2011 United Kingdom budget
Encyclopedia
The 2011 United Kingdom budget, officially called 2011 Budget - A strong and stable economy, growth and fairness, was delivered by George Osborne
, the Chancellor of the Exchequer
, to the House of Commons on 23 March 2011.
It was the second budget
of the Conservative-Liberal Democrat coalition government
formed in 2010, and the second to be delivered by Osborne.
Osborne quoted data and projections from the Office for Budget Responsibility
relating to economic growth, inflation and borrowing. Key measures taken or introduced included increasing the personal tax allowance
, cuts in corporation tax
, a cut in fuel duty
, and a new equity loan scheme designed to help first-time buyers in the property market.
had cut its growth forecast for 2011 from 2.1% to 1.7%, and for 2012 from 2.6% to 2.5%.
In the June 2010 Budget
and autumn spending review, he had already committed the Government to spending cuts to tackle the UK's deficit. He therefore made no further sweeping changes, but announced a Budget "about reforming the nation's economy, so that we have enduring growth and jobs in the future."
Forecasts for borrowing had fallen to £146 billion in 2011, £122 billion in 2012 and £29 billion by 2015–16. The national debt
was estimated at 60% of current national income, rising to 71% in 2012 before starting to fall back to 69% by 2015.
Osborne announced that in April 2012, the personal tax allowance
would be increased by £630 to £8,015, in line with Liberal Democrat policy.
"Non-domiciled" residents in the UK will be levied up to £50,000 per annum.
Additionally, Osborne announced a consultation on long-term plans to merge income tax
and National Insurance
in order to simplify the tax system.
Corporation tax
would be cut by 2% in April 2011, rather than the 1% previously planned. Further reductions of 1% in each of the next three years would reduce it to 23%. The temporary tax rate relief for small businesses would be extended to October 2012.
Council tax
was frozen or reduced in 2011 in every English council. The rise in air passenger duty was also frozen for a year, though users of private jet
s would have to pay a passenger duty for the first time.
Osborne deferred until 2012 a rise in fuel duty
that had been planned for April 2011, and cancelled the previous government's fuel duty escalator for the remainder of the parliament. Instead he increased the supplementary charge levied on North Sea oil
and gas companies from 20% to 32%, generating £2 billion to finance an immediate cut in duty of 1p per litre. The value added tax
on fuel would remain unchanged and road tax would be increased in line with inflation (except for large goods vehicles for which road tax would be frozen).
No changes were made to alcohol duty rates but a rise of 2% above the rate of inflation in excise
duties for wine and beer did go ahead as planned. Tobacco duty rates were also raised by 2% above inflation.
Public spending measures included an extra 40,000 apprenticeship
s for young people out of work, 100,000 new work experience
placements, and 12 new university technical college
s (UTCs), doubling the number to at least 24.
Osborne also allocated £100 million of new money for science, financed by the bank levy, £80 million of which would be invested in new research centres in Daresbury, Norwich and Cambridge, and the remainder would be for projects in Harwell.
£100 million would be allocated to repairing pothole
s in England, following the severe winter, and £200 million to regional railways, including the construction of the Ordsall Chord
in Manchester and the double-tracking of the line between and .
Britain's role in the military intervention in Libya
would be financed entirely by the Treasury
and Treasury reserve.
The Budget also provided £250 million, financed by the bank levy, to boost the home construction industry and to help first-time buyers with incomes of up to £60,000 to buy a new-build property. The scheme, available for one year, requires buyers to save a deposit of 5% of the purchase price, with the government and housebuilders each providing 10% through an equity loan, enabling the buyer to qualify for a 75% loan-to-value mortgage. The equity loan would be interest-free for the first five years.
on 4 November 2010. Only a few weeks' notice had been given for the previous government's budgets, and this was one of the earliest budget date announcements on record.
In his 2010 Autumn Statement, Osborne said the Office for Budget Responsibility had increased its growth forecast for 2010 from 1.2% to 1.8%, but reduced its predictions for the following two years. It had also reduced its forecast for public sector job losses, and did not expect a double-dip recession.
