2013 BUDGET: Highlights and quotes

Published:  20 March, 2013

Updated: 21/03/2013  12:44pm

The Government has unveiled a raft of measures to boost infrastructure, support the housing market and cut the deficit in its Budget, which was announced today.

Government department underspends will be used to fund infrastructure projects in plans unveiled by the Chancellor George Osborne in his Budget speech. Mr Osborne told parliament that government departments are expected to underspend by more than £11bn this year.

He said: “By using our extra savings from government departments, we will boost our infrastructure plans by £3bn a year from 2015-16. That’s £15bn of extra capital spending over the next decade.”

Public sector debt is forecast to increase from 75.9 percent this year to 85.6 percent in 2016/17 before slipping back to 84.8 percent the next year. Borrowing will be around £61bn higher than originally predicted by the Office for Budget Responsibility over the next six years, decreasing steadily from £114bn this year, £108bn in 2014/15, then £97bn, £87bn, £61bn, £42bn by 2020.

Mr Osborne added: "Both next year and the year after, we will reduce resource departmental expenditure limits by the equivalent to a 1 percent reduction for most departments." However, local government allocations are pre-set and will not be affected.

Mr Osborne announced he would limit public sector pay increases by an average of 1percent in 2015-16. While he has no control over local government pay, the allocation of cash from central government for pay rises will be limited. He said: "Local government and devolved administration budgets will be adjusted accordingly in the spending round."

Local government workers will also face the extra burden of increased National Insurance contributions toward their pensions – although they will be rewarded with a larger pension on retirement.

As local government continues to face further cuts to budgets to staff, Mr Osborne pointed out: "For every job lost in the public sector, six jobs have been created in the private."

Other measures in the Budget included:

  • a commitment to Hezza’s single pot funding for regeneration
  • a commitment to apprenticeships
  • income tax personal allowance raised to £10,000
  • support for childcare
  • help to buy homes
  • plans to build 15,000 more homes
  • cancelling the fuel duty increase
  • scrapping the beer duty escalator, and taking a ‘penny off a pint’
  • clamping down on tax avoidance measures.

Jon Poore, public sector director at Turner & Townsend, commented:

“Four Budgets and two National Infrastructure Plans later, the Chancellor is still committed to using infrastructure to help the country build its way back to growth. The script is well worn – improving Britain’s infrastructure will make us more competitive and give the economy a welcome stimulus.

“Mr Osborne’s promise of an extra £3bn of public sector infrastructure investment per year from 2015/16 is eye-catching, but also an acknowledgement that his plan for the private sector to step into the breach is struggling. In the past year total infrastructure spending shrank by 12 percent as the private sector steadfastly refused to take on the role of ‘white knight’. Progress on the Chancellor’s wish-list of infrastructure projects has been underwhelming.

“So the buck has been passed back to the public sector. The Chancellor says the Treasury is willing to spend, and that the money will come from savings made by other government departments. But that money cannot be spent efficiently without clear targets – and these were notably missing from today’s speech.

“Public sector infrastructure spending should not be an indiscriminate spraying of investment around the country. Without focus and carefully costed plans, the Chancellor might as well send a fleet of RAF helicopters to drop bundles of banknotes.

“There was more clarity on the Government’s support for shale gas, with the Chancellor giving his most full-throated endorsement yet of the controversial energy source. By offering tax breaks and incentives to the industry, the Government is determined that shale should play a key part in Britain’s future energy mix. The prospect of a huge new source of gas and the lure of energy independence are clearly too strong for the Government to ignore.

“The housing sector could yet be a star performer, with the Help to Buy and the Build to Rent schemes respectively delivering greater demand and supply. There is pent-up demand from would-be homeowners, and if these measures can persuade builders to crack on with the slew of shovel-ready projects still in the pipeline, the sector will be able to play an important role in delivering growth to the economy.”

Dr Diana Montgomery, chief executive of the Construction Products Association, said:

"We particularly note four proposals that the industry will find practical and immediately beneficial: first, the exemption next year of the ceramics, cement, steel, minerals and glass sectors from the Climate Change Levy; second, a new Employment Allowance which will largely help our SME manufacturing base; third, an increase to 10 percent in the rate of the above-the-line R&D credit together with a 10 percent tax on profits from patents; and lastly, a cut to the corporate tax rate ensuring the UK will enjoy the most competitive tax regime of any major economy in the world.

“We are encouraged that government has combined these plans with a catalyst for potential home buyers in the form of the new ‘Help to Buy’ programme, which could be a game-changer.  Nevertheless, last year we built only half of the number of homes we need, and the downward revision in economic growth only reinforces the need for these measures to boost construction and the economy."

Ian Fletcher, director of policy at the British Property Federation, said:

"It's encouraging the Government's confidence in Build to Rent has been reciprocated and we are delighted to see that the equity funding was heavily oversubscribed. Working in partnership with Government, the sector should deliver an exciting and quality array of homes for renters."

The £200m made available in December's Autumn Statement will be expanded to £1bn, and will provide equity or loan finance to support development stage finance.

