|
Chancellor of the Exchequer Alistair Darling delivered this year's Pre-Budget Report at a time of great uncertainty for the UK economy. While the recession appears to be levelling out, and there are even some tentative signs of recovery, most economists agree that the road ahead will be a rocky one, with rising unemployment and high levels of personal and government debt likely to have a negative impact. The need to reduce the current record levels of government borrowing has hampered the government's ability to offer standard pre-election giveaways, with several tax rises already on the horizon and increased measures to clamp down on avoidance.
Summary of Key Proposals
- VAT - rate will return to 17.5% from 1 January 2010. No further increases announced.
- Stamp duty holiday on properties worth up to £175,000 to end on 1 January, with 0% rate continuing to apply only to homes worth under £125,000.
- Employers' and employees' national insurance to increase by a further 0.5% in 2011 for those earning over £20,000, to raise an extra £3billion.
- Restrictions on tax relief on higher earners' pension contributions from April 2011 will also apply to employer contributions.
- Inheritance tax threshold to remain at £325,000.
- Bankers to face one-off 50% tax on any bonus paid out over £25,000.
- Maximum penalty for offshore tax dodging doubles to 200% of the tax owed.
- Corporation tax rise of 1% for small businesses deferred for a further year.
- 'Time to Pay' scheme, which gives businesses more time to pay their tax bills, to be extended for 'as long as it is needed'.
- Enterprise Finance Guarantee scheme extended for a further 12 months.
- Mortgage Interest Scheme to help homeowners facing repossession extended for another six months.
- 10% tax on patent income to fund new research in science and technology.
- Education or training guarantee for 16 and 17-year-olds, and for under-24s who have been out of work for more than six months, to run for another year.
- Pensions up by 2.5%; other benefits to rise by 1.5%.
- £160million investment in low-carbon projects and a doubling of investment in 'carbon capture' technology.
- £200million to improve energy efficiency in homes and completion of 'smart meter' programme by 2020.
- 'Scrappage' scheme for inefficient boilers.
- 50p a month levy on landlines to fund expansion of high-speed broadband.
Setting the Scene
Mr Darling began by stating that there were growing signs that confidence was returning to the global economy, and said he believed the UK economy would resume growth by the end of the year.
However, he said volatile oil prices and the recent problems in Dubai illustrated the fragile nature of the recovery, and said the government would continue to support the economy until the recovery was 'established'.
He stated that the UK economy will have contracted by 4.75% during 2009 - a far worse figure than the 3.5% anticipated in the last Budget. However, he predicted growth of between 1 and 1.5% next year, and 3.5% in 2011 and 2012 - broadly in line with his previous predictions.
The government borrowing forecast for the 2009/10 financial year was revised slightly, from £175.4billion to £177.6billion, with a similarly high figure of £176billion next year, before beginning to fall back, reducing to £96billion by 2013/14.
The Chancellor gave himself a little more room for manoeuvre by predicting the total cost of taxpayer support to the country's struggling banks would be around £10billion - less than the £50billion that had previously been earmarked.
Inflation would rise to around 3% early next year, the chancellor said, largely as a result of the reversal of the VAT cut, before falling back to between 1 and 1.5% later in the year.
Public spending would rise by 2.2% in 2010-11, but after that spending will have to be cut, with a fall of 0.8% between 2011-12 and 2014-15. Mr Darling announced a £12billion programme of savings, including a cap on public sector pension contributions, reducing civil servants' pay, cutting IT projects and selling off assets.
VAT and Duty
It was confirmed that VAT would revert to 17.5% from 1 January 2010, after just over a year at the reduced rate of 15%. Contrary to some predictions, there was no indication of further increases in the future.
The duty on bingo will be cut from 22% to 20% at the next Budget, partially reversing a previous rise from 15% to 22%. Fuel duty will increase by 1p per litre in real terms on 1 April each year from 2010 to 2013. The 20p per litre differential for biofuels will end in 2010-11.
Income Tax
Income tax rates remained unchanged at 20%, 40% and the new rate of 50% from next April. The threshold for paying tax at 40% will be frozen in 2012-13, potentially drawing more people into paying tax at that rate in the future.
