If a week is a long time in politics, the eight-month gap between last March’s Budget and the November Pre-Budget Report seems an eternity.
When Alistair Darling presented his first Budget on 12 March 2008, the FTSE 100 Index was at 5,690, the base rate was 5.25% and annual Consumer Price Inflation was 2.5%, comfortably within the Bank of England’s target range. Back then, the Chancellor predicted that net government borrowing would peak at £43bn in 2008/09. This allowed the Treasury to just remain within the ‘sustainable investment rule’ that borrowing should never exceed 40% of GDP.
Today’s picture is very different, thanks mainly to the financial turmoil that has engulfed the global economy since last spring. The Chancellor now expects borrowing to reach £77.6bn this year and £118bn in 2009, before falling gradually to £54bn in 2013. By then, total net government borrowing will have climbed to £1,084bn.
The scale of the borrowings reflects both Mr Darling’s fiscal stimulus, worth £20bn between now and April 2010, and also the recession-induced drop in tax revenues. The measures announced in the Pre-Budget Report are thus a mix of short term tax reductions and longer term tax increases. The main tax proposals include the following:
- The standard rate of VAT will fall to 15% for 13 months from 1 December 2008.
- The planned increase in the small companies’ corporation tax rate will be deferred for one year.
- There will be a temporary extension of the ability of companies and unincorporated businesses to carry back their trading losses against the profits of earlier years.
- A temporary exemption from business rates will be available for certain empty properties.
- From 2011/12, the top rate of income tax will be 45% for taxable income over £150,000. Those with gross income of over £100,000 will see their personal allowance reduced or removed completely.
- From the same tax year, all the main national insurance contribution rates will rise by 0.5%.
© 24 November 2008. This summary is for general information only and is not intended to be advice to any specific person. You are recommended to seek competent professional advice before taking or refraining from taking action on the basis of the contents of this summary. The summary represents our understanding of the law and HM Revenue and Customs practice as at 24 November 2008, which are subject to change. These proposals may be changed in the Spring 2009 Budget and subsequent legislation, or at any time.
Last Updated
