In what was possibly the most-leaked Budget in history, Osborne today confirmed a number of expected measures, including a cut in the top rate of income tax and moves to avoid the child benefit “cliff edge”.

Here is our brief run-down of all of today’s key announcements

Economy

The Office of Budget Responsibility (OBR) has revised upward its forecast for UK growth this year – to 0.8% from 0.7%. Growth next year will be 2%, it said, then 2.7% in 2014 and 3% in the two years after that.

Inflation, Osborne said, would ‘remain low’ at 2.8% in 2012 and 1.9% next year.

Borrowing this year will be £126bn – £1bn less than forecast in the autumn. It is then predicted to be £120bn in 2012/13 and £98bn in 2013/14. Forecast to fall to £21bn by 2016/17.
Income tax

Just to confirm what the world and his wife already knew, Osborne sais the top rate of income tax will be reduced from 50p to 45p from April next year.

The point at which people start paying income tax – the personal allowance – will be increased to £9,205, also from April next year.
Business

Corporation tax will be reduced by 1% (from 25% to 24%) from next month. It will then be reduced by a further 1% next year and the following year, meaning it will be at 22% by 2014.

There will be a simplified tax system for small firms with a turnover of up to £77,000.
Child benefit

The controversial child benefit cuts announced at the last budget have been modified, and will only be withdrawn from those earning more than £50k per year, and this will be “gradual”. Only earners of £60k per annum or more will see the complete removal of child benefit.
Pensions

The government will examine linking the state pensions age (SPA) to life expectancy.

There will also be the introduction of a new single-tier state pension to be set above the means test at a minimum of £140 a week. This will take effect from April next year and more details will be released in the spring.
‘Robin Hood’ Budget

After reducing the top rate of income tax, the government was under pressure (particularly from the Liberal Democrats) to ensure the rich contributed fairly to the state.

So Osborne announced the following measures…

There will be a new cap on tax reliefs set at 25% of total income for anyone claiming more than £50,000 in a year.

Meanwhile, in a nod to the Liberal Democrat idea of a ‘mansion tax’, Osborne proposed a new 7% stamp duty on properties worth more than £2m, to come into effect from midnight tonight.

He also detailed plans to clamp down on stamp duty avoidance by using companies to buy expensive properties.

The headline measure will be a 15% stamp duty rate on properties worth over £2m “within corporate envelopes”.

So, what will Osborne announce today?

Well, in what may be the most-leaked Budget in history, the Chancellor will reduce one tax – the 50p income tax rate – and replace it with a myriad of other taxes on the rich.

The top rate of tax will be reduced to 45p from April next year (although the BBC’s Robert Peston has questioned the purpose of a delay and wonders whether it will instead be implemented immediately).

Although a ‘mansion tax’ on homes worth £2m or more has been ruled out, a rise in stamp duty is being considered, and there may be a trade-off next year between a 40p top rate and a wealth tax, which is favoured by the Liberal Democrats.

Elsewhere, Osborne is expected to raise the tax-free personal allowance. It will rise to £8,105 a year next month, to about £9,000 in April next year – a big step towards the Liberal Democrat goal of £10,000.

Also he will make announcements relating to pensions tax relief, ISA allowances, VCTs, stamp duty, tax avoidance and child benefit.

First-time buyers will get help to purchase new-build homes worth up to £500,000 under a government scheme aimed at stimulating the UK housing market.

Up to 100,000 people who would not normally have a large enough deposit to qualify for a mortgage, usually about 20 per cent of the price of the property, will be able to buy a newly built property with a downpayment of just 5 per cent.

Under the NewBuy guarantee scheme, launched on Monday, property developers will contribute 3.5 per cent of the purchase price and the government will guarantee a further 5.5 per cent.

Grant Shapps, housing minister, told BBC Breakfast: “I think it is the best deal possible for homebuyers. The average age of the first-time buyer, in particular, has gone up dramatically – it is nearly 37.

“The problem is not that people cannot afford the mortgages, rates have been low for a long time. They can afford the monthly repayments, they can’t get the deposit together because unlike in the past, you can’t get 95 per cent mortgages which operated fine for decades in this country.”

Although high street banks have agreed in principle to support the scheme, they still had serious reservations, the Financial Times reported last week, wanting to charge an interest rate of 5 per cent or more, while housebuilders were pressing for less than 5 per cent to make sure they attracted first-time buyers.

Barclays, Nationwide Building Society and Natwest, part of state-backed Royal Bank of Scotland, were the first lenders to reveal details on Monday of the 95 per cent mortgage rates they will offer through the scheme. These ranged from a 4.29 per cent two-year fixed rate offered by Natwest to a five-year fixed-rate at 5.99 per cent offered by Nationwide.

