Budget news

[wellinghall]

Tax
From 4 Jan 2011, the main rate of VAT will rise from 17.5% to 20%. Current zero-rated items like children's clothes and magazines will remain exempt.

Corporation Tax will be cut next year to 27%, and by 1% annually for the next three years, until it reaches 24%. The small companies' tax rate will be cut to 20%.

The government will help low-spending councils in England to freeze council tax for one year from April 2011.

CGT remains at 18% for low and middle-income savers but from midnight, higher rate taxpayers will pay 28%.


UK economy
The economy is predicted to grow by 1.2 % this year, 2.3% next year, 2.8% in 2012, 2.9% in 2013 and 2.7% in both 2014 and in 2015.

The UK is set to miss the previous government's "golden rule" - of borrowing only to invest over the economic cycle - in the current cycle by £485bn.

Consumer price inflation is expected to reach 2.7% by the end of 2010 before "returning to target in the medium term". The inflation target remains at 2%, as measured by the Consumer Prices Index.

Unemployment is forecast to peak this year at 8.1% and then fall for each of the next four years, to reach 6.1% in 2015.

Borrowing
The structural current deficit "should be in balance" by 2015-16.

The balance of spending cuts vs tax rises would be 77% to 23%.

The measures are forecast to result in public sector net borrowing of £149bn this year, £116bn next year, £89bn in 2012-13 and £60bn in 2013-14. Mr Osborne said by 2014-15 borrowing would reach £37bn, falling to £20bn in 2015-16.

Spending
Mr Osborne said the state now accounted for "almost half" of all national income which was "completely unsustainable".

He said current expenditure would rise from £637bn in 2010-11 to £711bn in 2015-16, blaming a "rapidly rising bill for debt interest".

He said his Budget implied further £17bn cuts in departmental spending by 2014/15, unprotected departments face an average real cut of around 25% over four years.

He said compared with the plans set out by Labour, the government would cut additional current expenditure by £30bn a year by 2014-15.

There would be no further reductions in capital spending totals in this Budget but "careful choices" would be made about how it was spent. Projects with "a significant economic return to the country" would be prioritised - assessed in the autumn spending review.

Public sector pay
Public sector workers face a two-year pay freeze, although 1.7 million of those earning less than £21,000 will get a flat pay-rise worth £250 in both years.

Pensions
The government will accelerate the increase in state pension age to 66.

Benefits
From 2011, except for the state pension and pension credit, benefits, tax credits and public service pensions will rise in line with consumer prices rather than retail prices, saving over £6 billion a year by the end of the Parliament.

Tax credits will be reduced for families earning over £40,000 next year, the baby element will be removed for new children from April 2011 as will the one-off payment to new workers over 50 from April 2012.

Child benefit will be frozen for the next three years.

Reform of Housing Benefit which will have a maximum limit of £400 a week, to save £1.8bn a year by the end of the Parliament.

The government will introduce a medical assessment for Disability Living Allowance from 2013 for new and existing claimants.

Business
From April 2011, the threshold at which employers start to pay National Insurance will rise by £21 per week, above indexation.

Tax relief for the video games industry will be scrapped.

Cigarettes, alcohol and fuel
No change this time round

Banks
A bank levy is being introduced.

Comments

[emperor]

Benefit cuts and VAT rise? It sucks to be poor. I'm not sure how you're supposed to rent a 4-bedroom place in London for £400/week either...

[nineveh-uk.livejournal.com]

You aren't. If you deserve a four-bedroomed house you can afford to buy one (a big white one in Notting Hill or St John's Wood).

[philmophlegm.livejournal.com]

If you're poor, I wonder why you decided to have so many children that you need to live in a 4 bedroom house and why that 4 bedroom house needs to be in London.

[emperor]

Maybe because you used to have a job in London?

[thecatsamuel.livejournal.com]

An excellent question. If you decide to have a family, isn’t it your responsibility? A bit like taking in a cat or a dog or a hamster. Your choice, your bills.

