COUNCIL salaries frozen for two years, child benefit on ice for three years, Surestart grant restricted to first child and £11 billion worth of welfare savings are the “highlights” of Chancellor’s George Osbourne “Austerity” Budget.
Here are the highlights:
The rate of VAT will rise from 17.5% to 20% from January 4, 2011.
Personal income tax allowance to be increased by £1,000 in April to £7,475 – worth £170 a year to basic rate taxpayers. It is expected that 880,000 of the lowest-paid will be taken out of income tax altogether.
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.
Capital Gains Tax remains at 18% for low and middle-income savers but from midnight, higher rate taxpayers will pay 28%.
The capital gains tax “entrepreneurs relief” rate of 10% on the first £2m of gains will be extended to the first £5m.
A “landline tax” to fund the rollout of fast broadband will be scrapped – instead the government will support private investment, partly funded by the digital switchover under-spend within the TV licence fee.
CIGARETTES, ALCOHOL AND FUEL
No change this time round. Labour’s plan to increase the duty on cider by 10% above inflation will be scrapped from July.
Child benefit will be frozen for the next three years.
Tax credits will be reduced for families earning over £40,000 next year.
Low income families will get more Child Tax Credit – the amount per child will rise by £150 above the rate of inflation next year.
New maximum limit of £400 a week will be applied to Housing Benefit, to save £1.8bn a year by the end of the Parliament.
Health in pregnancy grant to be abolished from April 2011, the Sure Start maternity grant will be restricted to the first child.
Lone parents will be expected to look for work when their youngest child goes to school.
From 2011 – except for the state pension and pension credit – benefits, tax credits and public service pensions will rise in line with the Consumer Price Index, rather than the, generally higher, Retail Price Index, saving over £6 billion a year by the end of the Parliament.
The government will introduce a medical assessment for Disability Living Allowance from 2013 for new and existing claimants.
The welfare shake-up will save £11bn by 2014/15.
PUBLIC SECTOR PAY
Public sector workers face a two-year pay freeze, although 1.7 million of those earning less than £21,000 will get a flat pay-rise worth £250 in both years.
The basic state pension will be linked to earnings from April 2011, with the pension guaranteed to rise in line with earnings, prices or 2.5%, whichever is the greater.
The government will accelerate the increase in state pension age to 66.
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%.
Tax relief for the video games industry will be scrapped.
A bank levy will be introduced, which will apply to the balance sheets of UK banks and building societies and the UK operations of foreign banks from January 2011. But smaller banks will not have to pay. It is expected to raise over £2bn a year.
The government will “explore changes to the aviation tax system” such as switching from a per-passenger to a per-plane levy. It will consult on major changes.
A Regional Growth Fund will be created to help fund regional capital projects over two years.
People setting up new businesses outside London, the South East and the east of England will be exempt from £5,000 of National Insurance payments for the first 10 workers.
Growth forecast revised down from 2.6% to 2.3% in 2011.
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.
Debt to peak in 2013/14 at 70% of GDP.
Unemployment is forecast to peak this year at 8.1% and then fall for each of the next four years, to reach 6.1% in 2015.
Consumer price inflation is expected to reach 2.7% by the end of 2010 before “returning to target in the medium term”. The inflation target remains at 2%, as measured by the Consumer Prices Index.
The UK is set to miss the previous government’s “golden rule” – of borrowing only to invest over the economic cycle – in the current cycle by £485bn.
Underlying current budget deficit should be “in balance” by 2015/16.
The balance of spending cuts vs tax rises would be 77% to 23%.
The measures are forecast to result in public sector net borrowing of £149bn this year, £116bn next year, £89bn in 2012-13 and £60bn in 2013-14.
By 2014-15 borrowing to reach £37bn, falling to £20bn in 2015-16.
Mr Osborne said the state now accounted for “almost half” of all national income which was “completely unsustainable”.
Average real terms budget cuts of 25% over four years – except for health and international aid. Departmental cuts amount to £17bn by 2014-15.
But current expenditure to rise from £637bn in 2010-11 to £711bn in 2015-16 – partly due to rising debt interest payments.
No further reductions in capital spending totals but there will be “careful choices” about how the money was spent. Projects with “a significant economic return to the country” would be prioritised.