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The Budget 2012 – Implications for Local Government

March 2012

This paper summarises the 2012 budget with particular reference to its implications for local government and housing.

On 21st March 2012 the Chancellor George Osborne delivered his Budget for 2012. He stated that Britain was to “earn its way in the world” as there was no other road to recovery. While he pledged to support working families and those looking for work, he also acknowledged that his statement to the House “unashamedly” backed business. “It is on the side of aspiration,” he said. “Those who want to do better for themselves and for their families.”

Although there are clearly initiatives that will benefit business such as an extra one penny cut in Corporation Tax, Mr Osborne is facing questions on how he will pay for this and for the cutting of the 50p tax rate. It is clear that pensioners will lose out with a freezing of age-related pension allowance increases and the eventual phasing out of these measures that were introduced by Winston Churchill in 1925. The measures have been called a "tax grab on grannies.”

The Budget 2012 included plans for a reduction in the Public Works Loan Board interest rate on loans for councils that provide ‘improved information and transparency’ on ‘borrowing and associated capital spending plans’. The rate would be reduced by twenty basis points from the current rate of 1% above central government’s own borrowing to 0.8% above gilts from 2012/13, a Treasury source said. This would apply to counties, London boroughs, districts and metropolitan and unitary authorities. The planned reduction comes as the Local Government Association examines plans to create a municipal bonds agency to borrow from the market and then lend to councils.

Housing associations could enjoy the tax breaks of being a Real Estate Investment Trusts after proposals announced in the Budget paved the way for the first social housing Real Estate Investment Trusts. The government said it would start a consultation on the role Real Estate Investment Trusts could play in the social housing sector within the year. If the measures are approved, social housing associations could covert to Real Estate Investment Trust status, which spares them from paying any corporation or capital gains tax on the profits made from property investment.

The Budget of 2012 has been criticised by many in the Local Government and Housing sectors especially because of the move towards regionalised public sector pay, the possibility of reduced debt caps for local authority housing and the absence of significant action to improve the housing market.

Boosting the housing sector would have been an easy win for the economy, for taxpayers and for families. The Government and George Osborne seem to have missed an opportunity to do that in this Budget. The government has previously stated that ‘we are all in this together’ but this concept is now in question with some calling this a ‘by millionaires for millionaires’ budget.

For full briefing paper please click here.

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