I am sad to sound like my father, but I am cynical about the exploitation of benefits and it does happen. E.g. Sure Start vouchers are worth £3.10 a week for low income families and say on the front that they are to be used only for milk/fruit/veg. At least once in a supermarket shift I have to refuse them because people are trying to redeem them wrongly. The customers then have a strop, which suggests other people do take them against other things. Which is fraud. And always these customers have a trolley load of booze and groceries that I can’t buy on my student budget. Really think if you can afford vodka and named brand luxuries, you can afford milk for your kids.

[helflaed.livejournal.com]

Sometimes the children come before the need for benefit- if you already live in a 4 bed house and lose your job then it would be very unpleasant for the entire family for them all to have to move.

Also, moving away from a higher employment area like London to a cheaper area with fewer jobs wuold reduce your chances of employment.

I got pretty close to being an unemployed single parent with two pre-school children a few years ago when Other Half was very seriously ill, and nearly died. One of my friends found herself in a similar situation when she had to leave her ex. It can happen to anyone.

[beckyc.livejournal.com]

I misread that as Corruption tax not corporation tax.

[wellinghall.livejournal.com]

Ah, but what sort of Corruption tax should be reduced? ;-)

[philmophlegm.livejournal.com]

Well, it's a start. Hopefully there are more spending cuts to come - but those would probably be in areas where more work needs to be done to identify where the cuts should be made (e.g. welfare, defence).

There's a clever little app on the BBC website which allows you to play with sliders to see how you would deal with the deficit. You can criticise it for leaving out certain things (income taxes for one), but it does serve to illustrate what a mess the public finances are in. http://news.bbc.co.uk/1/hi/business/10373060.stm . Playing around with it probably tells you that this Budget hasn't gone far enough (yet).

Would be interested to see what else people think should have been cut (or cut further) or what taxes should have gone up. Or maybe whether we should have adopted the Greek way of dealing with an unmanageable budget deficit.

[alitalf.livejournal.com]

Decades ago there was a plan to abolish road tax and add enough on to the fuel tax to make it fiscally neutral. What actually happened was that road tax did not go up for one year, fuel tax did, then the gov stated that they could not reduce road tax because it cost £50 to collect, so tough luck.

Completely abolishing it now, and insisting that there is a tear off piece on insurance certificates to display instead of road tax, should save £2 billion per year, assuming that fuel taqx rose enough to collect the same amount of tax.

After all, fuel tax is much cheaper to collect, as a percentage of tax revenues, then road tax, and the cost of collection is not afected by the exact rate.

Maybe there are other taxes for which the cost of collection is a silly proportion of the revenue raised, and perhaps other savings could be made in such areas.

[bunn.livejournal.com]

I like that slider tool! By building 1,800 secondary schools, I was able to cut the budget by 26,700m! Who knew building schools was such a great revenue building device :-D

Really it needs a lot more sliders though:
tax on vuvuzelas
Legalise & tax cannabis
supertax for people using bloody blackberries to check work email at weekends
turn off all streetlights for 6 months
tax on stupid shoes
cut all new government IT projects before their budgets form a black hole and whirl us all into extinction
tax breaks for fudge manufacturers
Caravan tax...

[rustica.livejournal.com]

I was impressed by this as a forward-looking budget - there's a lot in it obviously aiming at boosting trade and (presumably) job creation. Overall, it wasn't as harsh as I had been expecting; and I feel a little guilty that I don't think it's going to affect me a huge amount compared to many other people. Not even VAT - a lot of things I buy that have VAT on them I probably shouldn't be buying in the first place, really!

It's certainly not a budget which would encourage / frighten large numbers of people into emigrating. I was interested that the CGT changes were minimal. There is a lot to be said for the govt's policy of leaking stuff beforehand to test the waters!

