Budget - Building Britains future
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Issued 22 APRIL 2009
The Government's economic objective is to build a strong
economy and a fair society, where there is opportunity and security for
all. Budget 2009, Building's Britain's Future, presents updated
assessments and forecasts of the economy and public finances and
reports on how in the face of a steep and synchronised global downturn,
the Government is delivering a comprehensive and coherent package of
targeted support to continue to help households and businesses, while
implementing a strategy to support a strong and sustainable recovery.
Building on the strategy set out at the 2008 Pre-Budget
Report, the Budget announces targeted discretionary support for the
economy through these difficult times, while continuing sustained
fiscal consolidation from 2010-11 when the economy is expected to be
recovering and able to support a reduction in borrowing:
* support for employment, including for Jobcentre Plus and the
Flexible New Deal, and the offer of a guaranteed job, training or work
placement for all 18-24 year olds who reach 12 months unemployed;
* support for business, including by extending the enhanced
loss relief for an additional year and expanding HMRC's Business
Payment Support Service, increasing capital allowances for new
investment to 40 per cent for one year, and establishing a £750 million
Strategic Investment Fund to support advanced industrial projects of
strategic importance;
* support for individuals, including through an increase in
the annual investment limit for Individual Savings Accounts (ISAs) to
£10,200, up to £5,100 of which can be saved in cash; an additional
payment alongside the Winter Fuel Payment worth £100 for households
with someone aged over 80 and £50 for households with someone aged over
60;
* support for homeowners and homebuyers, including a £600
million funding package of measures to build more homes through
unlocking sites currently sitting as dormant, and an extension of the
stamp duty holiday for all houses costing up to £175,000 until the end
of the year.
* support for the environment, including setting the world's
first carbon budgets and measures to encourage energy efficiency and
low-carbon growth.
The Budget also announces:
* from April 2010, an additional rate of income tax of 50 per
cent will apply to income over £150,000, and the income tax personal
allowance will be restricted for those with income over £100,000;
* from April 2011, tax relief on pensions contributions will
be restricted for those with incomes of £150,000 and over, and tapered
down until it is 20 per cent;
* fuel duty will increase by 2 pence per litre on 1 September
2009, and by 1 penny per litre in real terms each year from 2010 to
2013;
* £5 billion recoverable value for money savings in 2010-11
raising the 2007 Comprehensive Spending Review target from £30 billion
to £35 billion, and in the next Spending Review period, additional
efficiencies to help support the economy and front-line services,
rising to £9 billion by 2013-14. The Budget sets assumptions for
spending growth from 2011-12 onwards, with current spending growing by
an average 0.7 per cent in real terms and public sector net investment
moving to 11/4 per cent of GDP by 2013-14.
MAINTAINING MACROECONOMIC STABILITY
The financial crisis has caused a steep and synchronised
global downturn. Recessions are being experienced in all the world's
major advanced economies and the world economy is set to contract by
11/4 per cent in 2009, the first fall in the post-war period. The UK
Government, as Chair of the G20 in 2009, forged agreement between G20
Leaders on a comprehensive Global plan for recovery and reform at the
London Summit in April 2009.
The Government is delivering a coherent and comprehensive
package of support to restore the flow of credit, support economic
recovery in the UK and build a strong economy for the future, while
ensuring sound public finances.
The Government is delivering fiscal support worth 4 per cent
of GDP in 2009-10 from the measure announced in this Budget, the 2008
Pre-Budget Report and the operation of the automatic stabilisers. The
Bank of England has cut Bank Rate to 1/2 a per cent and announced a £75
billion programme of asset purchases. With substantial macroeconomic
stimulus already in the system, this Budget focuses on further targeted
support for those most affected by the downturn, and on ensuring a
sustained and sustainable recovery, including support for employment
and investment.
It will take time for this support to take hold fully. Like
most advanced economies, the UK will experience a sharp recession in
2009, with GDP falling by -3 1/2 per cent in 2009, before substantial
macroeconomic stimulus drives recovery, with growth of 1 1/4 per cent
forecast in 2010.
Global economic developments will have a profound effect on
the fiscal positions of most countries, with debt likely to rise
significantly in all advanced economies. In the UK, borrowing is
forecast to peak at 12.4 per cent of GDP in 2009-10, before falling as
the economy recovers and the Government takes further action to ensure
sustainability. Building on the significant fiscal consolidation
announced in the 2008 Pre-Budget Report, this Budget sets out tax and
spending measures that reduce borrowing by £26 1/2 billion by 2013-14:
* from April 2010, an additional rate of income tax of 50 per
cent will apply to income over £150,000 and the income tax personal
allowance will be restricted for those with incomes over £100,000. From
April 2011, tax relief on pensions contribution will be restricted for
those with incomes of £150,000 and over, and tapered down until it is
20 per cent. Fuel duty will increase by 2 pence per litre on 1
September 2009, and by 1 penny per litre in real terms each year from
2010 to 2013; and
* the Government will continue to improve and invest in public
services while delivering the additional savings identified by the
Operational Efficiency Programme over the next Spending Review period,
rising to £9 billion a year by 2013-14. Current spending will grow by
an average of 0.7 per cent a year in real terms between 2011-12 and
2013-14 and public sector net investment will move to 1 1/4 per cent of
GDP by 2013-14.
