Announcing his Emergency Budget today, George Osborne, Chancellor of the Exchequer said: “The country has overspent, not been undertaxed” and that action to repair the hole in public finances would come “80% from spending cuts and 20% from raising taxes”.
From January 4 2011, the main rate of VAT will rise from 17.5% to 20%, although current zero-rated items like children’s clothes and magazines will remain exempt. The construction industry will be disappointed that there has been no move to reduce the VAT rate on the labour element of RMI work to 5%.
Personal income tax allowances rise by £1,000 in April to £7,475, taking 880,000 people out of the income-tax bracket altogether, although higher-rate tax payers will have their thresholds frozen so that they do not benefit from this.
“Past prudence has been used as an excuse for future irresponsibility,” Osborne told the House. “This country was living beyond its means when the recession came.”
Capital Gains Tax remains at 18% for low and middle-income savers but from midnight, higher rate taxpayers will pay 28%.
From April 2011, the threshold at which employers start to pay National Insurance will rise by £21 per week, above indexation.
Corporation Tax will be cut next year to 27%, and by 1% annually for the next three years, until it reaches 24%. The small companies’ tax rate will be cut to 20%.
The economy is predicted to grow by 1.2 % this year, 2.3% next year, 2.8% in 2012, 2.9% in 2013 and 2.7% in both 2014 and in 2015.
The changes to Corporation Tax will be a “signal that Britain is open for business,” Osborne said. “More importantly it will create jobs and help to rebalance the economy away from household debt and consumption.”
There is to be no further reductions in capital spending totals in this Budget but “careful choices” will be made about how it is spent. Projects with “a significant economic return to the country” will be prioritised and assessed in the autumn spending review.
Councils which propose low council tax increases will be offered extra funds to allow them to freeze the tax for one year from April 2011.