I thought Harman was - overall - wrong to accuse the Lib Dems of selling out, as she did today. The Lib Dems were advocating tax rises years ago, and given the state that the economy is in, I don't see a huge number of options for raising revenues. There is some provision in this budget for the poor - not enough, but the Tories would no doubt say that they are providing for the poor by providing jobs; and there is a decent argument that that will go a long way, *if* it works, and obviously only for those who are able to work. Certainly, Labour have a long time to wait before they have any credibility on the economy - unless of course they turn out to be right about this budget being totally disasterous, in which case all bets are off!

I thought it was a pretty good budget overall with what Osbourne had to work with. I'd cut a huge amount off defence spending and bring the troops home, myself, but I can't see the Tories doing that.

[wellinghall.livejournal.com]

There are explicitly more spending cuts to come, which will be announced in October.

[the-marquis.livejournal.com]

I'm intrigued as to this whole deficit business, when did Britain start servicing it's government spending with money from the future?

Also what is the difference between Consumer Price Index and Retail Price Index? Aren't consumers buying stuff from retailers at a price the retailers set?

I'm a bit worried by this budget as someone who may have their job cut to save costs for political reasons rather than good reasons (you may think that getting rid of Police Staff will free up money for "more bobbies on the beat", but it will usually mean "more bobbies sitting indoors doing admin work").

Budget news

[philmophlegm.livejournal.com]

Not really my period, but I'd hazard a guess that government borrowing in the modern sense dates back to at least the Napoleonic Wars.

Budget news

[philmophlegm.livejournal.com]

The CPI and RPI are based on different 'baskets' of goods and expenses. One key difference is that one of them excludes mortgage interest. The reason for this is that raising interest rates is one of the key weapons the Bank of England uses to fight inflation. If you then measure inflation including the interest rates you just put up to get inflation down, then it's difficult to see how well you're doing against inflation.

[parrot-knight.livejournal.com]

when did Britain start servicing it's government spending with money from the future?

Systematically, from the Nine Years' War of 1689-1697, the spur to the 'Financial Revolution'.

[wellinghall.livejournal.com]

Most years (at least in the 20th and 21st centuries - I don't know about earlier periods), governments have run "deficit financing" - spending more than they take in tax etc, and making up the difference with borrowing. This has happened under all types of government - Conservative, Labour, Liberal, or Coalition. In some years, there has been a surplus, which has been used to pay down part of the national debt; but this hasn't happened for very long, and usually hasn't been a very large surplus even when it did happen.

Britain is not alone in this - most countries do it. (The few that don't usually have some other form of income - typically oil - and use this to run a surplus, rather than spending it in tax cuts like Britain did under the Conservatives in the late 20th century.)

"Why" is a good question. It is perfectly reasonable (depending on which economist you are talking to) to run a deficit in "bad" years, and repay it in "good" years. But doing it even in the good years - or borrowing lots in the bad years, and only repaying a little in the good years - is silly.

the history of UK govt debt -

[lanciatore.livejournal.com]

http://www.debtbombshell.com/history-of-national-debt.htm

[rustica.livejournal.com]

Current zero-rated items.. will remain exempt

Ahem! Current zero-rated items... will remain zero-rated. Not exempt! :)

[king-pellinor.livejournal.com]

That would put the cat among the pigeons :-)

Budget news

[philmophlegm.livejournal.com]

Yes!

Re: Budget news

[tigerfort.livejournal.com]

No!

[arda-unmarred.livejournal.com]

http://www.guardian.co.uk/uk/2010/jun/23/budget-welfare-poor-ifs-report?CMP=AFCYAH

budget will hit the poorest hard in the long run

about what I expected

[arda-unmarred.livejournal.com]

http://www.dailymail.co.uk/news/article-1289096/BUDGET-2010-Middle-classes-hit-twice-hard-wealthy-despite-Osbornes-claim-share-pain.html?ITO=1708&referrer=yahoo

also what I expected