This note sets out the background to the 2014 Budget.Jump to full report >>
The 2014 Budget comes against an improved outlook for the economy. A year ago, forecasters were predicting that the economy would grow by 0.9% in 2013. The latest estimate is that it grew by 1.8% - the fastest since 2007. Forecasters expect the economy to grow by 2.7% in 2014. Employment is at a record high of 30.15 million. This is 1.17 million higher than in 2010. Private sector employment has increased by 1.38 million.
Despite the improvement in the economy, some concerns remain. So far, the recovery has been largely driven by household consumption. Higher GDP growth has yet to feed through to increases in real earnings. This raises the question of how sustainable the recovery is and whether it will become more balanced in 2014.
Government borrowing has fallen from £159 billion in 2009/10 to £115 billion in 2013/14. At the Autumn Statement, the OBR forecast that the economy would see a small surplus in 2018/19. While borrowing has fallen, it remains higher than forecast in the Coalition’s first budget and high by international standards.
Each of the Government’s budgets have increased the income tax personal allowance. From April 2014, the personal allowance will be £10,000, up from £6,475 in 2010/11. The threshold above which income tax is paid at 40% has fallen, however, from £43,875 to £41,865. The number of higher rate taxpayers has increased from just over 3 million in 2010/11 to 4.4 million in 2013/14. This has led some Conservatives to call for an increase in the 40% threshold.
Commons Briefing papers SN06828
Author: Dominic Webb