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.

Government Receipts Down, Spending On Target

The latest public sector finances statistics from the ONS show that in July the public sector had a current budget deficit of £5.1bn and net borrowing of £8bn. At the end of July net debt was £800.8bn or 56.8% of GDP.

The public sector current deficit is £13bn higher than last year when there was a surplus of £7.8bn and the net borrowing is £13.2bn higher than last year when the public sector was lending net of £5.2bn. Latest figures for net debt without financial sector intervention are for June when net debt was £658.1 or 46.6% of GDP. Whereas last year the public sector made a repayment of £14.5bn the net cash requirement for July this year was £0.2bn an increase of £14.7bn. Comparing the net debt shows that last year the net debt was 43.5% of GDP at £627.2bn.

Government receipts were 15.3% lower than the same month last year and government spending was 7.5% higher. Net investment was £2.9bn compared with £2.6bn last year. The Institute of Fiscal Studies said that receipts of Corporation Tax and VAT collapsed to two-thirds of their July 2008 level more than the Treasury predicted in the Budget over the year. Spending is increasing as predicted. They also add that there are good reasons to expect a better performance in revenues over the next few months. The reversal of the VAT cut scheduled for the end of 2009 is one of them.