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Your Money > Insurance Articles > Pre Budget Report...
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By Sarah Modlock
With the economy sliding into recession, yesterday's Pre-Budget Report was one of the most eagerly awaited in years, and all the more so given it was designed to put money back in consumer's pockets. Chancellor Alistair Darling's £20 billion package - part of measures that will see government borrowing rise to over one trillion pounds - may be designed to kick-start the economy, but if you're finding it hard to pick out the facts from the speculation then you're not the only one. Here's a step-by-step look at the key announcements.
Has income tax gone down? No. Sorry. You could have been mistaken for expecting this amid endless talk of tax cuts but think tax credit tinkering and VAT reductions rather than slashing income tax. What about the 10p tax row rebate? For basic rate taxpayers affected by the abolition of the 10p band, this year's increase in the personal allowance of £120 a year will be made permanent and will also rise to £145 in April. Chancellor Alistair Darling says this will help 22 million households, which is 500,000 more than before. What's this about a higher tax rate? If Labour wins the next election then in April 2011 it will push through plans to create a new 45% higher income tax rate for anyone earning more than £150,000. This is thought to affect 1% of earners. Postponing the increase is semantics, designed to ensure Labour does not break its 2005 manifesto promise to never raise income tax. And higher National Insurance? Yes, all rates of national insurance rate will be increased by 0.5% from April 2011. The planned rise is going to help cover the costs of the all the government's borrowing and spending. But the starting point for NI will be brought into line with that of income tax so that no-one earning under £20,000 would be affected. What about VAT? Value Added Tax will be cut from 17.5% to 15% for 13 months starting next Monday, 1 December. The Chancellor urged retailers to pass on the estimated £12.5 billion in benefits to customers as soon as they can. You may wonder how this will affect you but it will make 'non-essential' items such as adult clothes, goods in shops and restaurant food cheaper. But drivers, drinkers and smokers will not benefit as the duty on petrol, alcohol and tobacco will be raised to compensate for the lost VAT revenue. And sadly the lower-rate of VAT paid on domestic gas and electricity will not be affected. Any chance that energy bills will come down? An additional £100 million will be made available to help families insulate their homes. The energy regulator Ofgem will monitor changes in energy price and publish quarterly reports on the link between wholesale and retail prices and Darling suggested that the government may force energy companies to make gas and electricity prices follow wholesale prices. Hmm. Don't hold your breath.
Help for homeowners? Darling has extracted a pledge from the banks to give homeowners struggling with mortgage payments a three-month grace from the threat of repossession. The mortgage rescue scheme will now be extended to those with a second mortgage. Darling announced a housing package worth £1.8 billion, providing a mix of tax relief and practical support for homeowners and pledged to spend £775 million in new housing and modernisation schemes. The government will also seek European Commission approval to help the mortgage market by providing for a temporary period guarantees for securities backed by new mortgages. And those facing unemployment? A rapid response service will expand to help those thrown out of work in all redundancies. The government will provide an additional £15 million for free debt advice for anyone who seeks it. And a new £1.3million initiative was launched to fill 500,000 job vacancies with 20 major employers including Tesco, Centric and Royal Mail, by speeding up recruitment and improving access to training. What about savers? A new state supported saving scheme - known as the Savings Gateway - will be launched, in which the government will contribute 50p for every pound saved. It will start in 2010 and is targeted at 8 million people on low incomes. What about pensioners? There will be a one-off payment of £60 from January for single pensioners and £120 for couples. And the pension credit will rise in April from £124 to £130 a week for individuals and from £189 to £198 for couples. The state pension will rise in line with the highest rate of inflation this year, producing a rise of £4.55 a week for a single person. Increases to pensions will start three months early in January. Any news on child benefit? Child benefit will go up 5%, so families can expect to receive £20 a week for their first child and £13.20 a week for subsequent children. This will come into effect immediately to the benefit's 25 million recipients. Can small businesses expect help? Yes. The planned 1p increase in the small companies rate of corporation tax has been postponed for at least a year, so the 2009 tax rate will be unchanged. And HMRC will allow firms facing difficulties to spread the payment of all their business taxes over a timetable they can afford, for as long as they need. Credit worth £1bn to small firms will be offered by the government via a temporary Small Business Finance Scheme. Is the economy struggling as much as I thought? If you thought it had been hit round the head with a huge frying pan, dropped off a cliff and then had an enormous anvil fall on top of it, like something out of a Road Runner cartoon, then you're on the right track. The chancellor said UK GDP shrunk by 0.5% in the three months to September and economic growth this year is forecast to be 0.75%, down from the 2.5% he predicted in March. Are we borrowing as much as I thought? Billion upon billion? Yes. Borrowing will reach £78bn this year and £118bn next year - equivalent to 8% of GDP. And you thought your overdraft was a headache. Darling said that borrowing was "right choice for the country" and would fall from 2010 to £105bn, then to £87bn, £70bn and then £54bn so by 2016 Britain would back to normal. "If we did nothing we would have a deeper and longer recession that would cost the country more in the long term," Darling told MPs. Useful links: |
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