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Pre-Budget Report

 

The Chancellor of the Exchequer Alistair Darling has just delivered the Pre-Budget Report to the commons outlining the Labour's government's proposed £20 billion fiscal stimulus to rescue the economy from the current financial crisis.

Mr Darling announced that the economic growth for 2008 would be less than earlier forecasted at 1.75%, with next year's growth forecasted to be between -0.75% and -1.25%. Inflation is also expected to continue to fall to 0.5% by the end of next year.

Government borrowing will reach £78billion this year, increasing to £118billion in 2009, reflecting 8% of GDP. Borrowing would then be reduced year on year from 2010. UK net debt will increase as a percentage of GDP to in excess of 50% of GDP by 2010.

Capital spending of £3bn will be brought forward from 2010/11 to improve motorway capacity, renew primary and secondary schools and invest in energy efficiency measures.

The key proposals are highlighted below:

Income Tax

• From April 2009 a new top rate of income tax, at 45% will be introduced to those earning £150,000 or more.
• This will affect 1% of the population.
• The increase in basic rate taxpayer's allowance which was increased to £120 in May will be made permanent, with a further increase to be made in April to £145.
• This measure is expected to affect 22million taxpayers.

VAT

• VAT will be cut on the 1st December from 17.5% to 15% for 13months.
• The VAT cut on tobacco, alcohol and petrol will be offset by increasing the duties on these products.

National Insurance

• All rates of NI will be increased by 0.5%, but the allowance will now be at the same level of the income tax.

Mortgages

• Mortgage lenders will wait for 3 months after a borrower first falls behind with their repayments before seeking repossession.

Savings

• A new supported savings scheme will be launched called Savings Gateway in which the Government will contribute 50p for every pound saved.
• Launch will be in 2010 and will be targeted at 8 million people on low income.

Benefits

• There will be increases seen in pensions and child benefits in January.
• Single pensioners will receive a one off payment of £60, whilst couples will receive £120.
• Pension credit will rise from £120 to £134 per week in April, with couples seeing an increase from £189 to £198 per week.
• The state pension will rise in line with the highest rate of inflation this year, seeing a £4.55 rise per week for a single pensioner.

Small Businesses

• Government have deferred a planned increase in small companies' corporation tax.
• Introduction of a temporary Small Business Finance Scheme will provide credit worth £1bn.
• HM Revenue and Customs (HMRC) will allow firms facing difficulties to spread the payment of all their business taxes over a timetable they can afford, for as long as they need.

Energy Prices

• The energy regulator Ofgem will monitor changes in energy price and publish quarterly reports on the link between wholesale and retail prices.

Financial Compensation

• There will be a review of the financial compensation arrangements that currently do not cover UK residents who save money in banks based in the Channel Islands and the Isle of Man.

Employment

• A new initiative to fill 500,000 job vacancies with 20 major employers by speeding up recruitment and improving access to training.
• A rapid response service will expand to help those thrown out of work in all redundancies.
• There will also be £15m funding for free debt advice.

 

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