commitment to low-income families''.

A silver lining

 

Mortgage rates have dropped to their lowest for almost seven years, as lenders start to offer cheaper home loans for those with smaller deposits.

The average rate on a two-year fixed rate mortgage is now 4.52%, the lowest since September 2003, and compares with over 7% two years ago. At the start of this year, the average was 4.93%. The cost of five-year fixed rate mortgages has also improved, falling from 6.09% in January this year to 5.61%.

Michelle Slade of Moneyfacts said: "The market has been set for the mortgage market to return to some sort of normality, while still applying the lessons learnt over the last few years."

The number of mortgage products is also up at 2,635 compared with 1,601 six months ago. The biggest rise in availability is in mortgages for borrowers with only 15% or 20% deposits. The number of mortgages for people borrowing 80% LTV has more than doubled since the start of the year, bouncing up from 153 to 318.

Among lenders slashing rates is Barclays which tomorrow will cut its rates on its highest LTV fixed rate Woolwich products by up to 0.70%.

This follows the announcement earlier this month that Barclays is offering competitively priced mortgages at 90% lending for customers buying a new Bovis Homes property.

The key reductions this week on the Woolwich products include a cut of 0.70% on a two-year fixed rate mortgage (up to 80% LTV) from 5.29% to 4.59%, and a reduction of 0.60% on a three-year fixed rate (up to 80% LTV) from 5.49% to 4.89%.

 

Joint mortgage for joint property buyers launched by platform

The mortgage lender, Platform, has just launched a new product solely for joint property buyers. They say that research has shown that those with joint mortgagees tend to ‘perform better’ than those with a mortgage in their sole name. They are therefore able to offer favourable rates to joint applicants.

The move comes amid rising unemployment and fears that single home owners would not be able to keep up with their mortgage payments if they lost their job. The two-year fixed rate deal is being offered at a rate of 3.19 per cent for joint borrowers with a 30 per cent deposit, by non-high street lender Platform. None of the lender’s other fixed rate deals for sole borrowers are available at that rate. The best rate on this deal for a single person is a higher 3.49 per cent.

 It is understood that this is the first time a lender has offered preferential rates to joint borrowers. Platform only offers its home loans through mortgage brokers but other high street lenders could follow with similar deals if the deal proves to be a success. The lender defended the better rate, saying joint mortgages were less of a risk than those approved to single borrowers. However, while the mortgage is for joint applicants, both parties do not have to be working. Mortgage finance has dried up since the beginning of the credit crisis three years ago despite banks receiving billions of pounds in taxpayer support. Mortgage experts condemned the move, saying sole borrowers were not higher risk borrowers.

The deal is available to those buying a new home as well as remortgaging and comes with a £1,495 arrangement fee. Platform said it offers a two-year tracker mortgage deal at 2.79 per cent for those with a 40 per cent deposit.

 

Stop garden grabbing!

The Government is giving local councils powers to prevent “garden grabbing”, whereby developers build homes on people’s gardens. The land is currently classified as “brownfield” for planning purposes, falling into the same category as derelict industrial sites. It is ridiculous that gardens have until now been classified in the same group as derelict factories and disused railway sidings, forcing councils and communities to sit by and watch their neighbourhoods get swallowed up in a concrete jungle.

 Nationally, the number of houses being built on gardens rose from one in 10 to a quarter of new properties during that time, according to the Communities and Local Government. Figures show that in 1997, 18 per cent of new housing in Richmond was on “previously residential land”, but it rose to 39 per cent by 2008.

There are also plans to scrap Government targets for the numbers of properties in an area, to try and encourage the building of family homes rather than small flats. This new legislation should mean that for the first time we can stand shoulder to shoulder with people who do not want to see the character of their areas and homes ruined. It is about the greed of a small number of developers and landowners who for short-term gain are willing to ruin the character of local areas for everyone and for ever.

 

A Cautious summer and a tilted recovery

HIP's are a dark and distant memory, those wishing to tentatively dip their toes into the property market now, without losing £400 for the privilege, may just do so. We are already seeing more homes come onto the market.

The caution comes in the form of the £167 billion budget deficit. The new coalition government has a lot to contend with. The annual rate of house-price inflation may be 9.8 per cent, according to Nationwide, but this is not distracting attention from the economy.

The market will be kept ticking by the 75 per cent of homeowners who have no mortgage or only a tiny loan. Of course there are people with little or no housing debt to be found everywhere in the UK, but they do not all have the same amount of leeway. Those who happen to reside in the wealthier areas where prices are only 3.2 percent from the housing peak of 2007 will be more likely to move.

Unfortunately the same cannot be said of areas crippled by unemployment, where prices are stagnant at 19 percent below their 2007 level. This gives us a tilted recovery.

June 22 bring us the emergency budget, the Chancellor, will inform us of his debt busting plans. Within this budget he will confirm the new top rate of capital gains tax at 40%. Already Buy-to-let investors are starting to get very worried, but have not started to panic sell as yet.

The Chancellor may also set out plans for the tax breaks on holiday homes, of the type that are let out. The withdrawal of these reliefs was postponed for the election. Mr Osborne is now under pressure to retain these concessions for those who rent out their properties for a minimum of 20 weeks a year (rather than 10, as at present). One justification would be the jobs that depend on holiday lettings, such as cleaners and gardeners. Small in number, maybe, but the entrepreneurial spirit that the coalition Government wants to foster is all about starting small.