Osborne also announced "the most significant programme of corporation tax reforms for a generation". The main area subject to change is the taxation of multinational companies on overseas earnings. However, Deloitte's head of tax policy, Bill Dodwell, said the proposals went no further than the previous government had already announced. Detail was also lacking and, while some interim measures were expected in the 2011 budget, observers expected to wait until 2012 to see the full overhaul.
Income tax personal allowances for people under the age of 65 were expected to be raised in line with the Government's commitment to raise the allowance to £10,000 over the course of the parliament, a key Liberal Democrat policy. To pay for this, a range of measures were expected to close tax loopholes for the wealthy. An initiative to counter tax avoidance
with a target of £500 million per annum was announced in December 2010, but the expected take had doubled to £1 billion by March 2011.
, Leader of the Opposition
, responded with sarcasm to the Budget's stated goals of growth and recovery. He said that the economic slowdown in the last quarter was evidence that the Government was going "too far, too fast" to reduce the deficit, and accused Osborne of indifference to social damage.
Miliband also claimed that the budget speech had sent Kenneth Clarke
, Justice Secretary and former Chancellor, to sleep. A spokesman for Clarke denied this, but bookmaker Ladbrokes
paid out on bets at 16/1 that Clarke would drop off during the speech.
Robert Peston
, the BBC's business editor, suggested that the Chancellor would be seen to have chosen "a principled Budget rather than a crowd-pleasing one".
The Confederation of British Industry
and other business groups welcomed the Budget, saying that it would create jobs.
However, speaking for the Trades Union Congress
, Brendan Barber
welcomed some measures including help for apprenticeship and the cut in fuel duty, but said that overall it had been a "no change Budget".
The changes in corporation tax were sufficient to encourage companies such as WPP to move their headquarters back to the UK.
John Whiting, tax director of the Office of Tax Simplification
, was disappointed that the review of National Insurance
would not go as far as a full merger with income tax, even though this could have meant imposing higher taxes on pensioner
s.
Countrywide research in the days after the Budget showed that the fuel duty cut had indeed resulted in fuel prices falling, but not by the 1p per litre announced by Osborne. Prices fell by an average of 0.6p per litre following the immediate duty cut; some motorists reported that fuel retailers had raised their prices prior to the Budget, meaning that despite the duty cut the prices were still the same or higher.
George Osborne
George Gideon Oliver Osborne, MP is a British Conservative politician. He is the Chancellor of the Exchequer of the United Kingdom, a role to which he was appointed in May 2010, and has been the Member of Parliament for Tatton since 2001.Osborne is part of the old Anglo-Irish aristocracy, known in...
, the Chancellor of the Exchequer
Chancellor of the Exchequer
The Chancellor of the Exchequer is the title held by the British Cabinet minister who is responsible for all economic and financial matters. Often simply called the Chancellor, the office-holder controls HM Treasury and plays a role akin to the posts of Minister of Finance or Secretary of the...
, to the House of Commons on 23 March 2011.
It was the second budget
United Kingdom budget
The United Kingdom budget deals with HM Treasury budgeting the revenues gathered by Her Majesty's Revenue and Customs and expenditures of public sector departments, in compliance with government policy.Adjustment is achieved with the GDP deflator....
of the Conservative-Liberal Democrat coalition government
United Kingdom coalition government (2010–present)
The ConservativeLiberal Democrat coalition is the present Government of the United Kingdom, formed after the 2010 general election. The Conservative Party and the Liberal Democrats entered into discussions which culminated in the 2010 coalition agreement, setting out a programme for government...
formed in 2010, and the second to be delivered by Osborne.
