Your guide to the Chancellor’s Statement I 9th December 2009
Alistair Darling’s announcements include unexpected tax increases
In his final Pre-Budget Report before the next General Election, Alistair Darling faced the twin dilemmas of a soaring public finance deficit and a recession-driven reduction in Government income. While conceding that the economy in 2009 had shrunk by more than previously forecast, the Chancellor stuck to his predictions for a modest return to growth in 2010.
The Chancellor also outlined Government ambitions to reduce the budget deficit by half within four years. Some spending cuts were put forward, including a planned public sector pay settlement cap. As for boosting Government income, VAT returns to a standard rate of 17.5 per cent (though no higher as some feared) and there is to be a further increase of 0.5 per cent in employers’ and employees’ national insurance contributions as from April 2011. Time will tell whether Mr Darling’s final Pre-Budget Report speeds the slow economic recovery.
Overview of the Pre-Budget
Tax
- The VAT standard rate is to revert to 17.5 per cent as of 1 January 2010
- Employer and employee national insurance contributions to rise by a further 0.5 per cent as from April 2011, although the threshold for NI is to be increased so that nobody earning less than £20,000 will face extra charges
- Employer pension contributions are to be included in the definition of earnings for pension tax relief purposes but will only affect those earning more than £130,000
- From April 2012, the point at which 40 per cent income tax becomes payable is to be frozen for a year
- Increase in small company corporation tax to be deferred, leaving the rate at 21%
- One-off 50 per cent levy on bank bonuses over £25,000
- Individual inheritance tax threshold held at £325,000 for the next year
- New anti-avoidance measures to net £5 billion
- New 50p a month levy on landline phones to pay for improved broadband network
Business support
- Time to pay scheme, which allows individuals and firms to agree extended timetables for settling tax bills to be extended
- Enterprise Finance Guarantee scheme also to be extended for a further 12 months, backing an additional £500 million of loans to businesses
- A corporation tax rate of 10 per cent to be introduced on income generated after April 2013 from UK patents granted after the legislation is approved
- Strategic Investment Fund given extra £200 million to support hi-tech projects
- Empty commercial property relief threshold to be extended to £18,000 covering 70 per cent of empty premises
Mortgages
- Stamp duty holiday to end on 31 December 2009
- Scheme supporting mortgage interest payments for the unemployed to be extended for another six months
Pensions
- The full basic state pension is to rise by £2.40 to £97.65 per week
Employment
- From next month no-one under 24 needs to be unemployed for longer than six months, as opposed to the current 12 months, without training or work
- The minimum number of hours those aged 65 need to work in order to be eligible for tax credits is to be reduced
- Every 16 or 17 year old school leaver to be guaranteed a place in education or training next September
- Special fund to provide financial help for 10,000 undergraduates from poorer backgrounds, enabling them to join internships in industry and the professions
Environment
- A further £200 million to support energy efficiency in 75,000 households
- New scrappage scheme to be introduced to help 125,000 households replace inefficient boilers
- Changes to be made to the climate change levy, company car tax and fuel benefit charge
- Electric cars and vans are to be exempt from company car tax for five years 100 per cent first year capital allowance for electric vans
- From April, those with home wind turbine or solar panels to receive an average payment of £900 tax-free if they send power back to the national grid
The economy
- The economy will contract by 4.75 per cent this year, returning to growth by the fourth quarter
- The Chancellor predicted that economy will grow by between 1 per cent and 1.5 per cent next year and by 3.5 per cent in 2011/12
- Consumer inflation is set to rise to 3 per cent early next year before falling back to 1.5 per cent by the end of 2010
Government finances
- Government borrowing is forecast to reach £178 billion this year and £176 billion in 2010 before falling further to £140 billion in 2011, to £96 billion in 2013 and to £82 billion in 2014