 

House prices register May dip

House prices dipped by 0.4% in May, following a 0.1% decline in April, Halifax has reported. However, taking an average of the latest three months, the value of the typical home increased 6.9% on the same period of 2009, reflecting the biggest annual rate of change since October 2007 (8.9%). Prices are therefore 8.3% above their April 2009 trough, at an average £167,570, ...

Government may water down plans to raise Capital Gains Tax

Work and Pensions Secretary Iain Duncan Smith has hinted the coalition may water down its plans to significantly raise Capital Gains Tax in the forthcoming emergency Budget.

He said: “None of the levels have been decided. The Chancellor has been clear that he is listening to everything and he will make final decisions. He has also talked about major exemptions for all sorts of different groups because we do not want this to harm entrepreneurs and we do not want to harm families that are heading towards retirement who have actually saved.”

“George has discussed it with me and others and he is definitely looking for ways in which we can take the sting out of some of this.”

The Liberal Democrats pushed for the CGT rise in order to fund the increase to the tax-free income tax threshold for the lowest earners towards £10,000. The coalition agreement included plans to increase CGT, potentially to levels similar to income tax, with measures put in place to protect entrepreneurs.

Before the general election, the LibDems were calling for the annual CGT exemption limit to be reduced from £10,100 to £2,000, although reports over the weekend suggest the Government is looking to stick to the current level.

A senior conservative backbencher John Redwood wrote an open letter to exchequer secretary to the Treasury David Gauke in which he outlined his strong opposition to the CGT rise and suggested instead that one-year gains are taxed at the top level of income tax, tapering down to 0 per cent for assets held over five years.

HIPs suspension triggers flood of properties on to market

A flood of new properties has come on to the market since HIPs were scrapped on May 20, giving estate agents their busiest week in nearly three years.

Rightmove says new listings on its website have increased by 35.4%, while the UK’s largest estate agency chain, Countrywide, says the number of new properties coming on to the market through its 1,200 branches has jumped by 34%.

News of the turnaround in the market overtakes the Hometrack survey for May which said house prices had crept up by 0.2%, with the price rise driven by low supply. But this, suddenly, seems to be in the past, with fresh hope for the market.

Rightmove’s commercial director, Miles Shipside, said: “We would expect to see a post-election pick-up in fresh stock coming to the site as people have been put off by the uncertainty of the election recently.

“However, 35% is a significant increase in new listings, and indicates that many more speculative sellers have been encouraged to bring their properties to market since HIPs were scrapped. It seems that the additional cost and red tape were putting sellers off.”

New listing numbers were up throughout the country, although levels varied across each region. Wales had the highest increase in listings, with the number of new properties going up by 66%, while the lowest was in the North-West where the rise was 12%.

Countrywide says its new instructions were a 68% increase on the same week last year, with the number of new properties reaching levels not seen since September 2007 – the same month that HIPs were extended to cover three-bedroom properties.

Robert Scarff, managing director of Countrywide’s estate agency division, said: “The results speak for themselves and show that the timing of the suspension of HIPs was crucial.

“This decision has provided home owners with the incentive they need to put their properties on the market. Those sellers who were in two minds are now doing so and causing a big spike in activity for agents.”

Figures from around the regions show the increases in sellers for Countrywide companies:

East Midlands: Frank Innes 53%
Central & West Midlands: Dixons and RA Bennett combined 126%
East: Abbots 47%
North-West: Bridgfords 50%
North-East: Bairstow Eves 58%
Greater London: Bairstow Eves and Mann Countrywide 26%
South-West: Millers and Stratton Creber 17%
South-East: Bairstow Eves, Taylors, Wilson, Alan De Maid, Geering & Colyer and Mann Countrywide 32%
 
Scarff added: “The increase in activity kicked off as soon as the Government announcement was made. Not surprisingly, there have been no reports of buyers questioning how the HIPs suspension will affect them.

“This supports our view that the Government was 100% right in their decision to suspend the scheme.”

Four-month High on mortgage approvals

In April mortgage approvals rose to a four-month high as sunny weather and the ending of stamp duty on house purchases for first-time buyers helped boost demand. The increase in mortgage approvals within the last 12 months continues to be solid and thats to a degree been powered by ultra-low interest rates. Mortgage approvals could very well rise slightly over the next year.

The amount of mortgage approvals continues to be below its average over the preceding six months and is about half the total that were given at the peak of the U.K.s housing boom in 2007. Plans by Prime Minister David Camerons new coalition government to seek 6.2 billion pounds in spending cuts this year may worsen households finances and keep housing activity subdued.

Net consumer credit dropped 136 million pounds in April from March, the first decline since November. Credit card lending increased the least in seven months, while personal loans and overdrafts fell by 303 million pounds, the fastest pace in five months. While interest rates remain at a record low, banks have curtailed lending to help rebuild balance sheets after the financial crisis, making it harder for potential homebuyers to get loans.

The Council of Mortgage Lenders said on May 21 that credit availability is likely to remain restricted for some time. The Land Registry said yesterday that U.K. house prices rose 2 percent in April from March. Part of the boost to prices is due to a supply shortage. Hometrack said this week that prices in May rose 2 percent from April and highlighted a scarcity of housing for sale. The U.K. residential property market has endured a chronic lack of houses, which explains property price resilience.