Budget Day briefing

The coalition has finally announced its long awaited emergency budget, designed to reduce Britain’s structural deficit. 77% of fiscal consolidation will come through spending reduction, with the remainder from tax rises.

The big picture

  • The government’s ‘big picture’ target is to eliminate the current structural deficit, and ensure that debt will fall as a share of GDP by 2015/16.
  • Borrowing to decrease from 10.1% of GDP to just 1.1% by 2015.
  • Public Sector net debt as a share of GDP will rise until 2015 and then decline afterwards due to the impact of interest payments.
  • Borrowing for 2010/11 will be £149bn
  • Debt to peak in 2013/14 at 70% of GDP
  • Government expenditure will rise from £637bn in 2010 to £711bn by 2015/16, again due to the impact of debt interest.

Spending

  • There will be, on average, 25% of annual cuts to non protected departments over the Parliament
  • There will be a restoration of the earnings link to state pensions from April next year, and a ‘triple lock’ will guarantee a state pension rise in line with earnings, inflation or 2.5%, whichever is greater.
  • There will be no further reductions in capital spending, however the economic benefits of capital projects will come under review in the Autumn.
  • The Civil List will remain the same this year, in future it will be subject to same assessment as other departments- national audit office
  • There will be a 2 year pay freeze for public sector workers, with those earning under £21k exempt.
  • The Ministry of Defence’s operational allowance will be doubled.
  • Former Labour Minister John Hutton will investigate how to reduce the cost of public sector pensions, with an interim report due in September.

Welfare reform

  • From 2011, welfare benefits will be up rated in line with consumer rather than retail prices, decreasing the overall value of benefits.
  • Backdating will be reduced to one month, from the current limit of three.
  • Tax credits will be reduced for families earning over £40,000
  • One off payments to new workers over 50 will be abolished
  • There will be no tax credit element for infants.
  • The health in pregnancy grant will be abolished.
  • The SureStart maternity grant will be abolished for all but the first child.
  • Child benefit will be frozen for three years.
  • Disability living allowance will now include a medical assessment.
  • Strict maximum limits will be placed on the level of housing benefits.
  • But there will be additional support to families in poverty, increasing the child element of tax credits by £150 for those who will still receive the benefit.
  • Altogether, welfare reform will save £11bn per year by the end of this Parliament.

Tax

  • Corporation tax is to be cut by 1p in the pound per year for 4 years
  • Small companies tax rate cut to 20%
  • There will be an exemption on National Insurance for the first ten jobs a company creates outside of London and the South East.
  • The banking sector will, from January 2011, be hit by a balance sheet levy that will fall hardest on those parts of a bank’s balance sheet that represent short term risks. This will raise £2billion annually.
  • A Green Investment Bank will be created
  • Investing in Digital infrastructure will be paid for by supporting private investment using funds from the digital switchover underspend, rather than the planned broadband levy.
  • Value Added Tax will rise to 20% from January 2011, raising £13bn.
  • Capital Gains Tax remains at 18% for basic rate taxpayers, but rises to 28% for higher rate taxpayers. The 10% CGT rate for entrepreneurs is extended to the first £5million of lifetime gains, an increase of £3million.
  • Personal allowances will be increased year-on-year, with the higher rate threshold remaining the same until at least 2013.

 

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