Budget 2010

The main budget announcements from the five-year plan set out by Chancellor of the Exchequer George Osborne yesterday set out actions to reduce the budget deficit, to introduce a 'fairer' tax system, encourage enterprise and support long-term growth in the economy. The Coalition Government's three core values of responsibility, freedom and fairness are the basis for the Budget intentions to help rebalance the economy and provide conditions for sustainable growth.

In order to reduce the deficit the Chancellor has set a fiscal mandate to achieve a current balance by the end of the five-year period 2015-16; a target for debt to ensure sustainable public finances; spending reductions of £31.9bn/year by 2014-15 and tax increases of £8.2bn; £29.8bn of savings from current expenditure and £2.2bn from gross public investment; increase in VAT to 20%; indurance Premium Tax to 6%; a two year pay freeze on public sector pay (except those on less than £21,000pa who will get an additional £250).

Conditions for enterprise and sustainable growth were also set out to make UK more competitive by reducing regulation and providing tax breaks. Corporation tax rates will be reduced from 28% to 24%; the small profits rate will be reduced from 21% to 20%; NICs holiday for new businesses in certain areas; an increase in the Enterprise Finance Guarantee and a new Enterprise Capital Fund; a Regional Growth Fund in 2011-12 and 2012-13 for increases in business employment and growth.

The deficit reduction burden will be shared, the Budget says, by refocusing the tax and benefit framework and 'protecting the most vulnerable in society'. The Government want to encourage people to take personal responsibility, work hard and save responsibly. The personal allowance for under 65s will be increased by £1,000 to £7475 in 2011-12 taking 880,000 out of income tax; capital gains tax increase from 18% to 28% for higher rates and an extension of the 10% rate for entrepreneurial activites from first £2m to first £5m of qualifying gains made over a lifetime; a council tax freeze; a levy on banks balance sheets from January 2011. The basic State Pension will be uprated by a triple guarantee of earnings or 2.5% whichever is highest, from April 2011; reduction in tax credits for those with household income over £40,000 from £50,000; reducing annual allowance of pension tax relief; indexing benefits to the CPI instead of the RPI to reflect more fairly benefits claimants experiences.

The Government added that the Budget measures will pay for the past and plan for the future. They represent a first step in the transformation of the economy, rebalancing growth and lead to sustainable, private sector led growth.

Public Sector Finances For February

The public sector finances bulletin from the ONS says that there was a current budget deficit of £6bn in February 2010, net borrowing of £12.4bn and net debt of £857.5bn at the end of February 2010. This compares with a current budget deficit of £2.5bn, net borrowing of £8.8bn and net debt of £712.4bn in February 2009.

The public sector net borrowing figure is represented by net investment of £6.3bn and the current budget deficit of £6bn compared to the £2.5bn deficit of 2009 accounts for the change in the borrowing figure. The components of public sector borrowing are central government at £11.3bn, local government at £2.2bn and public corporations at-£1.1bn. There is quite a difference in borrowing between April-February 2008-9 and 2009-2010 with an increase of £69bn in central government borrowing accounting for the vast majority of it.

Net borrowing excluding financial interventions for Q3 2009 was £49.4bn and net debt excluding financial interventions at the end of December 2009 increased to £741.6bn from £596.9bn in the previous year.

Total current receipts were £42.6bn in February 2010 comapred with £41.1bn in 2009. Total current expenditure was £48.6bn in February 2010 compared with £42.3bn in 2009. The public sector net cash requirement was £7.7bn, £3bn more than in February 2009.

Government Spending Up But Not As Much As Predicted

Public sector finances statistics from the ONS suggest the public sector had a current budget deficit of £7.7bn in October and net borrowing of £11.4bn, £11.3bn higher than 2008, when borrowing was £0.1bn. The deficit is £9.9bn higher than last year when there was a surplus of £2.2bn. Public sector net investment was £3.7bn in October 2009 as against £2.3bn last year.

Current receipts to central government totalled £41bn in October down 9.1% from £45.2bn last October. Receipts for the April to October quarter were also down on last year. So far this financial year receipts have been 10% lower than last year compared to the 7.7% predicted in the 2009 Budget. Current expenditure was up 10.2% to £48.6bn in October 2009 from £44.1bn in 2008 and were also up on the quarter. Spending so far this financial year is 6% higher than last year. The 2009 Budget predicted it would be 7.5% higher than last year.

The public sector net cash requirement was £5.9bn, £8.4bn higher than in 2008 when the cash requirement was £-2.5bn. Net investment for the financial year so far is 61% higher than last year at £18.7bn, the 2009 Budget predicted £43.8bn or 24%.