Alistair Darling, Chancellor of the Exchequer presented his Budget for 2009 last week and below are the main points and changes contained in the Budget:
Whilst the economy is expected to shrink by 2.5% during 2009, the Chancellor indicated that there was the expectation that the economy would grow next year, 2010, by 1.25%. I our opinion this is an optimistic forecast and we believe that growth in the economy is unlikely. He then said that the economy would grow by 3.5% annually from 2011. Whilst we would expect the economy to be heading out of recession by 2011, again we would comment that growth at these levels is again unlikely.
Borrowing by the Government is estimated to amount to £703 billion over the next 5 years which, in our opinion, is a large burden for the UK economy to endure.
In order to boost funds to meet this borrowing expectation, the Chancellor announced that income tax for those people earning more than £150,000 would rise to 50% from April 2010. The one comment we would make on this is that this would be fairly ineffective as people falling into this tax bracket will no doubt come up with methods and techniques to get around this additional tax burden.
In addition to this, he also reduced tax relief on pension contributions for people falling into this tax bracket, again from April 2010. The level of tax relief for people earning over £150,000 will fall from 40% to 20% following introduction of a taper. To this end, many high-earners will consider making pension contributions following a “salary sacrifice” exercise – by effectively reducing their income levels, it is then possible for their employers to contribute directly to their pension plans, and this can be topped up by the employer also contributing some or all of the National Insurance saving enjoyed following the reduction in salary.
Employment, Jobs and Training
The Government announced support for the economy to protect 500,000 jobs and also indicated that redundancy payments would increase from £350 to £380 per week for those made redundant. From January, everyone under the age of 25 will be offered a job or training place, with additional funds paid on top of the benefits they are already receiving – in addition to this there will also be additional support for those people who have been out of work for more than 12 months.
It was also announced that funds would be made available to create an additional 54,000 places in sixth form education.
Housing and Accommodation
The government is concerned about housing and announced plans to provide £500 million to kickstart the housing market, with £100 million being made available to local councils to build energy-efficient homes. Many commentators have said that this is inadequate and will not provide for the true number of new homes needed each year. £80 million will be made available for a shared equity mortgage scheme to promote home ownership as well as £50 million to upgrade military housing.
The current stamp duty holiday for house purchases below £175,000 has been extended until the end of the year in an attempt to help first-time buyers.
The government is committed to cutting carbon emissions by 34% by the year 2020. An extra £1 billion will be made available to attack climate change by supporting low-carbon industries. £525 million will be made available for offshore wind farms as an alternative energy source over the next 2 years with £435 million to help with energy efficiency schemes for homes, companies and public buildings.
Help was announced for loss-making businesses – they will be able to reclaim more taxes paid for the last 3 years until November 2010 with the main capital allowance rate doubled to 40% in an attempt to help companies bring forwards capital investment decisions. Also announced was a £750 million strategic investment fund to help emerging industries and those industries which has an important regional position.
Savings and Investments
The annual ISA allowance was raised from £7,200 per annum to £10,200 per annum. This will be introduced from 6th October 2009 for over 50’s and from 6th April 2010 for the rest of the population.
Those grandparents of working age who care for their grandchildren will see their basic state pension increased to take account of this. The winter fuel allowance will be maintained at the higher level of £250 for those over the age of 60 and £400 for those aged over 80 for another tax year.
The Chancellor also announced that there would be a minimum increase of 2.5% on the basic state pension, regardless of what RPI, the index to which inflation is linked, does.
The child tax credit will rise by £20 by 2010 and child trust funds for disabled children will rise by £100 per year with those for severely disabled children rising by £200.
Cars – Scrappage Scheme
A new scheme will be introduced in an attempt to remove older, more polluting cars from our roads. From March 2010, £2,000 discount will apply for those people who trade in their existing cards over 20 years old in exchange for a new car. In order to qualify they will have to be shown as the registered keeper of the vehicle for the 12 months prior to the purchase and it is expected that the Government will provide £1,000 towards this scheme with the motor industry providing the remainder.
And finally (!) – Cigarettes, Alcohol and Fuel
Tax and duties on alcohol and cigarettes is to rise by 2% – putting a penny on a pint and 7 pence on a packet of 20 cigarettes on average.
Fuel duty is to rise by 2 pence per litre and then by 1 pence above inflation each April for the next four years.
So there you have it – how as the Budget affected you? Who do you feel are the winners and losers of this Budget? Please make your comments below.