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Budget 2008 - at a glance
By Sarah Modlock
Chancellor Alistair Darling has delivered his first Budget. But what's in it for you?; Here are the key points at a glance:
Your savings and taxes
- Cash ISA limit confirmed as £3,600 a year from April.
- The government will launch the "savings gateway" nationally with the first accounts available by 2010.
- On controversial non-domiciles, Mr Darling asserted that it was 'right and fair' to seek a proportion of their income if they remained in the UK for seven years. He promised that the Government would not seek to change the regime in this Parliament or the next and attacked Conservative proposals that sought to raise even greater sums.
- Changes to income tax confirmed for April. Basic rate drops from 22% to 20%
and the 10% band is abolished.
Your vices
- Cigarettes up 11p a packet.
- Beer up by 4p a pint, wine 14p a bottle, spirits 55p a bottle and cider 3p a litre by Sunday.
- Duties on alcohol will go up by 2% above inflation for next four years.
Your travel
- From 2009, major reform of the vehicle excise duty. For new cars from 2010, the lowest polluting cars will pay no road tax in the first year. Higher polluting cars will pay more.
- New measures at Heathrow and other airports, using biometric technology, to speed up the time it takes to get through security checks.
- Air passenger duty revenue would increase by 10% in its second year of operation. The European Commission would be asked to , he stated.
- Money has been set aside funding for testing proposals for road pricing.
Your family
- From October 2009, rules for housing and council tax benefit will mean families on benefit are better off in work.
- From April, 2009, child benefit will be increased to £20 a week.
Public services and defence
- An extra £2bn will be spent on troops in the frontline, including £900m on military equipment.
- There will be £200m extra for schools to raise GCSE results, the chancellor said. By 2011, every school "will be an improving school". There will be a £30m fund to improve science.
- Mr Darling said there will be £60m over three years for equipping people for the workplace.
Businesses
- Corporation tax will fall from 38% to 28% by April this year.
- A promise of simpler taxes for small companies.
- Funds available through the small firms loans guarantee will increase by 60% in the next year.
- There will be a capital fund of £12.5m to encourage more women entrepreneurs.
- Enterprise investment schemes to rise to £500,000
- A goal will be set so that 30% of all Government procurement will come from small British businesses.
The elderly
- Winter fuel allowance will go up from £200 to £250 for the over 60s and from £300 to £400 for the over 80s.
The environment
- For environmental reasons, fuel duty will rise by 0.5p per litre in real terms in 2010. The chancellor has postponed the 2p increase in fuel duty until October this year.
- Five million customers on pre-paid meters should get a "better deal". Energy companies should spend £150m on social tariffs.
- Consideration was being given to raising targets for emissions cuts to 80% by 2050.
- Laws will be introduced by 2009 to charge for using plastic bags unless supermarkets do it themselves.
- £26m to help make homes greener.
- New non-domestic buildings to become zero-carbon from 2019.
- The European Commission will be asked for tougher targets on car fuel emissions, reducing the cap on emissions to 100g/km by 2020 for cars.
Mortgages and housing
- The Government will work with the industry and the Financial Services authority to keep mortgage rates low and stable, the Chancellor said. He highlighted a study into long-term fixed-rate mortgages saying these could improve affordability for first-time buyers. A study will be unveiled at the pre-Budget report in the Autumn.
- An additional £8 billion to be spent on affordable housing.
- In three years time the Housing Corporation will be building 70,000 new homes annually.
- Key workers such as nurses and teachers would be able to borrow money from shared equity schemes providing they could afford half the price, down from 75% and the stamp duty threshold for shared equity properties would be raised to 80%.
Inflation
- Inflation would rise due to higher oil and food prices, but would return to target in 2009, the Chancellor stated. He announced he would write to the Governor of the Bank of England reiterating that the Government's inflation target was 2 % on the consumer price index and stated "There will be no return to the inflation rates of the early 1990s."
Disappointment all round
Dubbed a 'Budget for stability' I think this was more like a Budget for terminal insomniacs. Nothing for savers, aside from the pre-announced changes to Isas which fail to go far enough, again. Nothing for first time buyers, apart from a tiny percentage who might qualify for a stamp duty respite through a shared equity scheme (and even then it's delayed rather than decreased or banished). A cop-out on non-doms. Nothing for the pensioners whose schemes have been plundered and who have been let down over and over by the last Chancellor.
Instead we had safety play, some quick and cheap ways to jump onto the environmental bandwagon and some smoke and mirrors for small businesses. The Savings Gateway is a positive move. As a fan of credit unions, I think this area needs all the support it can get. Just why it has taken so long for the government to anything substantial escapes me.
Long term fixed rate mortgages
The Chancellor says he will work with the industry and the Financial Services authority to keep mortgage rates low and stable. He highlighted a study into long-term fixed-rate mortgages saying these could improve affordability for first-time buyers. A study will be unveiled at the pre-Budget report in the Autumn.
But not all long-term fixed-rate mortgages not as flexible as the Chancellor would have us believe. Melanie Bien, director of Savills Private Finance, explains: "Like his predecessor, the Chancellor is determined that first-time buyers should take out long-term fixed rate mortgages in order to protect themselves from interest-rate fluctuations. But he is under the illusion that borrowers are interested in taking these mortgages out in the first instance and that they ‘allow [borrowers] the flexibility to move, or get a new mortgage if rates go down’.‘The reality is that a tiny proportion of borrowers are interested in committing themselves to a fixed rate for 10 years or more. This is because they wish to retain flexibility and long-term fixes are not flexible." She says that only if long-term fixes are competitively priced and allow borrowers to exit early on without having to pay a significant penalty will they really take off. Flexibility is arguably as important as security and while long-term fixes offer the latter, they do so at the expense of the former.
If the borrower opts for a 25-year fixed rate with the option to switch after 10 years with no penalties (offered by Nationwide and Norwich & Peterborough), and those 10 years lapse, they can move to another mortgage without having to pay an early repayment charge (ERC). But other lenders, such as Kent Reliance Building Society, charge an early repayment charge for the lifetime of the loan – 3% in this case – which would make it extremely costly for the borrower to switch to another mortgage in the event of interest rates falling significantly.
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