Barratt Developments said on Monday that the scheme was already attracting “enormous” customer interest.

The government is also rebooting the right-to-buy scheme, first launched under Margaret Thatcher in the 1980s, where council tenants can buy their homes at discounted rates. The programme is open to 2.5m council tenants and the government is looking to sell about 100,000.

The money made from selling council properties to tenants will be used to build more affordable homes, rather than depleting the social housing stock.

“It enables not only the person who wants to buy their own home to get a foot on the housing ladder but it also releases the cash tied up in that property for another property,” Mr Shapps told the BBC’s Today programme.

But housing campaigners including Shelter, the homeless charity, say that the new homes could still be significantly more expensive than those they replace, as affordable rent is defined as 80 per cent of the market rent.

“They will be generally much more expensive than social housing,” Campbell Robb, chief executive of Shelter, told Today.

People who bought their council homes on right-to-buy schemes were also a third more likely to get into debt and face repossession, he said

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Your home may be reposessed if you do not keep up repayments on a mortgage.

Interest rates have been held at a record low of 0.5% for the 36th month in a row amid evidence that the benefits to borrowers are slipping away.

The Bank of England’s Monetary Policy Committee maintained the base rate as some experts predicted it could be held at the same rock-bottom level for another three years – causing great pain for savers.

But lenders have recently started to put up their mortgage costs, including Halifax and RBS-NatWest, amid the weak economy and the fallout from the eurozone crisis.

The Bank also held its quantitative easing (QE) programme – otherwise known as money-printing – at £325 billion after last month’s £50 billion cash injection.

Economists have said it would take a seismic change in the economic and inflationary landscape to bring higher interest rates back to the table.

The combination of low rates and high levels of QE have been particularly painful for savers and those approaching retirement, although most homeowners have benefited, given the bank’s base rate stood at 5% in October 2008.

The typical savings rate has plummeted from 6.52% in 2008 to 2.78%, since the bank started cutting borrowing costs.

It is thought that more than £100 billion is sitting in accounts which pay no interest, according to Bank figures, compared with around £15 billion-£20 billion in the years before the financial crisis.

Meanwhile, around £90 billion has been knocked off the value of final salary pension schemes due to recent QE measures, according to the National Association of Pension Funds.

The Bank’s Governor, Sir Mervyn King, has repeatedly expressed his sympathy for savers but has said the stimulus measures were needed to help the economy.

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Banks should brace themselves to withstand the “extraordinarily serious and threatening” economic situation, the Bank of England governor has said.

The Bank’s Financial Policy Committee (FPC) said the eurozone crisis was the biggest threat to the UK’s banking system.

It said banks should build up their financial buffers to withstand that.

Bank governor Sir Mervyn King said the Bank itself was making “contingency plans” in case of a eurozone break-up.

However, he would not go into any details as to what these were.

Sir Mervyn said it did not make sense to say that there was “a single well-defined event against which we have to make contingencies”.

He said: “There are many ways in which the future could play out. Maybe it [the eurozone] won’t break up, maybe it will continue in various forms, but maybe there will still be questions of default.”

On Wednesday, six central banks, including the Bank of England, took action to encourage lending between banks in order to keep the global economy moving.

But Sir Mervyn said that, “ultimately, governments will have to confront the underlying causes”.

“Resolving these wider problems is beyond the control of any UK authority,” he added.

Earlier, president of the European Central Bank (ECB), Mario Draghi, told the European Parliament that “downside risks” to the eurozone economic outlook had increased.

Dividends and bonuses
Sir Mervyn said that the UK’s banks were among the strongest in the world, with tier 1 capital ratios – an internationally respected measure of a bank’s strength – at well above 12%.

That is higher than they were before the credit crisis began in 2008.

Sir Mervyn said one way for UK banks to gain further strength would be to raise money by issuing new shares.

The FPC also said that banks should keep lending, but should cut dividends and bonuses in order to help build up their financial reserves.

Some bankers argue that tighter capital requirement rules mean lower lending, as banks are forced to hang on to assets as a contingency, rather than pass it on to borrowers.

The chief executive of Royal Bank of Scotland, the bank now majority-owned by the UK government, said recently that strict regulation meant investors saw UK banks as a “dumb” place to invest, and that it limited banks’ ability to lend.

The FPC is chaired by Sir Mervyn, and at present only has an advisory role.

Once the legal framework is in place, it is expected to become the country’s top financial regulator from the start of 2013.

Housing minister Grant Shapps is to call on lenders to consider offering fixed mortgages of up to 30 years to encourage greater market stability.

Mr Shapps will tell a seminar in London he wants to spark a national debate on longer-term fixed mortgages as a “normal and sensible choice”. There are currently no mortgages with guaranteed lifelong interest rates, and longer term deals often require hefty deposits.

