Comprehensive Spending Review – summary

Today the Chancellor outlined in the Autumn Statement and Comprehensive Spending Review (CSR) projections for government expenditure in the next five years.

The biggest surprise announcement was that the proposed changes to the tax credit regime which were rejected by the House of Lords were scrapped in their entirety. Whilst this will be of great relief to many individuals the statement generally continued the recent trend of a reduction in governments share of activity within the economy.

It is important to understand the context and scale of the challenge the UK continues to face. The CSR document reveals that GDP growth is expected to be broadly consistent across the forecast period (up to 2020-2021) at around 2.4%.

Within the main components of GDP business investment is considered to increase significantly in the next few years, but items such as household consumption are expected to slowly cool over the period. There is also an interesting period in 2018 when general government investment shrinks by 1.6% on the previous year.
These figures are presented against a backdrop of the unemployment rate of just over 5% and inflation returning to the target rate of 2.0% by 2019. Public sector net borrowing in 2015-16 is expected to be 73.5bn falling to £4.6bn in 20187-19 before entering surplus. This results in government debt falling to 71.3% by 2020-21.

To put this in context central government gross debt interest will be £56.6bn in 2020-21 and therefore is bigger than all departmental Capital Budgets (Capital DEL) combined. This demonstrates not only the scale and cost of public sector debt but also highlights the importance of the government being able to finance such debt at a low cost.

A selection of announcements from the Autumn Statement (click here) are listed below:

International and defence

  • Funding of the Strategic Defence and Security Review in full.
  •  Protects police spending in real terms over the Spending Review period.
  • Commits to meeting the NATO investment pledge to spend 2% of GDP on defence.
  • An additional £3.5bn to a Joint Security Fund to 2021 to increase spending on the military and intelligence agencies.
  • Invests £1.9bn in cyber security and £3.4bn in new counter terrorism activity.
  • Continue to spend 0.7% of national income on overseas aid.
  • Invest £290m in the BBC World Service.
  • Creates a new £1.3bn Prosperity Fund to assist the growth of emerging and developing economies.


  • Significantly reduce the central government grant to local authorities.
  • Introduce a new council tax precept for social care.
  • Undertake the full devolution of business rates.
  • A real-terms increases to Northern Ireland Executive capital budgets.
  • A real-terms increases to Scottish Government capital budgets.
  • Consult on updating the Transparency Code to require all local authorities to record details.of their land and property assets in a consistent way.
  • Work towards further devolution deals with other major city regions.
  • Deliver a £12bn Local Growth Fund between 2015-16 and 2020-21.
  • Creating 26 new Enterprise Zones, including expanding 8 Zones on the current programme.
  • Spend £13bn on transport in the North over this Parliament.
  • Develop a longterm transport strategy for the region through the creation of a new Midlands Connect Strategic Board.


  • The ringfence on public health spending will be maintained in 2016-17 and 2017-18.
  • Provide the NHS in England £10bn per year more in real terms by 2020-21 than in 2014-15.
  • Invest up to £300m a year by 2020 to fund new diagnostic equipment and additional staff capacity for cancer treatment.
  • Invest an additional £600m in mental health services.
  • Invest £10m in expanding the Healthcare Innovation Test Bed programme.
  • The creation of a social care precept to give local authorities who are responsible for social care the ability to raise new funding. This will work by giving local authorities the flexibility to raise council tax in their area by up to 2% above the existing threshold.


  • Increase the basic State Pension to £119.30 a week.
  • The government will publish today its guidance for pooling Local Government Pension Scheme Fund assets into up to 6 British Wealth Funds, containing at least £25bn of Scheme assets each. This would enable them to improve investment into projects such as infrastructure.


  • Protect schools funding in England in real terms over the Spending Review period.
  • The development of new loans for further and higher education, with almost £1bn expected to be lent by 2020-21.
  • The Spending Review reforms the funding system for health students by replacing grants with student loans and abolishing the cap on the number of student places for nursing, midwifery and allied health subjects.
  • Provide investment of over £1.3bn up to 2019-20 to attract new teachers into the profession, particularly into Science, Technology, Engineering and Mathematics (STEM) subjects.
  • The apprenticeship levy on larger employers will be introduced in April 2017 at a rate of 0.5% of an employer’s paybill. Each employer will receive an allowance of £15,000 to offset against their levy payment.
  • The government will establish a new employer-led body to set apprenticeship standards and ensure quality.
  • The government will create 5 National Colleges and will support a new network of Institutes of Technology across the country.
  • The government will lift the age cap on new loans to postgraduates from 2016-17 so they are available to all those under 60.