NHBC chief executive Mike Quinton said:

“We warmly welcome the expansion of measures for people who want to buy their own homes. This will help boost the housing market and provide vital support for the construction industry.

“Builders up and down the country have been working hard to build high-quality homes while operating in tough economic times. Housebuilding fell 9 percent in 2012 compared to the previous year. It is therefore great news that housing has been the centrepiece of this Budget. This is a positive step for homebuilders and homeowners alike."

Brian Berry, chief executive of the Federation of Master Builders (FMB), said:

“We needed a ‘Budget for Housing’ to address the acute shortage of affordable, energy-efficient homes in the UK. The Help to Buy package is aimed at stimulating the underperforming mortgage market, which could provide a boost to all firms involved in housebuilding, renovation and repair. But changes to the FirstBuy scheme will be of limited assistance if it remains too costly and complex for smaller developers, who deliver a third of all new homes.

“Britain’s SME builders are in need of relief after years of shrinking workloads and rising costs. More than three-quarters of our members recently told us that the most important thing the Government could do to revitalise the home repair, maintenance and energy-efficiency markets would be to cut VAT. This would also provide a level playing field when competing with builders who choose to avoid charging VAT.

“Small builders have so far seen little benefit from the Funding for Lending scheme, as a quarter of our members tell us they are having to turn down work as they still can’t secure vital financial backing from lenders to buy plant or hire staff. Unless it starts functioning properly, and as long as lenders continue to discriminate against those in the construction industry, our members will be unable to provide the jobs and output the Coalition needs private enterprise to deliver.

“The Chancellor clearly understands the benefits that increased capital investment can bring for the wider economy. However, when seeking to stimulate construction and housing he must pay particular attention to the central importance of smaller, local firms in delivering growth.

“If Ministers want an industry-wide boost to jobs and growth while delivering desperately-needed new homes and meeting energy-efficiency targets, we need bolder measures such as cutting VAT on domestic repair and maintenance work, and reducing the regulatory burden which discourages so many small developers from even contemplating building new homes.”

Peter Chapman, head of rating and compensation for Cluttons, expressed his disappointment that today’s Budget announcement did not address the pressing issue of business rates.

He commented: “This Budget provided the Chancellor with a golden opportunity to demonstrate that the Government was listening to the retail industry’s pleas and it is disappointing business rates were not addressed.

“Instead, the Government has refused to listen to the concerns of the retail industry which called for no increase to business rates next year. It has also stood by the annual uplift in the Uniform Business Rate (UBR) multiplier at the Retail Price Index (RPI) figure of 2.6 percent for 2013/14. It is unfortunate the Government did not increase future years' rates bills by no more than the Bank of England’s lower Consumer Price Index (CPI).
“Secondly, we are disappointed the Government did not take the opportunity to expand the empty rates relief. Last year, it announced it intended to provide relief from empty property rates for new commercial developments. This was widely welcomed, but it was not enough. The Chancellor should have expanded this policy to include the refurbishment and redevelopment of existing empty space. This would have encouraged investment and development of existing redundant buildings which, given the severely constrained development pipeline, would have been a boost to the construction industry and demonstrated the Government’s commitment to growth and employment.”

Mark Clinton, partner at national law firm Thomas Eggar LLP, said:

“The infrastructure announcement is very welcome and the amounts are very significant.   However, with construction output still shrinking, 2015 seems a long way off when the industry has been suffering for more than five years. Much will depend upon where and on what the money is spent as that will determine how many of the UK's 200,000 construction firms feel the benefit directly.”

Allen Wilén, economics director for Glenigan, said:

“While public sector spending is being tightened as the Government presses on with its deficit reduction plans, the Chancellor is diverting planned expenditure toward capital spending. Discouragingly, the promised extra £3bn a year of capital funding will not be available until the 2015/16 financial year which coincides with the next General Election in May 2015. As was witnessed with the Building Schools for the Future Programme, a change in administration can lead to a change in spending priorities. This is especially disappointing given that the industry has been looking for the rapid deployment of 'shovel ready' schemes.

“In contrast, the additional support unveiled for the housing market should provide a more immediate lift to the industry's fortunes and to the UK economy. The Help to Buy programme promises additional support for house purchasers that should boost housing market turnover and new house construction. In addition, five-fold expansion of the Build to Rent programme to £1bn should also help to drive new housing activity and draw in institutional investors into the housing sector.”

Simon RubinsohnRICS chief economist, said:

“The range of measures announced under the Help to Buy scheme to kick-start the housing market are much needed. Helping those who can’t afford large deposits by using the Government’s balance sheet to guarantee mortgages and using capital savings to offer shared equity loans on new build for all buyers will help prevent prolonged market stagnation - although it presents a significant risk to government.  

“The devil will be in the detail about how the Government will treat Buy to Let and those in negative equity. RICS will monitor the impact on the market and prices. However, government needs to be careful this doesn’t create another housing bubble – pushing prices up at the expense of buyers.

