'Highlights' of the emergency budget

Posted 23rd June 2010

'Highlights' is used as a very broad term here, but the following summarises the budget announced this week.

TAX

 

- From January 4 2011, the main rate of VAT will rise from 17.5% to 20%. Current zero-rated items like children's clothes and magazines will remain exempt for the course of this Parliament.

- Corporation Tax will be cut next year to 27% (from 28%), and by 1% annually for the next three years, until it reaches 24%. The small companies' tax rate will be cut to 20%.

- The government will help low-spending councils in England to freeze council tax for one year from April 2011.

- Capital Gains Tax remains at 18% for low and middle-income savers but from midnight tonight, higher rate taxpayers will pay 28%.

UK ECONOMY

 

- The economy is predicted to grow by 1.2 % this year, 2.3% next year, 2.8% in 2012, 2.9% in 2013 and 2.7% in both 2014 and in 2015.

- The UK is set to miss the previous government's "golden rule" - of borrowing only to invest over the economic cycle - in the current cycle by £485bn.

- Consumer price inflation is expected to reach 2.7% by the end of 2010 before "returning to target in the medium term". The inflation target remains at 2%, as measured by the Consumer Prices Index.

- Unemployment is forecast to peak this year at 8.1% and then fall for each of the next four years, to reach 6.1% in 2015.

BORROWING

 

- The structural current deficit "should be in balance" by 2015-16.

- The balance of spending cuts vs tax rises would be 77% to 23%.

- The measures are forecast to result in public sector net borrowing of £149bn this year, £116bn next year, £89bn in 2012-13 and £60bn in 2013-14. Mr Osborne said by 2014-15 borrowing would reach £37bn, falling to £20bn in 2015-16.

SPENDING

 

- Current expenditure will rise from £637bn in 2010-11 to £711bn in 2015-16, blaming a "rapidly rising bill for debt interest".

- No further reduction in capital spending totals this year but will look at how the money is spent.

- Looking at the future of NATS (Air Traffic Control System); the Student Loan company; and the Tote and look at investment into the Royal Mail.

- Budget implied further £17bn cuts in departmental spending by 2014/15, unprotected departments face an average real cut of around 25% over four years.

- Civil list frozen at £7.9million and will be audited by the National Audit Office

- The annual spending review will take place on Wednesday 20th October.

PUBLIC SECTOR PAY

 

-          Public sector workers face a two-year pay freeze, although 1.7 million of those earning less than £21,000 will get a flat pay-rise worth £250 in both years.

-          Doubling of the operational allowances for the Armed Services.

PENSIONS

 

-          The government will accelerate the increase in state pension age to 66.

-          The Government will re-establish the link between pensions and earnings from April 2011.

BENEFITS

 

- From 2011, except for the state pension and pension credit, benefits, tax credits and public service pensions will rise in line with consumer prices rather than retail prices, saving over £6 billion a year by the end of the Parliament.

- Tax credits will be reduced for families earning over £40,000 next year, the baby element will be removed for new children from April 2011 as will the one-off payment to new workers over 50 from April 2012.

- Child benefit will be frozen for the next three years.

- Reform of Housing Benefit which will have a maximum limit of £400 a week, to save £1.8bn a year by the end of the Parliament.

- The government will introduce a medical assessment for Disability Living Allowance from 2013 for new and existing claimants.

- Health in Pregnancy grant to be abolished in April 2011.

- The child element of the child tax credit will go up by £150 above inflation from next year.

BUSINESS

 

- From April 2011, the threshold at which employers start to pay National Insurance will rise by £21 per week, above indexation (from £110 to £131)

- The planned tax relief for the video games industry will be scrapped.

- The Enterprise Finance Guarantee Scheme is to be extended.

- Annual Investment Allowance reduced to £25,000 a year.

- Planned duty on landlines in telecommunications abolished.

CIGARETTES, ALCOHOL AND FUEL

 

No changes though the increase on duty on cider will be reversed at the end of this month.

BANKS

 

- Bank levy is being introduced in January 2011 which will apply to the balance sheets of UK banks and building societies and the UK operations of foreign banks. Smaller banks will be exempt.

REGIONS

  

-          White Paper on balancing regional economies to be published in Autumn.

 

-          Regional transport initiatives such as the Manchester Metro will continue.

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