The government's crackdown on offshore tax dodging is set to continue, with the maximum penalty rising to 200% of the tax due.
In an effort to discourage banks from paying big bonuses, a one-off 50% tax will be charged on any bonuses over £25,000, paid by the banks not the recipients. The proceeds will be invested in job-creation programmes.
National Insurance
National Insurance will rise by a further 0.5% in April 2011, in addition to the 0.5% increase announced in last year's PBR. The threshold at which people begin to pay NI will be raised, so that those earning under £20,000 will not end up worse off.
Business and Enterprise
The government's 'time to pay' scheme, where struggling firms can ask for more time to meet their tax bills will continue for 'as long as it is needed', Mr Darling said. The temporary increase in the threshold for empty property relief will also be extended, so that for 2010-11 empty commercial properties with a rateable value below £18,000 will be exempt from business rates.
In a further piece of good news for hard-pressed firms, the proposed 1% rise in Corporation Tax for small businesses has been deferred, as it was in the previous budget. A £500million 'growth fund' will be created to invest in small businesses, with further details due to be announced at a later date.
The Enterprise Finance Guarantee Scheme, which guarantees bank loans to small businesses, will be extended for a further 12 months, guaranteeing an additional £500million of loans.
A new 10% tax will be introduced on income from patents to fund new research in science and technology, while the previously-announced 50p-per-month levy on landline phone bills to pay for the rollout of high-speed broadband, was confirmed.
Housing and Mortgages
The stamp duty holiday on properties worth up to £175,000, announced in 2008, will end on 1 January, with the 0% rate continuing to apply only to homes worth under £125,000. A 1% levy will apply above that threshold, rising to 3% at £250,000 and 4% at £500,000.
The Mortgage Interest Scheme, designed to help homeowners who are facing repossession with their mortgage interest payments, has been extended by another six months.
Benefits and Working Families
Benefits which would normally be linked to last September's Retail Price Index (RPI), which was negative, will go up by 1.5%.
The guarantee of education or training for all 16 and 17-year-olds, and for anyone aged under 24 who is out of work for more than six months, has been extended for another year. Funding was also announced for 10,000 undergraduates from low-income backgrounds to take up internships to win careers they may not otherwise have considered.
Extra training and support for the over-50s was announced, while it will be made easier for the over-65s to claim Working Tax Credit, with a reduction in the number of hours they need to work in order to qualify.
Pensions and Retirement
With next year's pension rates based on last September's Retail Price Index (RPI), which was negative, pensioners were not automatically entitled to a rise, but the chancellor announced that the basic state pension would go up by 2.5% in April.
The previously-announced restrictions on tax relief on pension contributions made by those earning over £150,000 will now also apply to their employers' contributions from April 2011.
The amount the government pays into public sector pensions will be capped from 2012, with employees being asked to contribute more.
The inheritance tax threshold will remain at £325,000, not rise to £350,000 as previously planned. The Chancellor said the increase was 'not a priority' at present.
Company Cars
The Company Car Tax rate will be amended from April 2012, so that the minimum 10% band will only apply to cars that emit 99g of CO2 or less per km, compared to the current limit of 120g. The tax rate will increase by 1% for every 5g of CO2 after that point.
The multiplier on free fuel for Company Car drivers will increase from £16,900 to £18,000 from 6 April 2010. The van fuel benefit charge will also increase from £500 to £550.
The Environment
The Chancellor announced a £160million investment in low-carbon projects, and would double the UK's investment in 'carbon capture' technology.
An extra £200million will be made available to promote energy efficiency in homes, and the roll-out of 'smart meters', which allow householders to monitor and reduce their energy usage, will be completed by 2020. A 'scrappage' scheme, similar to that recently promoted for cars, will encourage householders to replace old and inefficient central heating boilers.
People with wind turbines at home who sell electricity to the National Grid will be able to do so tax free, while drivers of electric cars will be exempt from car tax for five years.
Rail modernisation programmes will continue, including a new electrification programme on the line between Liverpool, Manchester and Preston.
Official documents from Alistair Darling's 2009 Pre-Budget
View full Pre-Budget Report 2009
|