Osborne quoted data and projections from the Office for Budget Responsibility
Office for Budget Responsibility
The Office for Budget Responsibility provides independent economic forecasts as background to the preparation of the UK budget. It was formally created in May 2010 following the general election, although it had previously been constituted in shadow form by the Conservative party opposition in...
relating to economic growth, inflation and borrowing. Key measures taken or introduced included increasing the personal tax allowance
Personal allowance
In the UK tax system, Personal Allowance is the level above which income tax is levied on an individual's annual income. A person who receives less than his/her personal allowance in taxable income in a given tax year does not pay income tax; otherwise, tax must be paid according to how much is...
, cuts in corporation tax
United Kingdom corporation tax
Corporation tax is a tax levied in the United Kingdom on the profits made by companies and on the profits of permanent establishments of non-UK resident companies and associations that trade in the EU. Prior to the tax's enactment on 1 April 1965, companies and individuals paid the same income tax,...
, a cut in fuel duty
Hydrocarbon oil duty
Hydrocarbon oil duty is fuel tax levied on some fuels used by road vehicles in the United Kingdom. Between 1993 and 1999 the Government's Fuel Price Escalator led to significant rises in the cost of fuel which led to fuel tax protests in 2000, 2005 and 2007. In May 2008, UK fuel tax rates were one...
, and a new equity loan scheme designed to help first-time buyers in the property market.
Economy
Osborne announced that the Office for Budget ResponsibilityOffice for Budget Responsibility
The Office for Budget Responsibility provides independent economic forecasts as background to the preparation of the UK budget. It was formally created in May 2010 following the general election, although it had previously been constituted in shadow form by the Conservative party opposition in...
had cut its growth forecast for 2011 from 2.1% to 1.7%, and for 2012 from 2.6% to 2.5%.
In the June 2010 Budget
June 2010 United Kingdom Budget
The June 2010 United Kingdom Budget, officially known as 2010 Budget - Responsibility, freedom, fairness: a five year plan to re-build the economy, was delivered by George Osborne, Chancellor of the Exchequer, to the House of Commons in his budget speech that commenced at about 12.30 p.m on Tuesday...
and autumn spending review, he had already committed the Government to spending cuts to tackle the UK's deficit. He therefore made no further sweeping changes, but announced a Budget "about reforming the nation's economy, so that we have enduring growth and jobs in the future."
Forecasts for borrowing had fallen to £146 billion in 2011, £122 billion in 2012 and £29 billion by 2015–16. The national debt
Government debt
Government debt is money owed by a central government. In the US, "government debt" may also refer to the debt of a municipal or local government...
was estimated at 60% of current national income, rising to 71% in 2012 before starting to fall back to 69% by 2015.
Taxes
| Receipts | 2011-12 Revenues (£bn) |
|---|---|
| Income Tax | 158 |
| National Insurance | 101 |
| Value Added Tax (VAT) | 100 |
| Corporate Tax | 48 |
| Excise duties | 46 |
| Council Tax | 26 |
| Business rates | 25 |
| Other | 85 |
| Total Government revenue | 589 |
Osborne announced that in April 2012, the personal tax allowance
Personal allowance
In the UK tax system, Personal Allowance is the level above which income tax is levied on an individual's annual income. A person who receives less than his/her personal allowance in taxable income in a given tax year does not pay income tax; otherwise, tax must be paid according to how much is...
would be increased by £630 to £8,015, in line with Liberal Democrat policy.
"Non-domiciled" residents in the UK will be levied up to £50,000 per annum.
Additionally, Osborne announced a consultation on long-term plans to merge income tax
Income tax
An income tax is a tax levied on the income of individuals or businesses . Various income tax systems exist, with varying degrees of tax incidence. Income taxation can be progressive, proportional, or regressive. When the tax is levied on the income of companies, it is often called a corporate...
and National Insurance
National Insurance
National Insurance in the United Kingdom was initially a contributory system of insurance against illness and unemployment, and later also provided retirement pensions and other benefits...
in order to simplify the tax system.
