Latest NewsJune 2010The Budget - 22 June 2010 Chancellor of the Exchequer George Osborne delivered his first Budget less than three months after the final Budget of the last parliament. The Conservative Party had promised such an ‘emergency’ Budget during the election campaign, owing to their view that quicker action was needed to bring down the UK’s record budget deficit. While the recession officially ended in the last quarter of 2009, recovery has been sluggish and Mr Osborne, together with his coalition partners from the Liberal Democrats, has had to balance the need to raise taxes and cut spending with the dangers of provoking a ‘double dip’ recession.
Mr Osborne stated that the Budget would be ‘tough but fair’ with everyone in the country needing to do their bit to make savings. He said that the previous government had ‘no credible plan’ for reducing the deficit and it was vital to take action to reassure the financial markets, who he said had already reacted positively to cuts announced in the early days of the new government. He said that if everything went according to plan, the Budget would be balanced by 2015/16. He abolished Gordon Brown’s ‘golden rule’ about balancing the Budget over the lifetime of the economic cycle (which he announced the UK had missed by £485billion) and will instead adopt a ‘forward-looking’ approach to balancing the Budget with a fixed target for debt, overseen by the new Office for Budget Responsibility (OBR). Borrowing for 2010/11 would be £149billion, Mr Osborne said – lower than the previous government’s initial prediction. This should fall to £116billion next year and £89billion in 2012/13. Growth was forecast to be 1.2 per cent this year – down from 1.3 per cent predicted by the OBR once the Budget measures were taken into account. This is set to rise to 2.3 per cent this year and 2.8 per cent in 2012. He reiterated his pledge that the ‘bulk’ of the deficit reduction would come from spending cuts, not tax rises – the exact split being 77:23. Spending by government departments will fall by £17billion by 2014/15, with more details set to be announced in October’s spending review. Public sector workers are set to see their pay frozen for two years, although the lowest-paid will get a flat £250 rise each year. There will be no further cuts to capital expenditure, although some state assets, including the Student Loan book, will be sold. VAT will rise to 20 per cent from 4 January 2011, generating £13billion per year by the end of the current parliament. There were no further increases in fuel, tobacco or alcohol duty. The higher rate of Insurance Duty was increased to 20 per cent, in line with the VAT rise, while the Chancellor announced he would report back later in the year on the possibility of changing Air Passenger Duty to a ‘per-plane’ charge. The tax-free personal allowance on Income Tax will be increased by £1,000 in April, to £7,475, as a first step towards the Liberal Democrat policy of a £10,000 personal allowance. The Chancellor said this move would give 23million workers an extra £170 per year and take 880,000 out of the tax system completely. The higher rate (40 per cent) Income Tax threshold will be frozen until 2013/14, and the new top rate of 50 per cent will remain in place ‘for the time being’. The previous government’s plans to increase National Insurance by one per cent for employees and employers will go ahead in 2011, but the impact of the employers’ rise will be lessened by a £21 per week increase in the NI threshold. From midnight of Budget day, Capital Gains Tax was increased to 28 per cent for higher-rate taxpayers. The rate remained at 18 per cent for lower-rate taxpayers, while the 10 per cent rate for entrepreneurs will be extended to the first £5million of gains. A reintroduction of taper relief, for assets which were held for longer periods, was ruled out as too expensive. The Chancellor announced that the government would work with local authorities to keep Council Tax frozen, saving the average family £35. Stamp Duty rates remained unchanged. From April next year the state pension will be linked to earnings, not inflation, and will always rise by earnings, inflation or 2.5%, whichever is greater. The already-planned increase in the state retirement age to 66 is set to be accelerated. The annual ISA limit will remain at £10,200 and there was no change to the Inheritance Tax threshold of £325,000. Official documents from George Osborne's 2010 Budget: www.hm-treasury.gov.uk/junebudget_documents.htm View full Budget Report 2010: www.hm-treasury.gov.uk/d/junebudget_complete.pdf |
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The Financial Services Authority does not regulate taxation and trust advice, will writing, redundancy counselling or advice on state benefits.
IFA Hertfordshire | IFA Welwyn