The Chancellor today in his first Budget speech outlined the new coalition's tax and fiscal plans.
In what has to have been the most anticipated budget for many years the Chancellor had to address what were in my opinion the four key tasks facing him, which were:
- Due to international pressure mounting on the UK and also the recent financial crisis in Greece he had to accelerate the plan to reduce the budget deficit.
- He had to provide confidence to the country and the financial markets that he could provide this plan to reduce debt without damaging the UK's recovery out of the recession.
- Articulating his and the coalition's future taxation and fiscal vision for the country.
- Finally , the political challenge, he has to do all of the above while ensuring that he is able to keep both parties within the coalition happy , from the Tory right through to the Liberal Democrat left.
So against these tough challenges how did he do? Well to a certain extent it we will only be able to judge that when we have more detail of what some of the measures that have been proposed contain and also the opportunity to see how the financial markets react. However the Chancellor has set out a clear agenda to reduce the budget deficit from an emphasis on a reduction in spending rather than increasing taxes and also recognised the need to accelerate the repayment of the budget deficit.
We will now consider the press releases and consultation documents that have been issued this afternoon to see what the detail contains but in case you have not yet been able to catch the main announcements coming out of the Budget report we thought we would summarise them for you.
Economic and Spending Announcements
- Borrowing forecast at 10.1% of GDP this year.
- The Chancellor expects UK GDP to grow by 1.2% this year, 2.3% next and 2.8% in 2012. This is a downgraded forecast from those in the March Budget.
- The inflation target set for the Bank of England is unchanged at 2%, although inflation in the current year expected to be 2.7%.
- Public borrowing will be £149bn this year, £116bn in 2011 and £89bn in 2012-13.
- In repaying the deficit the balance of spending cuts v tax rises is set to be 77% to 23% respectively.
- Confirmation that the UK will not join the Euro during the course of this parliament.
- Public sector pay will be frozen for two years, previously announced that it would be for one year. Excluded are public sector works who earn less than £21,000, they will receive a £250 pay rise each year.
- Mr Osborne says he takes pleasure in being the final chancellor to report on Gordon Brown's infamous "Golden Rule", which was that the Budget must be balanced over an economic cycle. It has been missed by £485 billion!!!
- Unemployment is forecast to peak this year at 8.1% and then fall for each of the next four years.
- There is to be a 25% decrease in government departmental spending by 2014/2015 but the NHS budget is to be protected.
Taxation Announcements
- From 4 January 2011 the main rate of VAT will increase from 17.5% to 20%.
- No further increases on duty on tobacco, fuel, beer, wine and spirits other than those announced in the March Budget.
- Basic rate taxpayers will see an increase in their income tax personal allowance of £1,000 to £7,475 from April next year. Higher rate tax payers will not get the benefit of this increase.
- The threshold at which employers are required to pay National Insurance for their employees will go up by £21 per week.
- The 'entrepreneurs' capital gains tax rate of 10% is extended to £5 million of gains from the current £2 million of gains.
- The capital gains tax rate for all other assets will remain at 18% for basic rate tax payers but will increase to 28% for higher rate tax payers from midnight tonight.
- The annual capital gains tax exemption of £10,100 is to be frozen but it had been anticipated that it would be abolished.
- The main rate of corporation to be cut from next year from 28% to 27% and then by a further 1% per year until the main rate reaches 24%.
- The small companies tax rate will be cut to 20% from next year (previously the government were to increase this to 22% from April next year).
- Tax allowances for Furnished Holiday Letting to be reintroduced.
- Capital allowance rates will reduce from 20% to 18% from April 2012.
- Annual investment allowance providing 100% capital allowances to be reduced from £100,000 to £25,000 from April 2012.
Other Announcements and Measures to be Introduced
- Further details to be announced but the government are to accelerate the time scale of raising the retirement age from 65 to 66.
- Child Benefit is to be frozen for the next three years but still paid to all.
- With regard to the disability living allowance he announced that three times as many claim DLA compared to when introduced 18 years ago. Consequently it costs the country £11 billion a year. As a result a new medical assessment for new and existing claimants will be introduced to ensure only those who need it can claim it.
- A new bank levy to be introduced from 2011, which is expected to generate £2bn of revenue.
- The government is to press ahead with the sell-off of the Tote, as well as the air-traffic control system and the student loan book.
Finally on the 29th June 2010, at our Business Forum, I will be giving a presentation summarising the budget speech and how it may affect you. As usual the forum will be held in the Shiraz Suite of the Hallmark Hotel with arrival from 5:00pm for a 5:30pm start. If you have not already reserved your place then please contact Kathryn on or call 01202 717867. We are also running the seminar of the 7th July at the Captain's club so if you require more details of this event please also contact Kathryn. |