Corporation tax
United Kingdom corporation tax
Corporation tax is a tax levied in the United Kingdom on the profits made by companies and on the profits of permanent establishments of non-UK resident companies and associations that trade in the EU. Prior to the tax's enactment on 1 April 1965, companies and individuals paid the same income tax,...
would be cut by 2% in April 2011, rather than the 1% previously planned. Further reductions of 1% in each of the next three years would reduce it to 23%. The temporary tax rate relief for small businesses would be extended to October 2012.
Council tax
Council tax
Council Tax is the system of local taxation used in England, Scotland and Wales to part fund the services provided by local government in each country. It was introduced in 1993 by the Local Government Finance Act 1992, as a successor to the unpopular Community Charge...
was frozen or reduced in 2011 in every English council. The rise in air passenger duty was also frozen for a year, though users of private jet
Business jet
Business jet, private jet or, colloquially, bizjet is a term describing a jet aircraft, usually of smaller size, designed for transporting groups of up to 19 business people or wealthy individuals...
s would have to pay a passenger duty for the first time.
Osborne deferred until 2012 a rise in fuel duty
Hydrocarbon oil duty
Hydrocarbon oil duty is fuel tax levied on some fuels used by road vehicles in the United Kingdom. Between 1993 and 1999 the Government's Fuel Price Escalator led to significant rises in the cost of fuel which led to fuel tax protests in 2000, 2005 and 2007. In May 2008, UK fuel tax rates were one...
that had been planned for April 2011, and cancelled the previous government's fuel duty escalator for the remainder of the parliament. Instead he increased the supplementary charge levied on North Sea oil
North Sea oil
North Sea oil is a mixture of hydrocarbons, comprising liquid oil and natural gas, produced from oil reservoirs beneath the North Sea.In the oil industry, the term "North Sea" often includes areas such as the Norwegian Sea and the area known as "West of Shetland", "the Atlantic Frontier" or "the...
and gas companies from 20% to 32%, generating £2 billion to finance an immediate cut in duty of 1p per litre. The value added tax
Value added tax
A value added tax or value-added tax is a form of consumption tax. From the perspective of the buyer, it is a tax on the purchase price. From that of the seller, it is a tax only on the "value added" to a product, material or service, from an accounting point of view, by this stage of its...
on fuel would remain unchanged and road tax would be increased in line with inflation (except for large goods vehicles for which road tax would be frozen).
No changes were made to alcohol duty rates but a rise of 2% above the rate of inflation in excise
Excise
Excise tax in the United States is a indirect tax on listed items. Excise taxes can be and are made by federal, state and local governments and are far from uniform throughout the United States...
duties for wine and beer did go ahead as planned. Tobacco duty rates were also raised by 2% above inflation.
Spending
| Department | 2011-12 Expenditure (£bn) |
|---|---|
| Social protection | 200 |
| Health | 126 |
| Education | 89 |
| Debt interest | 50 |
| Defence | 40 |
| Public order and safety | 33 |
| Personal social services | 32 |
| Housing and Environment | 24 |
| Transport | 23 |
| Industry, agriculture and employment | 20 |
| Other | 74 |
| Total Government spending | 711 |
Public spending measures included an extra 40,000 apprenticeship
Apprenticeship
Apprenticeship is a system of training a new generation of practitioners of a skill. Apprentices or protégés build their careers from apprenticeships...
s for young people out of work, 100,000 new work experience
Work experience
Work experience is the experience that a person has been working, or worked in a specific field or occupation.- Volunteer work and internships :...
placements, and 12 new university technical college
Institute of technology
Institute of technology is a designation employed in a wide range of learning institutions awarding different types of degrees and operating often at variable levels of the educational system...
s (UTCs), doubling the number to at least 24.
Osborne also allocated £100 million of new money for science, financed by the bank levy, £80 million of which would be invested in new research centres in Daresbury, Norwich and Cambridge, and the remainder would be for projects in Harwell.
