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

[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.

[bunn.livejournal.com]

It is, however, something that does happen to a lot of people, so the decision here is not whether it should happen at all, but where it should happen and to whom.

I seem to talk to a lot of people who are about to be made homeless on the oldies club rehoming line, and it's *awful*. I wouldn't wish it on anyone, no matter how loathesome. But if the money really isnt' there, then the savings have to come from somewhere, and if that means that some families are going to have to move house to cheaper areas, then personally I feel there are worse things that could be economised on.

I'd rather see spending on basically healthy families with employable parents cut than spending on people who are ill and really, really don't have any options, and don't have the physical resources to do much to help themselves - since cut it seems, there must be.

[helflaed.livejournal.com]

It isn't an easy question- there are plenty of people on benefits who are quite capable of working, but equally there has to be a safety net of some sort.

[bunn.livejournal.com]

I agree, but £1600 a month doesn't seem like *that* ungenerous a provision for safety nettage. And perhaps the cap will have the effect of bringing rents down to a more affordable level, if landlords know they cannot ask what they want and get it paid from the public purse?

[didiusjulianus.livejournal.com]

But there is a chronic housing shortage especially in London (partly because the housing stock was sold off a few governments ago - an outrage in my opinion). So rents will continue to be high, and people (some of whom may have brought it on themselves, but many of whom haven't) will remain in grossly overcrowded council or housing association homes or be at the mercy of unscrupulous landlords who don't meet their obligations to provide legally habitable housing (and sometimes it is lethal housing). And probably many will still be paying some of their rent out of the rest of their housing benefits leaving precious little else.

How unreasonable is it, really, to be (say) a single parent with 2 children, on benefits*, also living with grandad who is also dependent? And how reasonable is it that their likelihood of being housed in a safe 4 bedroom place (each room being small is fine) in London is just about nil unless they have had it since the year dot, or are very lucky? (*Due to being out of work, incapacitated or a carer of little ones and/or elderly and/or disabled relatives). THIS is the reality for a quite a lot of people.

[bunn.livejournal.com]

So why stay in the most expensive city in the country? I'm not suggesting that it's unreasonable for a family to need a 4 bedroom home, nor that it is their own fault that they need help to pay the rent.

But if the housing stock is oversubscribed, then I don't quite see the argument for putting public money into allowing extra people to live there, when they could move somewhere cheaper.

Fair enough in times of plenty, but when this is money that it appears the country doesn't actually have to spend, is it really so terrible that some people will have to relocate? It just seems to me that there are so many things that would cause worse suffering that could be cut back!

[didiusjulianus.livejournal.com]

I can see your point...until I take account of the importance of continuity of schooling, how tricky it can be to arrange care services in a new place, and how important formal and informal support networks are to those in such circumstances. Even so, some people MAY move if they could get the more appropriate housing all their ducks in a row - the barriers are many though, it's not a joined up system. Should you have to move to Carlisle, when you've (perhaps) grown up in London, worked there, paid taxes there and have friends/family/other networks there, just because you have fallen ill or otherwise on hard times? (As far as I understand it authorities are obliged to house those with a connection to an area (plus refugees and the like), not just everyone/anyone. It's complicated, and I don't necessarily disagree with all the cuts in this area, but I do think that as usual some of the most vulnerable have just become even moreso.

[bunn.livejournal.com]

Hmph. Outside of the major cities, very few people get to stay in one place their whole life if they want to be educated, trained and get a job. Staying in one place is a *major* luxury.

I'm not weeping for the poor deprived Londoners having to shock horror, move out of their native city. They can put on their big girl pants and cope, in the way that almost everyone from relatively poor rural areas has to cope if they want a job that doesn't involve waitressing or working in a sausage factory.

[alitalf.livejournal.com]

There doesn't appear to be a good answer, only different sorts of bad ones. If you target benefits urely to people who absolutely cannot cope without, that seems fairer However it is difficult to avoid placing whoever is close to the limit in the situation where they would be better off by not working, or at best, get to keep a few pence per hour worked, after loss of benefits and taxation.

IF a useful fraction of the last decade or more of spending more than was coming in can be paid off, so that the UK no longer risks a Greek type situation, then I would favour trying to move to a system where everyone gets paid enough benefits for survival, and then everyone pays the same rate of tax - assuming that it is possible to make this balance the finances with no more than about 50% tax rate. The income tax would include NI, so that the system would be simple and cheap to administrate, and *should* automatically protect the poor without removing the incentive for anyone to work.

A simple system like that would not include all the bits of social engineering that governments like - specially things like selective employment tax, if you remember that one, but it would be simple, clear, and reasonably fair. I suspect that anything trying to be more fair, if indeed such a system had significant unfairness, would cost more in complexity than it would gain.

If dividends wer taxed at the same rate, potential loopholes would be removed, and there would be no need or excuse for legislation like IR35 - which I view as an attempt to stamp out freelancers in favour of "body shops".

There would still need to be a purchase tax, presumably on all deemed non-essentials, but in principle that could be much less complex and costly than VAT. Then, if someone didn't invent another way of wasting time and effort, administration costs would be reduced, and on average we could be better off. Just like removing friction in a piece of machinery.

Fewer jobs for state employed bureaucrats, so it will never happen.

[king-pellinor.livejournal.com]

Taxing dividends at the same rate as other income makes for other problems - dividends are paid out of post-corporation-tax profits, so you'd end up taxing business profits twice. At the moment the rate makes it relatively comparable to take profits as salary or dividends. IR35 is about NI, really - if we simplified that system then HMRC wouldn't mind whether people were employees or self-employed.

VAT is a very simple and cheap tax to administer. At the margins it can get a little trickier - mostly when governments start trying to use it for incentives - but it's hard to see a simpler way to do it.

[rustica.livejournal.com]

"If dividends wer taxed at the same rate, potential loopholes would be removed..."

It seems to me that there is a very good reason to have different tax rates for different activities, which is to encourage diversity within the economy and make the economy more resilient against shocks and declines which hit particular sectors (mining, fishing, ship-building, etc).

Not to mention that encouraging investment, which share ownership is, encourages business growth and (hopefully) job creation.

Furthermore, don't forget that a rise in tax on dividends would hit all our pension funds :)