Mr Shapps believes greater use of “portable” deals, where borrowers are able to move house and keep their existing mortgage, could make deals more appealing. “Cap and collar” arrangements – where the interest rate on a loan can only move within limits and borrowers are not liable to sudden repayment increases – will also be touted as positive changes.

Mr Shapps is expected to say: “In today’s uncertain world, people want to know where they stand.
“Yet, when it comes to buying a home, there are no mortgages available for them where they can fix their payments for a long time – the longest fixed-rate mortgage for many is five years.

“Longer term mortgages – possibly as long as 30 years – could help families on tight budgets know exactly where they stand when they’re buying a home, by giving them greater certainty over how much they will be paying for their home in years to come.

“While they won’t be right for everyone, lenders should start to look at the case for 30-year mortgages and how we can move to a more stable housing market where first-time buyers can get their first foothold on the property ladder at a cost they know they can afford.”

Mr Shapps believes new funding can be brought into the market because of the increased certainty longer-term mortgages can bring.

He will argue such changes could open up new finance to give first-time buyers and those without much equity in their homes a better chance of getting a foot on the ladder. He will tell the Building Societies Association’s Annual Mortgage Seminar the Government wants to see stability in the housing market and with interest rates in the long term.

But the minister will also say consumers have deep-rooted expectations that they can and should be able to shop around for a better rate, and do this frequently during the term of their mortgage.

Paul Broadhead, head of mortgage policy for the Building Societies Association, responded to the announcement, saying: “We welcome the prospect of an inclusive debate on any measures which will help lenders lend and consumers borrow.

“We also endorse the Government’s aim for a stable and, we presume, active housing market. “Longer-term fixed-rate mortgages have been offered in the past but with limited consumer demand. Ten-year rates are currently available and lenders do respond with new products where demand exists.” He went on to warn against ‘one-size fits all’ approaches, saying: “The challenge with fixed-rate mortgages is always the balance between price and flexibility for the consumer.

“The more flexible a fixed rate is, the more expensive it is for lenders to fund with the knock-on higher cost to consumers. We are keen to hear more about the minister’s ideas on new sources of long-term market funding.”

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http://news.sky.com/home/business/article/16092697

Halifax survey shows a 0.5% monthly decline, continuing a mixed pattern of rises and falls

House prices in Britain fell by 0.5% in September and the market is “lacking direction”, according to Halifax’s latest report on the property market. The fall follows a 1.1% drop in August, but price rises in June and July.

The bank said the latest decline continued a mixed pattern of rises and falls, “consistent with a market where prices are lacking genuine direction”.

Mortgage payments for new borrowers, however, are at their most affordable level for nearly 15 years, the Halifax said, as lenders embark on a price war on the back of ultra-low interest rates of 0.5% – kept on hold by the Bank of England on Thursday.

Average mortgage repayments stand at £574.15, making up 26% of earnings after tax, compared with nearly half (48%) of take home pay, at £887.62, in mid 2007. Halifax said this figure was “significantly” below the average of 37% over the past 25 years and at its lowest since 1997.

Martin Ellis, Halifax’s head of housing economics, said: “Obviously you have to be able to raise a deposit, but it is more affordable than it’s been for a long time.” He added that people remained cautious owing to uncertainty in other areas of their lives, such as their savings and jobs.

“Uncertainties to do with the economy and job prospects are putting a lot of people off buying a home.”

At £161,132, the average price of a home was down by 2.3% on September 2010 figure. These averages are calculated using the three-month figures to each month. Quarterly figures, which are less volatile than monthly data and give a better picture of where the market is headed, showed that prices were up just 0.1% on the second three months of 2011. This tiny increase was the first quarterly rise since the start of 2010.

The bank said uncertainty over jobs and rising bills continued to put pressure on household finances. “Greater uncertainty about economic and personal financial circumstances, together with pressure on householders’ finances from weak earnings growth, higher inflation and increases in taxes, are likely to be constraining housing demand,” Ellis said. “Despite these pressures, low interest rates and a rise in employment over the past year have been supporting the market, resulting in broad stability in both prices and activity.”

Howard Archer, chief UK economist at IHS Global Insight, said housing market activity “remains weak compared to long-term norms”.

“We suspect that prices will fall by around 5% overall from current levels by mid-2012 as poor economic fundamentals outweigh extended low interest rates,” he added. “And current heightened concerns over the domestic and global economic situation, and turmoil in financial markets, are unlikely to do much for consumer confidence and willingness to commit to buying a house.”

Halifax’s report backs up Nationwide’s recent claim that house prices were “treading water”. It reported a 0.1% rise in prices in September, but said quarterly figures showed the market was static.

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