The Chancellor of the Exchequer George Osborne has set out his Budget with a comprehensive five-year plan. The plan sets out his course of action intended to tackle the unprecedented budget deficit, introduce a fairer tax system, encourage enterprise and support long-term growth across the economy. The budget sets out action within these three areas:
1. Responsibility: Tackling the deficit & the fiscal mandate
The Government has set:
- A fiscal mandate to achieve cyclically-adjusted current balance by the end of the rolling, five-year forecast period. At this Budget, the end of the forecast period is 2015-16;
- For this Parliament, the fiscal mandate will be supplemented by a target for debt as a share of GDP to be falling at a fixed date of 2015-16, ensuring that the public finances are restored to a sustainable path;
- By 2014-15, 80 per cent of the additional consolidation measures set out in this Budget will be delivered through spending restraint, with additional spending reductions of £31.9bn a year by 2014-15 and additional net tax increases of £8.2 billion. Taking the total consolidation measures delivered through spending restraint to 77 per cent;
- On spending, £29.8bn of the additional savings are from public sector current expenditure (PSCE) and £2.2bn from public sector gross investment (PSGI). There are no further reductions in public sector gross investment beyond the cuts already announced as part of the £6.2bn of savings in 2010-11;
- The Government will increase the standard rate of Value Added Tax (VAT) to 20 per cent from 4 January 2011;
- The Government will increase the standard rate of Insurance Premium Tax (IPT) to 6 per cent and the higher rate to 20 per cent from 4 January 2011; and
- The Government will introduce a two year pay freeze for public sector workforces from 2011-12, except for those earning £21,000 or less, who will receive an increase of at least £250 in these years.
2. Freedom: Enterprise and growth agenda
This Budget will create the conditions for enterprise and sustainable growth. The Chancellor wants to support business and make the UK more competitive. This means giving businesses more freedom by reducing regulation and providing targeted tax breaks, while ensuring that the economic opportunities for businesses are shared more evenly throughout the UK’s regions.
Measures to support enterprise include:
- A major package of reforms to reduce corporation tax rates including a reduction in the main rate of corporation tax from 28 per cent to 24 per cent over the course of four financial years from April 2011 and reductions to the main and special rates of capital allowances from April 2012;
- A reduction in the small profits rate from 21 per cent to 20 per cent from April 2011;
- A National Insurance Contributions (NICs) holiday for new businesses which start-up in certain areas of the UK over the next three years;
- An increase in the Enterprise Finance Guarantee and the creation of a new Enterprise Capital Fund; and
- A Regional Growth Fund in 2010-11 and 2012-13 to support increases in business employment and growth, and a scheme in which new businesses in areas of the UK outside of the East, London and the South East will get a substantial reduction in their employer National Insurance Contributions (NICs).
3. Fairness: A fairer personal tax and benefit system.
Personal tax measures:
- Increasing the personal allowance for under 65s by £1,000 to £7,475 in 2011-12, taking 880,000 people out of income tax altogether;
- Capital gains tax will rise from 18 to 28 per cent for those liable to income tax at the higher and additional rates. The 10 per cent rate for entrepreneurial business activities will be extended from the first £2 million to the first £5 million of qualifying gains made over a lifetime;
- The Government will work in partnership with local authorities in England to implement a council tax freeze in 2011-12; and
- Introduction of a bank levy on banks balance sheets from January 2011.
As part of the welfare reforms, the Budget announces: - Uprating the basic State Pension by a triple guarantee of earnings, prices or 2.5 per cent, whichever is highest, from April 2011;
- Reduction in tax credit eligibility for families with household income above £40,000 (down from £50,000) from April 2011;
- Intention to restrict the generosity of pensions tax relief by reducing the annual allowance from April 2011. The Government will ensure that this alternative approach raises no less revenue than has already been accounted for in the public finances; and
- Indexing benefits by the Consumer Prices Index (CPI) instead of the Retail Prices Index (RPI) from April 2011 - in order to provide a fairer reflection of benefit claimants’ experiences.
Source - HM Treasury