  • Over the CSR period the government intends on reducing the projected cost of green policies on the average annual household energy bill by £30 from 2017.
  • The extension of the Warm Home Discount to 2020-21 at current levels of £320m a year, rising with inflation.


  • Protect the £4.7bn science budget in real terms.
  • A new Global Challenges research fund of £1.5bn over the next 5 years.
  • The government will subject to legislation introduce a new body – Research UK – which will work across the seven Research Councils.
  • Over £130m capital will be invested in Department for Environment, Food and Rural Affairs’ (DEFRA) science facilities.
  • The British Business Bank (BIB) will retain the £400m of additional funding for Enterprise Capital Funds that was announced at Autumn Statement 2014


  • Invest £1.8bn to digitally transform government services.
  • Invest nearly £1bn in the next generation of 4G communications network for the Emergency Services.
  • Invest £1.3bn to transform HMRC into one of the most digitally advanced tax administrations in the world, with access to digital tax accounts for all small businesses and individuals by 2016-17.
  • Consult on options to simplify the payment of taxes.
  • A new target to reduce the costs to business of tax administration by £400m.


  • The CSR caps the amount of rent that Housing Benefit will cover in the social sector to the relevant Local Housing Allowance.
  • limit Housing Benefit and Pension Credit payments to 4 weeks for claimants who are outside Great Britain, from April 2016.
  • Deliver 400,000 affordable housing starts by 2020-21.
  • 200,000 Starter Homes which will be sold at a 20% discount compared to market value to young first time buyers, with a £2.3bn fund.
  • 135,000 Help to Buy: Shared Ownership homes.
  • 10,000 homes that will allow a tenant to save for a deposit while they rent.
  • At least 8,000 specialist homes for older people and people with disabilities.
  • Further reforms to the planning system, including establishing a new delivery test on local authorities, to ensure delivery against the number of homes set out in Local Plans.
  • Release public sector land with capacity for 160,000 homes.
  • Amending planning policy to support small sites, extending the £1bn Builders’ Finance Fund to 2020-21.
  • £2.3bn in loans to help regenerate large council estates and invest in infrastructure needed for major housing developments.
  • Invest £310m to deliver the first new garden city in nearly 100 years, at Ebbsfleet.
  • Extend the Help to Buy: Equity Loan scheme to 2021.
  • Higher rates of Stamp Duty Land Tax will be charged on purchases of additional residential properties with effect from 1 April 2016. The higher rates will be 3 percentage points above the current rates.


  • Help forces to improve police efficiency by taking steps to drive down the cost of police procurement by up to £350m and encouraging greater collaboration.


  • A real terms increase in spending on Access to Work, providing specialist IT equipment, or support workers.


  • Introduce measures to end the right to cash compensation for minor whiplash injuries, and will consult on the details in the New Year.

Equality and childcare

  • A new £15m annual fund equivalent to the VAT raised each year on sanitary products will support women’s charities.
  • Doubling the free childcare entitlement from 15 hours to 30 hours a week for working families with three and four year olds from September 2017, there is, however, an upper income limit per parent of £100,000 and a minimum weekly income level per parent equivalent to 16 hours.
  • From 2017-18 will invest £300m to increase the average hourly rate childcare providers receive.
  • Provide at least £50m of capital funding to create additional places in nurseries.
  • Maintain in cash terms the Department for Education’s central children’s services budget.
  • Funding for universal infant free school meals will also be maintained.
  • The government will introduce the first ever national funding formula for schools, high needs and early years, so that funding is transparently and fairly linked to children’s needs. The government will launch a detailed consultation in 2016 and implement the new formulae from 2017-18.


  • The government will publish a National Infrastructure Delivery Plan next spring, setting out in detail how it will deliver key projects and programmes over the next 5 years.
  • The government has increased its overall capital departmental investment plans by £12bn between 2016-17 and 2020-21.
  • The government will increase funding for the Renewable Heat Incentive to £1.15bn by 2020-21.
  • A second Roads Investment Strategy will be published before the end of this Parliament.
  • £250m to tackle the potholes.
  • Freeze regulated rail fares at no more than inflation (RPI) for the entire Parliament.
  • A £475m fund to which local areas can bid for money to pay for large local transport projects.
  • The government will commit up to 10% of shale gas tax revenues to a Shale Wealth Fund.
  • £250m for an ambitious nuclear research and development programme.
  • Allow Network Rail to sell assets and re-invest proceeds in rail infrastructure.
  • Privatise the Green Investment Bank with a sale expected to be concluded during 2016-17.

