Budget 2013: Five biggest surprises



Waitress carrying beerBudget 2013: What it means for you

When George Osborne stood up to make his Budget 2013 speech this morning, few people were expecting him to admit that the economy is now expected to grow by just 0.6% this year, half the 1.2% he predicted at the end of last year.

However, most people were also surprised to hear that the price of a pint of beer would be coming down by 1p.
Here are five of the biggest surprises from this year's Budget.

Cheaper beer
Over the last few years, duty on alcohol of all kinds has gone up automatically by 2% above the rate of inflation, in accordance with a so-called "alcohol duty escalator" introduced by the last Government.

However, rather than going up, duty on beer is to be cut by 1% later this month, scraping 1p off the price of a pint of beer in many parts of the country. The annual above-inflation rise in duty on beer is also to be scrapped.

The Government says that its decision has been prompted by falling beer sales and pub closures.

However, wine drinkers and cocktail fans will still have to pay more for their favourite tipples as all other alcohol duties are to rise by 2% above inflation as expected.


Lower economic growth
The economy is now expected to grow by just 0.6% this year, not 1.2% as predicted by the Government last year.

That's an unexpected blow for many Britons, who were hoping that the UK economy was finally looking up.

The figures for the years to come look a bit more positive, though. Osborne said that growth would hit 1.8% in 2014, 2.3% in 2015 and 2.7% in 2016 and insisted that the UK will avoid a "triple dip" recession despite slower economic growth this year.

Equitable Life compensation
While many Equitable Life policyholders are covered by a £1.5 billion redress scheme, those who bought their Equitable Life with-Profits annuity before 1 September 1992 have had little hope of compensation - until now.

That's because the government has promised ex-gratia payments of £5,000 for people in this group, plus another £5,000 to those in receipt of pension credit.

Osborne said: "We're not doing this because we're legally obliged to; we're doing it because quite simply it's the right thing to do."

Help for first time buyers
First time buyers, and anyone else struggling to buy a property, are to get a boost thanks to a new "Help to Buy" scheme, it was announced today.

An extension of the FirstBuy scheme aimed exclusively at first time buyers, it will be available to anyone buying a newly built home and will put up £3.5 billion in shared equity loans that can make up 20% of the purchase price.

Buyers will need a 5% deposit to qualify, but will now be able to buy homes worth up to £600,000 and will pay no interest on the Government loan for the first five years.

A "Mortgage Guarantee" scheme, which will help those who can't afford a big deposit, was also introduced.

£10,000 income tax threshold
The personal income tax allowance, or in other words the amount you can earn tax free before basic-rate 20% income tax kicks in, will be raised to £10,000 in April 2014, Osborne also announced today.

The fact that this is coming in is no great surprise. The threshold is currently £8,105, rising to £9,440 on April 6, and it was well known that the Government wanted to move it towards the £10,000 figure.

What is a surprise to many, however, is the fact that it is coming in next year and not a few years down the line as expected.

The Government claims that 3 million workers will pay no income tax at all from April 2014 as a result of this change.

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Budget 2013: Five biggest surprises

The Chancellor has cut the price of beer. He said a planned 3p rise in beer duty tax was being scrapped and replaced by a 1p cut on a pint of beer.

While lower interest rates are intended to boost borrowing for business and keep costs down for mortgage customers, the Chancellor brings another Budget devoid of encouragement for savers. Faced with near 0% interest rates and 3% inflation, there is no help for those who need to save for the future, or those that already live on their savings in retirement.

"Low interest rates are making life ever harder for people reliant on their savings. Their spending power is being reduced and their standard of living eroded on a daily basis," said Simon Rose of Save Our Savers. "The attack on savers is short-sighted and undermines the country's prospects for investment, growth and retirement."

A major headline-grabbing measure to help struggling first-time buyers is the new Help-to-Buy scheme. Made up of two parts, the first commits £1.3bn to shared equity loans that enable first-time buyers to borrow up to 20% of the value of a new build home towards a deposit, providing they can contribute 5% themselves. The loans will be interest free for five years and be repayable on house sale. The scheme will cover all new properties up to £600,000 in value – around 90% of all new homes in the UK.

