Pre-Budget Report 2008

Were you a winner or a loser?

The Chancellor’s message as he delivered his second Pre-Budget Report was to ’spend, spend, spend’, at least for the rest of this year, to benefit from the reduced 15 per cent VAT rate.

We shall all start paying for the tax reductions by 2011, assuming the government is re-elected. National Insurance contributions will rise by 0.5 per cent for both employers and employees, although the lower rate threshold will be increased to match the new personal allowance.

Higher rate taxpayers will see personal allowances cut (for those earning over £100,000) and eliminated (for those earning over £140,000). In addition, there will be a new 45 per cent rate for those earning over £150,000.

Pre-Budget Report highlights

Economics
Fiscal package The government will inject £20bn into the economy in an attempt to stave off a deep recession.

Growth Growth forecast predictions have been downgraded for this financial year to between -0.75 per cent and -1.25 per cent from 2.5 per cent. The Chancellor predicted growth of between 1.5 per cent and 2 per cent in 2010.

Public finances
Public spending Real terms capital spending will increase by 1.2 per cent a year. About £3bn of capital spending will be brought forward from 2010/11 to this financial year. The government will inject £535m into energy efficiency, rail transport and environmental protection.

Efficiency cuts The government confirmed that an extra £5bn could be saved in the public sector on top of the original £30bn of efficiency savings it had planned for between 2007 and 2010.

Borrowing The Chancellor said borrowing would reach £78bn this financial year, up from the previous forecast of £43bn. Borrowing will rise to £118bn in 2009/10, or 8 per cent of GDP. From 2010 it will fall to £105bn, then to £87bn, £70bn and £54bn. By 2015/16 the government will borrow only to invest.

Net debt This will rise to 41.2 per cent this financial year, then to 48.2 per cent in 2009/10, 48 per cent in 2010/11 and 53 per cent in 2011/12, peaking at 57 per cent of GDP in 2013/14. The package confirmed that the government would suspend its rule that limits borrowing to 40 per cent of GDP.

Family and investment
Debt advice The government will provide £15m for the provision of debt advice.

Tax havens A review of the regulatory arrangements surrounding the Isle of Man and the Channel Islands has been commissioned and will report this spring.

Pensions and child benefit
State pension Pensioners will see their payment increase from £90.70 to £95.25 a week. Pensioners on modest incomes will get an increase in pension credit from £124 to £130 and for couples from £189 to £198 from this January.

Disability Pensioners and children with disabilities will gain an extra £60 to go towards energy bills from January this year. This will be £120 for couples.

Energy
Energy prices The government may introduce statutory powers to cut energy bills.

Insulation Up to £100m will be spent to help people to insulate their homes.

Environment
Vehicle excise duty New tax bands will be phased in. Vehicle excise duty rates for all cars will increase by up to £5 this year. Differential increases in duty will be introduced from 2010. More polluting cars will see duty increased up to a maximum of £30, while less polluting cars will see no increase or a cut of up to £30.

Climate change levy The renewables obligation, which requires energy generators to use greener methods of production, will be extended for an additional ten years to 2037.

Air passenger duty A four-band tax duty is to be introduced. Long-haul passengers will pay more.

Personal taxes
Allowances Personal allowances will be scrapped for those earning in excess of £140,000 a year from April 2010.

Ten pence band The increase in the personal allowance to offset the scrapping of the 10p tax band is to be made permanent and increased to
£145 a year from £120.

National Insurance From April 2010, National Insurance contributions will rise by 0.5 per cent for employers and employees, but those earning less than £20,000 will be exempted.

Value added tax
VAT The tax on sales was cut from 17.5 per cent to 15 per cent on Monday 1 December 2008 until the end of this year, after which it will return to the original rate. That reduction will be offset by increased duties on alcohol, tobacco and petrol.

Property
Housing support package The government will offer an overall housing support package worth £1.8bn.

Affordable housing An extra £775m will be brought forward to invest in new housing and modernisation schemes.

Mortgage rescue scheme The government said that the scheme would be extended to those with a second mortgage.

Mortgage interest scheme The limit on the mortgage interest scheme is to be raised from £100,000 to £200,000.

Repossessions Main lenders agreed to wait three months before starting a repossession order against struggling homeowners.

Jobs and unemployment
Adult training Up to £1.3bn in funding will be provided for training. Tesco, Centrica and Royal Mail were named as being among businesses that would work with Jobcentre Plus to help with training.

Unemployment The government will extend its rapid response service for those who have been made redundant.

Banks
Credit guarantee The government said that banks would have access to £100bn under credit guarantee.