Business Innovate – The Budget 2015; surprises and innovation

The final Budget before the election was always going to struggle to provide sizable giveaways with such tight public finances, but even so there were some interesting surprises.

The most innovative of these was the announcement of a Help to Buy: ISA, where for every £200 a first time buyer saves, the government will provide a £50 bonus up to a maximum bonus of £3,000 on £12,000 of savings. Many first time buyers are sure to welcome such a scheme.

Alongside this, was the designating of the first 20 Housing Zones outside London, and continuing to work with the other 8 shortlisted areas. The problem, however, remains that supply and demand simply are too unbalanced.

There were also a few measures that should help to boost employment opportunities for the young with the abolition of Employer NICs for under 21 year olds from April 2015 and continued support for apprentices. This alongside a rise in the personal allowance to £10,800 in 2016-17 should help to continue to reduce the tax burden on those entering employment for the first time.

There were also few interesting measures that are sure to receive less headlines but will help to transform and reduce the cost of administering government services. The Budget announced:

  • That following a successful trial, the government will implement ‘GOV.UK Verify’ which is a new way for people to prove their identity online when using government services.
  • The government will transform the tax system over the next Parliament by introducing digital tax accounts, removing the need for annual tax returns.

Such measures, have the potential if they are further linked in the future providing a truly seamless point of access for government services.

Finally, a number of specific investments were announced that the government hope will continue to improve the UK’s international standing as a leader in research, development and innovation. Such as:

  • £1 million to the Centre for Process Innovation to support innovation and knowledge transfer in the North East’s chemicals sector.
  • £14 million to invest in an Advanced Wellbeing Research Centre (AWRC).
  • A package of measures to improve the accessibility of R&D tax credits for smaller businesses.
  • A further £100 million in cutting-edge research projects through the current UK Research Partnership Investment Fund round.
  • £400 million for the next round of funding for cutting-edge scientific infrastructure.

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Business Innovate – Autumn Statement: innovative steps that make difference

The 2014 Autumn Statement left little room for manoeuvre, the deficit is not as low as the government would like and the temptation for giveaways is significant. What can be said though is that whilst the deficit challenge remains, the focus on innovation and reform rather than grand gestures is a welcome relief.

I use to illustrate this point two particular measures announced in the Autumn Statement.   The first is that of apprenticeships. The education system and tax system in reality does not encourage the knowledge and skills transfer that is possible between businesses and youngsters entering the labour market. Yet there has traditionally been a mix of mismatched and poor incentives to encourage limited business and individuals to undertake such schemes. This has now potentially changed.

The Autumn Statement announced that it was abolishing employer National Insurance contributions for apprentices aged under 25 on earnings up to the upper earnings limit. This in the grand scheme of spending is not a significant sum but the message and incentive is right. It encourages that transfer from education to work and helps to build a relationship between business and future potential employees and output. Such innovative thinking is long overdue with business craving practical skills to improve productivity.

The second measure that stands out is the reform of stamp duty. This tax has long created distortions in the housing market. It is well overdue for reform but the changes announced today should be part of a continued effort to reform the housing market to ensure that future generations are able to own their own home, which is of a reasonable quality, at an affordable rate. In this respect stamp duty is an issue because it creates artificial holes in pricing where buyers have to spend significantly more to reach the ‘next level’ of the ladder. It is no longer just the first time buyers that don’t have the capital but also the second movers. This is why such reform is so important and innovative. I would, however, also stress that this is only part of the solution. It is a demand side response where as in actual fact the UK suffers a supply side problem. This is why the measures to increase the degree of house building are welcomed but do not equate to anything near the 260,000 homes a year required to meet population growth.

So whilst the majority of this statement contains small changes there is some significant progress. It should, however, never be underestimated that the measures announced are actually the first steps to what are long needed reform.

Autumn Statement: Summary of other main points


  • Stamp Duty rates overhauled. Top rate now 12% on properties worth more than £1.5m effective from midnight Wednesday. There will be no duty on properties worth up to £125,000 then 2% rate on the portion up to £250,000 then 5% up to £925,000, then 10% up to £1.5m.
  • Higher rate income tax threshold to rise to £42,385 next year.
  • Income tax-free personal allowance to rise to £10,600 rather than the planned £10,500 next year, giving wage boost of £825 a year.
  • ISAs can be inherited tax free.
  • Fuel duty remains frozen.
  • People who die under 75 to be able to pass on annuities, tax free.