£100 million would be allocated to repairing pothole
Pothole
A pothole is a type of disruption in the surface of a roadway where a portion of the road material has broken away, leaving a hole.- Formation :...
s in England, following the severe winter, and £200 million to regional railways, including the construction of the Ordsall Chord
Ordsall Chord
The Ordsall Chord is a short proposed railway line in the Ordsall area of Greater Manchester. When constructed, it will provide a direct rail link between and...
in Manchester and the double-tracking of the line between and .
Britain's role in the military intervention in Libya
2011 military intervention in Libya
On 19 March 2011, a multi-state coalition began a military intervention in Libya to implement United Nations Security Council Resolution 1973, which was taken in response to events during the 2011 Libyan civil war...
would be financed entirely by the Treasury
HM Treasury
HM Treasury, in full Her Majesty's Treasury, informally The Treasury, is the United Kingdom government department responsible for developing and executing the British government's public finance policy and economic policy...
and Treasury reserve.
The Budget also provided £250 million, financed by the bank levy, to boost the home construction industry and to help first-time buyers with incomes of up to £60,000 to buy a new-build property. The scheme, available for one year, requires buyers to save a deposit of 5% of the purchase price, with the government and housebuilders each providing 10% through an equity loan, enabling the buyer to qualify for a 75% loan-to-value mortgage. The equity loan would be interest-free for the first five years.
Prior announcements and discussions
The date of the Budget was announced by Sir George YoungSir George Young, 6th Baronet
Sir George Samuel Knatchbull Young, 6th Baronet is a British politician. He is currently the Leader of the House of Commons and Lord Privy Seal, and has served as a Conservative Party Member of Parliament since 1974, having represented North West Hampshire since 1997, and Ealing Acton before...
on 4 November 2010. Only a few weeks' notice had been given for the previous government's budgets, and this was one of the earliest budget date announcements on record.
In his 2010 Autumn Statement, Osborne said the Office for Budget Responsibility had increased its growth forecast for 2010 from 1.2% to 1.8%, but reduced its predictions for the following two years. It had also reduced its forecast for public sector job losses, and did not expect a double-dip recession.
Osborne also announced "the most significant programme of corporation tax reforms for a generation". The main area subject to change is the taxation of multinational companies on overseas earnings. However, Deloitte's head of tax policy, Bill Dodwell, said the proposals went no further than the previous government had already announced. Detail was also lacking and, while some interim measures were expected in the 2011 budget, observers expected to wait until 2012 to see the full overhaul.
Income tax personal allowances for people under the age of 65 were expected to be raised in line with the Government's commitment to raise the allowance to £10,000 over the course of the parliament, a key Liberal Democrat policy. To pay for this, a range of measures were expected to close tax loopholes for the wealthy. An initiative to counter tax avoidance
Tax avoidance and tax evasion
Tax noncompliance describes a range of activities that are unfavorable to a state's tax system. These include tax avoidance, which refers to reducing taxes by legal means, and tax evasion which refers to the criminal non-payment of tax liabilities....
with a target of £500 million per annum was announced in December 2010, but the expected take had doubled to £1 billion by March 2011.
Reactions after the Budget speech
Ed MilibandEd Miliband
Edward Samuel Miliband is a British Labour Party politician, currently the Leader of the Labour Party and Leader of the Opposition...
, Leader of the Opposition
Leader of the Opposition
The Leader of the Opposition is a title traditionally held by the leader of the largest party not in government in a Westminster System of parliamentary government...
, responded with sarcasm to the Budget's stated goals of growth and recovery. He said that the economic slowdown in the last quarter was evidence that the Government was going "too far, too fast" to reduce the deficit, and accused Osborne of indifference to social damage.
Miliband also claimed that the budget speech had sent Kenneth Clarke
Kenneth Clarke
Kenneth Harry "Ken" Clarke, QC, MP is a British Conservative politician, currently Member of Parliament for Rushcliffe, Lord Chancellor and Secretary of State for Justice. He was first elected to Parliament in 1970; and appointed a minister in Edward Heath's government, in 1972, and is one of...