“Once again, the Chancellor has reeled off the two infrastructure projects that government has actually started – Hinkley Point and Battersea Power Station – and vaguely referenced others that are in the pipeline and will one day receive private investment through previously announced guarantee schemes and the much-trailed Pension Infrastructure Platform. The £3bn a year announced by the Chancellor is welcome but will not come on stream until 2015-16 – far too late for many businesses that are struggling now. Our members have told us repeatedly that the success of infrastructure projects is about delivery on the ground. RICS believes government should spend more time and resource in supporting business to gain access to these public sector projects.

“The Government has largely failed to realise that infrastructure projects don’t need to be big to be effective in creating growth. In fact, small might very well be beautiful.  Across the regions and the nations it’s the smaller repair, maintenance and upgrade projects which can be picked up by medium and small construction businesses. Rail maintenance and school refurbishment are just two areas where a small amount of capital investment would quickly deliver great benefits.  

“The Chancellor says he is actively considering extending funding for the Funding for Lending Scheme (FLS) – RICS would urge him to act now. We are confident that an extension of the FLS would assist more would-be homeowners and small businesses. While the FLS has been a key part of the beginning of improving conditions in the housing market, it’s hardly surprising that banks remain more willing to lend on residential mortgages rather than small businesses. Government needs to take a long hard look at the FLS, as small businesses are the engine of the UK’s economic recovery.

“In all, a rather lacklustre statement from the Chancellor, which will do little to deliver much for the economy in the near term. It’s time government listened to what voters and businesses desperately need in order to make a real impact at a grass roots level.”

Richard AbadiePwC global head of infrastructure, said:

"Every additional pound of investment in infrastructure is to be welcomed in a difficult market where the construction industry is struggling from reduced activity. Infrastructure projects are long-term and investments made into them also need to be long-term and ongoing. 

“Regrettably the announced sum is insignificant relative to the infrastructure backlog and whilst we welcome the announced £3bn of cost-savings from various government departments, the reality is it won't make a significant impact on economic growth as it comprises less than 0.2 percent of GDP." 

Jonathan HookPwC's engineering and construction leader, added: "For construction, the big news for the sector is the Chancellor's bet on the housing market with the Help to Buy scheme. The commitment of £3.5bn to shared equity loans up to 20 percent coupled with £130bn of mortgage guarantees is a big boost to the residential market. The Chancellor obviously believes this a quicker and cheaper way to get an economic boost than other areas of capital spend."

Scottish Building Federation executive director Michael Levack said:

“The commitment to prioritise an additional £300m towards capital investment in Scotland is welcome. But considering that Scottish construction output fell by more than £1.1bn last year alone, it is clear that more could and should be done to support the industry.

“Aside from additional capital investment, we have consistently called for a targeted cut in VAT on building repairs, maintenance and improvements to give particularly smaller construction firms a much-needed boost. While pontificating about the need to tackle tax avoidance, the Chancellor has ignored the plight of legitimate building companies that struggle to compete against the ‘cash-in-hand’ cowboys that are the parasites of our industry. What is more, he has missed a golden opportunity to stimulate investment in initiatives to make our built environment greener and more energy efficient.

"Overall, the Chancellor seems determined to stick to the existing economic course. In reality, Plan A is doing too little to support the construction sector as a means of stimulating growth in the wider economy. As a result, I fear we will continue to bump along the bottom for some time to come.”

Keith Barker, commercial director at Wienerberger, has said:
"We welcome that the Government is looking to address some of the issues facing the housing market in yesterday's Budget. The Help to Buy initiative seems to be a positive step, and in particular the loan incentive additions to the 'NewBuy' scheme which, by encouraging first-time buyers towards new build properties, will hopefully stimulate support and demand for the homebuilding that this country desperately needs.
"However, as a note of caution, we would suggest that equal attention, and indeed investment, should be focused upon growing the construction sector, which is vital to the UK economy as a whole. Over the last three years the Government has launched at least five initiatives to revive the housing market, and yet housing starts fell 11 percent last year, so getting the initiatives to work is key."
Iain McIlwee, chief executive of the British Woodworking Federation, said:
"What we have seen is more balance sheet bingo than tangible, practical, growth-focused policy. Tax cuts are welcome, but without growth they are not enough. And while more flexible mortgage loans will provide some help to homebuyers, it's unlikely to create the step change we need to see. I remain concerned for our members, who operate at the very heart of manufacturing. Virtually the entire business world stood up and asked for more housebuilding – the measures announced are not enough fast enough.
"We joined the leading lobbyists in the industry call to ask for an end to the destructive nature of high VAT on refurbishment work. What we got was 1p off a pint. Where is the much-needed support for the Green Deal? "The Government continues to be soft on banks which regularly shut the door on manufacturers starved of cash. It underwrites their risk while allowing them to charge eye-watering interest rates on any money they are actually lending rather than bleeding out of the system as bonuses.
"Let us not mistake austerity for strength. To drive growth we don't need an iron Chancellor, we need an inspiring Chancellor – one who is committed to encouraging growth, one who can listen, adapt and evolve. I didn't see that today."

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