- Expressed as a share of GDP, borrowing will stand at 12.6 per cent this year, 12 per cent in 2010, then 9.1 per cent, 7.1 per cent, 5.5 per cent in 2013/14 and 4.4 per cent in 2014/15
- The Chancellor predicted that the budget deficit will be halved in four years
Government spending
- Spending growth will slow to an average of 0.8 per cent a year between 2011 and 2015
- Savings of £5 billion will be made on budgets and programmes such as major IT projects
- Government contributions to public service pensions for teachers, councils, NHS and the civil service to be capped by 2012
- All public sector pay deals to be capped at 1 per cent for two years as from 2011, though with special recognition for the armed forces
You and personal changes
Income tax allowances and thresholds
Changes announced to income tax allowances and tax rate band thresholds are as follows:
- For 2010/11 all tax allowances and thresholds will be the same as for 2009/10
- For 2012/13 the higher rate income threshold will be frozen at the 2011/12 amount. The personal allowance will increase and the basic rate limit will be reduced by the same amount
Changes to the national insurance rates and thresholds for 2010/11 and subsequent years are announced as follows:
- For 2010/11 the lower earnings limit will increase by £2 to £97 per week. The special Class 2 rate for Volunteer Development workers will increase by 10p to £4.85 per week as this is linked to the lower earnings limit. All other NIC rates and thresholds are unchanged for 2010/11
- From 2011/12 the main rate of Class 1 and Class 4 NICs will increase by 1% to 12% and 9% respectively. The Class 1 employer rate will be increased by 1% to 13.8%. The increased rate will also apply to Class 1A and Class 1B contributions. The additional rate of Class 1 and Class 4 NICs will also be increased by 1% to 2%
- For 2011/12 the primary threshold and lower profits limit will be increased by £570 above plans announced in the 2008 Pre-Budget Report to compensate the lowest earners for the increase in Class 1 and Class 4 rates to help taxpayers earning £20,000 or less
| Tax rates |
2010/11
|
| Savings starting rate band to |
£2,440
|
| Savings starting rate tax band |
10%
|
| Basic rate band |
£37,400
|
| Basic tax rate |
20%
|
| Higher rate band |
£37,401 – £150,000
|
| Higher tax rate |
40%
|
| Additional rate band – over |
£150,000
|
| Additional tax rate |
50%
|
| Tax of UK dividends within basic rate band |
10%
|
| UK dividend rate within higher rate band |
32.5%
|
| UK dividend rate within additional rate band |
42.5%
|
| Allowances that reduce taxable income: | |
| Personal allowances:(1) | |
| Age under 65 |
£6,475
|
| Age 65-74(2) |
£9,490
|
| Age 75 and over(2) |
£9,640
|
| Blind person’s allowance |
£1,890
|
| Allowances that reduce tax: | |
| Married couple’s allowance (MCA): | |
| Age 75 and over(2), (3) |
£6,965
|
| Age 75 and over – minimum amount(2), (3) |
£2,670
|
| The age-related and married couples’ allowances are progressively withdrawn if income exceeds |
£22,900
|
| Non domicile charge: | |
| Charge for adult non domiciliary applies after UK residence in 7 or more of the previous 9 years |
£30,000
|
1 From the 2010-11 tax year the Personal Allowance reduces where the income is above £100, 000 – by £1 for every £2 of income above the limit until the Personal Allowance is reduced to nil.
2 These allowances reduce where the income is above the income limit – by £1 for every £2 of income above the limit. However they will never be less than the basic Personal Allowance or minimum amount of Married Couple’s Allowance.
3 Given at rate of 10%
2010/11 national insurance
| £ per week (unless stated) | |
| Class 1: | |
| Lower earnings limit, primary Class 1 |
£97
|
| Primary threshold |
£110
|
| Upper earnings limit, primary Class 1 |
£844
|
| Upper accruals point |
£770
|
| Employees’ primary Class 1 rate between primary threshold and upper earnings limit |
11%
|
| Employees’ primary Class 1 rate above upper earnings limit |
1%
|
| Employees’ contracted-out rebate – salary related schemes |
1.6%
|
| Married women’s reduced rate between primary threshold and upper earnings limit |
4.85%
|
| Married women’s rate above upper earnings limit |
1%
|
| Employers’ secondary Class 1 rate above secondary threshold |
12.8%
|
| Employers’ contracted out rebate, salary-related schemes |
3.7%
|
| Employers’ contracted out rebate, money-purchase schemes |
1.4%
|
| Class 2 rate |
£2.40
|
| Class 2 small earnings exception (per year) | |
Tags: Gordon Brown, HMRC, Income tax allowances, Inheritance Tax, National Insurance Contributions, Pensions, tax credits, tax relief, UK Corporation Tax, UK VAT