  • A so-called ‘Google Tax’  will introduce a levy of 25% on profits shifted abroad by multi-national firms. The Diverted Profits Tax aims to raise more than £1bn over five years.
  • Banks to pay almost £4bn more in tax over next five years, with profits which can be offset by losses for tax purposes to be limited to 50%.
  • Inflation-linked increase in business rates capped at 2% and discount for shops, pubs and cafes increased by 50% to £1,500.


  • Limit on saving in New ISAs to rise to £15,240


  • Business rates for Wales to be devolved to Welsh Government.
  • Plans law to devolve corporation tax to Northern Ireland if the Northern Ireland executive shows it can manage the financial implications.
  • Investment of £250m in new advanced material science institute in Manchester with branches in Leeds, Sheffield and Liverpool. Tendering for new franchises for Northern Rail and Trans-Pennine Express to ensure modern trains.


  • Government-backed student loans of up to £10,000 are to be made available for postgraduates.


  • Air Passenger Duty for under-12s abolished from May 2015. Scrapped from 2016 for under-16s.


  • A further £10bn of Whitehall efficiencies is planned while £5bn more is sought from crackdown on tax evasion and avoidance.
  • Public service pension reforms will be completed, saving £1.3bn annually.


  • NHS gets additional £2bn every year for frontline services. A £1.2bn investment in GP services will be paid for from foreign exchange fines.
  • Government spending £10bn less than forecast this year but warns the coming years will require “very substantial savings in public spending.”


  • Office for Budget Responsibility (OBR): Forecast 2014 GDP growth upgraded to 3% from 2.7%. 2015 forecast raised to 2.4%.
  • “Deficit is falling this year and every year.” Deficit now cut in half. OBR forecasts borrowing to fall from £97.5bn in 2013/14 to £91.3bn in 2014/15 (£5bn above annual target). Budget surplus of £23bn predicted for 2019/20.
  • Osborne says deficit reduction better than some predicted as welfare spending is lower and interest paid on national debt is considerably lower.
  • OBR predicts wage growth above inflation for the next five years.

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Business Innovate – Budget 2014 – Innovation, before big announcements

Whilst the 2014 Budget was unlikely to be one of significant spending given the fiscal constraints that continue to challenge government, it did provide a backdrop of significant innovation in several policy areas which has not been seen for a number of years.

The most significant of these innovations was in the area of pensions and savings. The UK has for a long time struggled to encourage individuals to think of their long term needs, with policies built up over a number of years being bolted on to an ever more complex system.

The 2014 Budget looks to be taking some significant shifts in these areas. On pensions the Chancellor announced that from April 2015, the government will change the tax rules to allow people to access their defined contribution pension savings as they wish from the point of retirement. If a significant number of individuals choose such action this would be a significant step away from the current system of having to purchase an annuity and could lead to some interesting market innovations in terms of providing incomes for retirement.

Another area of innovation surrounded encouraging saving, with the launch of the New ISA (NISA). This NISA will not only see its limit raised to £15,000 but will also allow individuals to transfer the amount they invest in cash and shares, removing the set restriction for each area. Another possibly more important innovation is that ISA eligibility will be extended to peer-to-peer loans, and all restrictions around the maturity dates of securities held within ISAs will be removed. Again this could provide a number of new investment opportunities that provide better rates and direct savings into small businesses through platforms in the peer to peer lending market.

As well as encouraging individuals to save the Budget 2014 announced the doubling of the annual investment allowance (AIA) to £500,000 from April 2014 until the end of 2015. This will be a significant benefit to businesses wishing to invest and will mean that the scheme will cover 4.9 million firms (99.8% of businesses), providing 100% up-front relief on their qualifying investment in plant and machinery.

Further to this the government also announced it will raise the rate of the R&D tax credit payable to loss making small and medium sized companies from 11% to 14.5% from April 2014, providing valuable support as the economy continues to improve.

Looking forward, there is another interesting announcement for small business in the budget that the British Business Bank will issue a request for proposals to implement an innovative wholesale guarantees programme alongside the Budget. Such a scheme could provide significant support for businesses and provide targeted assistance in the future, and so Business Innovate looks forward to engaging with government on this further in the future.

Whilst supporting small business is welcome, opening up opportunities is important as it allows companies to support themselves. The Budget announced an overhaul of UK Export Finance’s (UKEF) direct lending programme, doubling it to £3 billion and cutting interest rates to the lowest permitted levels. This scheme will mean that UK business will have access to one of the most competitive support schemes available for wining contracts in new markets, helping them to improve and expand overseas.

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