Budget’s increases on unemployment
The independent Office of Budget Responsibility (OBR), one of the coalition government’s innovations, has forecast that the effect of this budget will be to increase unemployment up to 2014 over its pre-budget forecasts. In 2015, unemployment is forecast to fall below the OBR’s earlier estimates for 2014.
In 2011, ILO unemployment is forecast to be 8%, 0.1% higher than the earlier forecasts. This rises to a difference of 0.2% through to 2014, while unemployment is forecast to be reducing to 6.5%. A sharp fall to 6.1% is then forecast in 2015, the figure the Chancellor highlighted.
Claimant count unemployment is forecast to fall through to 2015, but more slowly (by 100,000 a year) than the previous forecast. Claimant unemployment is forecast to fall to 1.1 million in 2015.
Making work pay
Despite the sombre announcements that predominated in this budget, the Chancellor insisted that this would be a government that “rewards work”, and benefit reforms would provide “a tool to support work”. Measures aimed at making work pay included increasing the budget for discretionary Housing Benefit payments by £40m and increasing the child element of Child Tax Credit by £150 above inflation in 2011. The Income Tax personal allowance will also be increased by £1,000 to £7,475 in April 2011, which will result in 800,000 people no longer having to pay income tax. The Chancellor also committed to working with local authorities to introduce one year freezes on Council Tax from April 2011. The budget measures will increase the numbers of low-paid workers with very high effective tax rates, reducing incentives to increase incomes.
Changing indexation of benefits
The budget promised to save £5.8bn by changing the index-linking of benefits other than state pensions. The plan is to use the Consumer Prices Index (CPI) which is harmonised with other European indices, rather than the long-established Retail Prices Index (RPI). Jobseeker’s Allowance and Income Support have been indexed by a RPI variant excluding housing and council tax costs, which has been the main difference between the CPI and RPI. The assumption that this source can ensure benefit savings may not be the case. This comes in a European context where, as the Chancellor noted, Germany is cutting its welfare budget by €30bn by 2014, including cuts in welfare payments totalling two billion per year.
Lone parents
In a move which the government states will support more lone parents into employment, those whose youngest child is aged over five years will be moved from Income Support onto Jobseeker’s Allowance from 2011-12. The government estimates that this could move up to 15,000 lone parents into employment. This will, it is argued, help reduce child poverty. The government does not believe lone parents with children under school age should be required to seek work and so changes to Income Support should stop here.
Also affecting lone parents are the announcements that from April 2011 the government will restrict eligibility to the Sure Start Maternity Grant to the first child only and abolish the Health in Pregnancy Grant from January 2011.
Long-term Jobseeker’s Allowance claimants and Housing Benefit
Long-term Jobseeker’s Allowance claimants will have their Housing Benefit cut from April 2013 to 90% of the full award. This will reduce benefit income and so raise work incentives.
Rebalancing the economy
The government outlined its intention to tackle a “deeply unbalanced economy” and support a private enterprise-led recovery, focused on growth in the regions outside London and the south east. A White Paper to be published in the summer will set out the policy detail. Measures announced include the much trailed National Insurance holiday for new businesses in some regions: £5,000 for each of the first 10 employees and a small rise in the NI threshold. To encourage private sector led growth in areas of weak demand, a regional growth fund will be introduced, where projects will be assessed for their impact on innovation and jobs.
For further information visit the HM Treasury website.
