ROOF Blog

Tax rebates for people who ‘go green’ by installing solar panels or wind turbines on their homes or swapping their company car for an electric vehicle will be announced by Alistair Darling tomorrow.

Although his pre-Budget report will include few giveaways as he promises to rein in a £180bn budget deficit this year, the Chancellor will give householders and drivers a financial incentive to play their part in saving the planet.

At present, people who sell electricity to the National Grid are taxed on the income. In future, it will be exempt from tax.

A householder on basic rate tax selling £900 of electricity to the grid from April would receive the full amount, instead of £720 as at present.

In the build-up to the pre-Budget report this Wednesday, Pricewaterhouse Coopers (PWC) says the typical British family already faces a decline of 2.4 per cent, or £300 a year, in its discretionary spending power, after tax, mortgages, food and other essentials.

The best-off will see their spending power cut by as much as nine per cent, almost £5,000 a year, the most vicious assault on their living standards in three decades.

The impact of swingeing income tax and national insurance hikes, VAT increases, expected moves back to more normal mortgage rates and higher petrol and transport costs, thanks to the latest boom in world oil prices, will all conspire to devastate the household budgets of the better-off.

Government spending cuts on construction risk deepening the recession and making it harder for the economy to recover in future, the CBI employers’ organisation have warned.

Every £1 spent on construction generates a £2.84 increase in national income according to a report by the CBI’s UK Contractors’ Group, and cuts would diminish gross domestic product (GDP) to the same extent.

John McDonough, chief executive of Carillion and chairman of the CBI’s construction council, said the sector was likely to be in the line of fire when the government attempts to narrow its yawning budget deficit:

‘The public purse can’t afford what it has afforded in the past, but we need to be prepared for what’s going to happen in the next 12 months,’ he said.

‘Construction makes up around 8 per cent of UK GDP and a similar proportion of employment, but it has been hit hard by the recession.

‘Its rate of redundancy, at 28 per 1,000 employees is the highest of any sector, and the short-term nature of much construction work means that the true decline in employment is likely to be greater.’

Communities and Local Government will reveal before 21 July which of its programmes’ budgets are to be cut to help fund the £1.5 billion housing package, and has suggested the Homes and Communities Agency may bear the brunt. Director-general of housing and planning at the department has insisted that reports that the Decent Homes programme would be plundered are not true. He said he would give details before the summer recess of parliament starts.

The rising cost of fuel, food and public transport has hit the poor hardest. The Joseph Rowntree Foundation calculates that the cost of living for those on a minimum household budget is rising faster than inflation. The costs for a single household on a low-income budget were up 5.3 per cent this year, followed by 5 per cent up for pensioners and couples with children.

Details of Gordon Brown’s plan to boost social housing were revealed in the House of Commons yesterday. He announced he would pump £2.1 billion into building affordable housing, including an extra 20,000 homes to be built in the next two years on top of the 90,000 already in the pipeline. He said he would triple the £600 million announced in the Budget to cover new council and housing association homes – with half the extra £1.5 billion coming from the Communities and Local Government budget and the other half redirected from other government departments including transport, health and schools.

Figures from the Office for National Statistics show the UK economy shrank by 2.44 per cent in the first quarter of 2009 – the fastest rate in more than 50 years, and much worse than expected. Gross domestic product has fallen 4.9 per cent in year on year figures – the largest drop on record.

In related news the Organisation for Economic Cooperation and Development has told the government to cut its budget deficit by a larger amount than it currently intends, or it will face major problems in the coming years. The OECD said that Britain’s deficit would climb to 90 per cent of economic output – much higher than the 80 per cent projected by the Treasury in the Budget – and in order to maintain the economy the government should target ‘more ambitious’ budget cut backs, rather than raising tax.

Housing and mortgage groups, including chairman of the Intermediary Mortgage Lenders Association John Heron and chief executive of the National Housing Federation David Orr, spoke before a Communities and Local Government select committee on the effect of the credit crisis on the mortgage market, and said the government had missed an opportunity to boost house builders and mortgage lenders. They argued that measures introduced in the Budget were insufficient to stop the downward slide affecting the markets. Mr Heron called for more support for buy-to-let lenders, while Mr Orr called for ministers to try to keep rents high, even if deflation occurs elsewhere.

House prices across the UK fell by 0.4 per cent in April, bringing the annual rate of decline down 15 per cent, according to the Nationwide. It also added that the measures introduced in the Budget are unlikely to boost the housing market, although the new mortgage backed security scheme should boost the amount of mortgage credit available.

The Institute for Fiscal Studies (IFS) warned that Britain faced ‘two parliaments of pain’ as it calculated a £45 billion ‘black hole’ in the government finances following the Budget, requiring either a tax rise of £1,430 per family or massive spending cuts. When the effect of the 8 per cent annual growth in debt interest payments and rising spending on unemployment benefit are taken out, spending across government departments will have to fall by an average of 2.3 per cent a year in real terms – the largest spending cuts since the 1970s. The IFS has calculated that by 2017/18 the losses will be the equivalent to £2,840 a year for every family, of which only half has been accounted for by the government.