Darling – Robin Hood in Disguise?
Alistair Darling’s second, and certainly most difficult, Budget, laid bare the extent of the recession that has hit the UK and tried to find ways of steering us out of the economic gloom.
With an expected economic shrinkage of 3.5% for 2009, the Chancellor predicted growth of 1.25% in 2010 and 3.5% in 2011. There will be much debate in the coming weeks as to whether there is justification for such optimism and if not, what will be the impact on the condition of the UK’s finances.
Stimulus is still undoubtedly needed for the UK economy to begin its recovery and Mr Darling announced a number of measures aimed at providing the necessary kick start.
The Government is to provide support to the economy to protect 500,000 jobs and will guarantee jobs or training for any under individuals under the age of 25 who have been out of work for more than twelve months.
The Housing market will be assisted through the extension of the Stamp Duty Land Tax holiday for properties up to £175,000, from 3 September to 31 December 2009, although most commentators prior to the Budget were calling for an increase to £1m. In addition, the Government’s banks are going to provide an extra £20 billion to increase the availability of mortgage credit. The scheme to guarantee mortgage backed securities has also, now, been given EU State Aid approval.
Businesses received a boost with the increase in ordinary capital allowances from 20% to 40% for 2009/10.
Of course, all support comes at a price and tax rises were inevitable. In the Pre Budget Statement in November, the Chancellor announced the implementation of a new 45% tax rate for those earning over £150,000 per year, with a two stage process for the tapering of personal allowances for those over £100,000. The new rate was to be introduced in 2011.
In his Budget, Mr Darling announced that the new rate would be 50% and, rather than a two stage tapering of personal allowances, it would be a one stage process, such that those earning in excess of approximately £113,000, will not be entitled to any personal allowance at all. What is more, these new measures are to take effect from 6 April 2010.
The effect of the tapering of personal allowances means that the highest effective rate of tax is actually 60% for those earning between £100,000 and £113,000 per year.
In making this announcement, the Government have broken their election Manifesto, where they stated no increases to the higher rate of tax will be made. However, we are clearly living in a different economic climate.
In addition to the above, the Chancellor announced a removal of higher rate tax relief on pension contributions for those earning above £150,000 from 6 April 2011. With pension contributions being a well loved source of obtaining legitimate tax relief, this announcement will hit high earners hard.
As normal, fuel, alcohol and tobacco duty is to rise. Fuel is to increase by 2p per litre on 1 September 2009 and 1p per litre each year from 2010 to 2013. Alcohol and tobacco duty is to increase by 2%, which early commentary indicates could mean an additional 5p per pint of beer. The tobacco increase will likely mean an extra 7p for a packet of 20 cigarettes.
To celebrate the 10th anniversary of the introduction of ISAs, Mr Darling announced an increase in the maximum amount that can be invested from £7,200 to £10,200, of which £5,100 can be in cash. The new limits apply from 6 April 2009 for the over 50s and for everyone from 6 April 2010.
This was never going to be a Budget full of giveaways because the Government does not have flexibility or capacity. In reverting to the tactics of Robin Hood, they are increasing their tax take on the wealthy to assist in the recovery of the economy and lessen the burden on the rest.
With an election looming next year, the Government will be hoping that the announcements in this Budget will be sufficient to provide the necessary stimulus to achieve victory. Whether this happens remains to be seen...
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