, Justice Secretary and former Chancellor, to sleep. A spokesman for Clarke denied this, but bookmaker Ladbrokes
Ladbrokes
Ladbrokes plc is a British based gambling company. It is based in Rayners Lane in Harrow, London owned by Bhavin Kakaiya. From 14 May 1999 to 23 February 2006, when it owned the Hilton hotel brand outside the United States, it was known as Hilton Group plc...
paid out on bets at 16/1 that Clarke would drop off during the speech.
Robert Peston
Robert Peston
Robert Peston is a British journalist. Since February 2006, he has been the Business Editor for BBC News. He became known to a wider public with his reporting of the late-2000s financial crisis, especially with his scoop on the Northern Rock crisis.-Early life and education:Peston is the son of...
, the BBC's business editor, suggested that the Chancellor would be seen to have chosen "a principled Budget rather than a crowd-pleasing one".
The Confederation of British Industry
Confederation of British Industry
The Confederation of British Industry is a British not for profit organisation incorporated by Royal charter which promotes the interests of its members, some 200,000 British businesses, a figure which includes some 80% of FTSE 100 companies and around 50% of FTSE 350 companies.-Role:The CBI works...
and other business groups welcomed the Budget, saying that it would create jobs.
However, speaking for the Trades Union Congress
Trades Union Congress
The Trades Union Congress is a national trade union centre, a federation of trade unions in the United Kingdom, representing the majority of trade unions...
, Brendan Barber
Brendan Barber
Brendan Paul Barber has been the General Secretary of the United Kingdom's Trades Union Congress since June 2003.-Early life:...
welcomed some measures including help for apprenticeship and the cut in fuel duty, but said that overall it had been a "no change Budget".
The changes in corporation tax were sufficient to encourage companies such as WPP to move their headquarters back to the UK.
John Whiting, tax director of the Office of Tax Simplification
Office of Tax Simplification
The Office of Tax Simplification is an office of HM Treasury, part of the Government of the United Kingdom. The office was created on 20 July 2010 to identify areas where complexities in the tax system for both businesses and individual taxpayers can be reduced and to publish their findings for the...
, was disappointed that the review of National Insurance
National Insurance
National Insurance in the United Kingdom was initially a contributory system of insurance against illness and unemployment, and later also provided retirement pensions and other benefits...
would not go as far as a full merger with income tax, even though this could have meant imposing higher taxes on pensioner
Pensioner
In common parlance, a pensioner is a person who has retired, and now collects a pension. This is a term typically used in the United Kingdom and Australia where someone of pensionable age may also be referred to as an 'old age pensioner', or OAP. In the United States, the term retiree is more...
s.
Countrywide research in the days after the Budget showed that the fuel duty cut had indeed resulted in fuel prices falling, but not by the 1p per litre announced by Osborne. Prices fell by an average of 0.6p per litre following the immediate duty cut; some motorists reported that fuel retailers had raised their prices prior to the Budget, meaning that despite the duty cut the prices were still the same or higher.
See also
- Late-2000s financial crisisLate-2000s financial crisisThe late-2000s financial crisis is considered by many economists to be the worst financial crisis since the Great Depression of the 1930s...
- United Kingdom coalition government (2010–present)United Kingdom coalition government (2010–present)The ConservativeLiberal Democrat coalition is the present Government of the United Kingdom, formed after the 2010 general election. The Conservative Party and the Liberal Democrats entered into discussions which culminated in the 2010 coalition agreement, setting out a programme for government...
- United Kingdom national debtUnited Kingdom national debtThe British public debt is the money borrowed by the Government of the United Kingdom at any one time through the issue of securities by the British Treasury and other government agencies. The origins of the British national debt can be found during the reign of William III, who engaged a syndicate...
- Taxation in the United KingdomTaxation in the United KingdomTaxation in the United Kingdom may involve payments to a minimum of two different levels of government: The central government and local government. Central government revenues come primarily from income tax, National Insurance contributions, value added tax, corporation tax and fuel duty...
External links
- Budget coverage, Directgov
- Budget coverage, HM Treasury