The chancellor’s maiden Budget

Growth forecasts downgraded

The main thrust of the chancellor Alistair Darlings first Budget speech was to increase borrowing and raise taxes on drinkers, motorists and business with an ultimate goal of plugging the void in the public finances.

The chancellor downgraded his growth forecasts and described this as a “responsible Budget, “whilst endeavouring to project an optimistic outlook following the credit squeeze that continues to create turmoil in the financial markets.

In spite of his desire not to take too much money out of the economy, Mr Darling was forced to raise taxes to pass the government’s self-imposed rule on public debt and make progress towards its goals on reducing child poverty.

Higher borrowing will raise public sector net debt to 39.8 per cent of national income in 2010-11, which is marginally under the Treasury’s ceiling of 40 per cent. If Mr Darling had not raised taxes by £2bn in the same year, rising to £2.5bn in subsequent years or had forecast slower economic growth, he would have hit his debt limit.

This Budget the chancellor explained was about “securing stability in these times of global economic uncertainty.” He downgraded growth forecasts for this year and next, and raised the borrowing forecast by £20bn over the next four years.

There were significant tax increases announced on alcohol, up 9 per cent. This has added 4p to a pint of beer, 14p to a bottle of wine and 55p to a bottle of spirits.

In addition there will be further increases to follow of 2 per cent above inflation until 2013.

Presented as a package of eco-friendly measures by Mr Darling, new higher rates of vehicle excise duty for “gas guzzlers” were announced and the abolition of lower duty rates for biofuels. From 2010 owners of the most polluting cars will pay £950 in road tax in the year of purchase, double the rate for subsequent years, while biofuel will lose the current 20p per litre subsidy.

Mr Darling also aimed to clamp down on tax avoidance schemes used by some companies which is intended to raise another £600m.

Levels and bases of, and reliefs from, taxation are subject to change.