The second is a Mortgage Guarantee for lenders, intended to help all families who are struggling with deposits. The scheme will make £130bn worth of mortgages available from 2014 and enable lenders to offer loans at higher-to-loan value, which will Mr Osborne said will "dramatically increase" the availability of mortgages. The guarantee will run for three years and apply to bold old and new property. Stephen Noakes, Mortgage Director at Lloyds Banking Group, commented: "We are very supportive of innovation in the housing market and believe that the mortgage guarantee scheme, will give a much needed boost to the housing market and most importantly address the issue of accessibility. "Crucially, this scheme will not only help first time buyers but also second steppers, a key segment of the housing market that is also in need of more support and attention. Whilst the property market is likely to continue to be challenging, the fresh support announced today will have a real knock on effect across the whole of the housing market and we expect it could help around 50,000 people a year."

Payment of taxes is the "glue that holds the economy together" the Chancellor said as he reaffirmed his commitment to crackdown on evasion and the professional services that advise on it. "With more measures to rein in Corporate Tax avoiders, the Chancellor has sent a clear message that aggressive avoidance is no longer acceptable," said Martin Hook, Managing Director of research and development tax specialists, Alma Consulting Group. "This will have a significant impact on the Big 4 and other firms who market tax avoidance schemes and will need to consider the morality of the schemes that they sell and the spirit of the tax legislation."

As was widely predicted, Osborne froze the fuel duty hike due in September 2013. He announced that his repeated scrapping of this duty has saved the average Ford Focus owner £7 on every tank of petrol.

Stating his commitment to helping entrepreneurs get ahead and recognising that the cost of employing people is a huge burden to small firms, the Chancellor announced a surprise move with National Insurance relief of £2,000. Called the Employment Allowance, he said the new measure means than 450,000 small businesses – which account for one third of all companies in the UK - can employ one person earning £22,000 or four people earning the minimum wage, without paying National Insurance.

"The Employment Allowance will certainly be a massive boon for small businesses. Not least because most weren't really expecting it," said Jonathan Elliott, managing director of MakeItCheaper.com. "Put it another way, a £2,000 saving for a typical small business is the equivalent of cutting their annual energy bill in half or putting 1,250 litres of free fuel in its fleet of vehicles." Yet the Government fell short on support for new enterprises, explains John Williams from Kuber: "Noticeably absent from the Chancellor's speech was any news of extending or enhancing the Enterprise Investment Scheme (EIS). Many were hoping to see the Government offer more help to start-up companies looking for second round finances, but nothing materialised."

There was bad news for public sector workers, who will see pay increases limited to 1% in 2015/2016. The government will also revisit 'progressive pay' which sees pay increase automatically each year which he said was 'difficult to justify' given that private sector pay has been frozen or cut. The armed forces, however, will be exempt from this.

Feeling the pressure on help working families, the Chancellor made a welcome announcement that working parents will receive a contribution from the Government towards the cost of childcare. Working parents will receive 20% - equivalent to the basic rate of tax - of their yearly childcare costs, up to a total of £6,000 per child. He said the move will save a typical working family with two children under 12 up to £2,400 a year.

Also, leaked this morning was the news that the Chancellor will raise the income tax threshold to £10,000 from April 2014 – a move he said will give 2.4million people at tax cut of over £200 each a year, as well as lifting two million people out of income tax altogether.
Yet while both moves are widely welcomed, they do little to counter the austere measures of previous Budgets, explains Clare Francis, editor-in-chief at MoneySupermarket.com:"Giving with one hand may be a positive, but taking away with the other through other tax increases and benefit cuts means that people are no better off. "In fact, the cumulative effect of this and previous budget changes, combined with wage stagnation and rising living costs means millions are worse off and an increasing number of families are on the breadline, struggling to make ends meet every month."
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