Reflecting the principle of transparency, the fiscal forecasts
include a provisional estimate for the high end of a range for the net
impact of unrealised losses on financial sector interventions, equal to
3 1/2 per cent of GDP.
Budget measures contribute to an average reduction in the
cyclically-adjusted current budget of over 0.8 per cent a year from
2010-11 to 2013-14. Based on cautious fiscal forecasting assumptions,
borrowing declines to 5.5 per cent in 2013-14, and as a result net debt
stabilises at 79 per cent of GDP, including potential losses on
financial sector interventions, compared with 36 per cent at the end of
2006-07, when the economy was last on trend.
The Budget 2009 fiscal projections are consistent with the
temporary fiscal operating rule introduced in the 2008 Pre-Budget
Report, entailing a return to cyclically-adjusted current balance and
debt falling as a share of the economy by 2017-18, when the global
shocks will have worked their way through the economy in full.
FINANCIAL STABILITY
The world economy was hit by a global credit shock in
mid-2007. Since then, global financial markets have suffered a
sustained period of stress and instability. The intensification of the
financial market stress into the worst global financial crisis for
generations delivered a severe blow to an already weakened world
economy, precipitating a steep and synchronised global downturn. The
world economy is forecast to contract in 2009 for the first time in the
post-war period.
Financial markets are critical to the well-being of all
citizens and the success of all businesses in this country. They also
strongly influence economic growth and development across the world.
They are the core mechanism for allocating resources efficiently in an
economy and a key driver of productivity, growth and opportunities.
Financial instability, to the extent that it disrupts the functioning
of financial markets, can therefore affect everybody.
Governments around the world have provided significant support
to strengthen their financial systems. At the London Summit, G20
Leaders committed to take all necessary action to restore the flow of
credit and ensure the soundness of systemically important institutions.
The Government has taken decisive action to support the
stability of the financial system and wider economy. Tackling a
downturn of this nature and dealing with its consequences requires a
comprehensive policy response to support the economy: fiscal and
monetary policy, financial sector interventions, and targeted support
for individuals and businesses.
The action taken by the Government since October 2008 has been
successful in preventing the collapse of the financial system and
ensuring that no retail depositors in UK banks or building societies
lost money. These interventions have supported the wider economy, and
they are helping individuals and businesses. The Government will
continue to do whatever it takes to maintain financial stability
through its objectives to ensure stability and restore confidence in
the financial system, protect retail depositors' money and safeguard
the interests of taxpayers.
This chapter sets out the Government's response to financial
market disruption in two areas. First, it describes the Government's
immediate response aimed at ensuring the stability of the financial
system, involving:
* targeted action for individual financial institutions; and
* a comprehensive system-wide response, including action to
ensure liquidity, strengthen bank capital, guarantee certain wholesale
funding, deal with impaired assets, and increase lending in the
economy.
Second, it sets out the Government's view of the longer-term
action required to renew financial markets for the future. This chapter
introduces a forthcoming paper by the Government, covering:
* key elements of the Government's approach to the future of
financial markets;
* steps already taken to achieve this approach, including the
Turner Review, leading work in the G20, and the Banking Act 2009; and
* further important action, including renewing financial
regulation, reducing the impact of bank failure, protecting and
supporting consumers, improving efficiency and competition in capital
markets, and strengthening regulators and the international regulatory
framework.
Further details on these and other measures are set out below:
Asset Management
The Government has been working closely with the asset
management industry on a wide-ranging package of tax measures to
enhance the competitiveness of the UK as a place for Authorised
Investment Funds to locate. Following the launch of a new tax regime
for property funds, helpful guidance on the distinction between
investment and trading transactions and new tax rules for the Qualified
Investor Scheme, the Government today announces:
* the launch of the Tax Elected Fund regime which will allow
UK Authorised Investment Funds to be marketed competitively to UK
investors and worldwide; and
* legislative change to clarify whether certain transactions
will be taxed as trading or investment for UK AIFs and equivalent
offshore funds.
This package helps to consolidate the UK's position as a key
international centre for asset management.
SUPPORTING BUSINESS
As set out in Chapter 2, the financial crisis has caused a
steep and synchronised global downturn. This chapter outlines how
Government support, alongside action to restore the flow of credit in
the financial system, is helping businesses across the UK. Budget 2009
builds on this support with targeted measures that will help
businesses' short-term cashflow, including:
* further support to loss-making businesses, by extending the
enhanced loss relief announced in the 2008 Pre-Budget Report for an
additional year and expanding HMRC's Business Payment Support Service;
* enabling businesses to spread payment of this year's
inflation up-rating to business rates over three years, as announced on
31 March 2009;
* a 'top-up' trade credit insurance scheme to help businesses
maintain their finances, in which Government will offer to match
private sector trade credit insurance provision, for a temporary
period, if insurers reduce cover to any UK business; and
* for a temporary period, a vehicle scrappage scheme,
co-funded with industry, that will enable consumers who scrap vehicles
older than ten years to replace them with new vehicles at a discount of
£2,000.
Over the last decade, the UK has built up key strengths that
provide a platform for growth as the UK emerges from the recession.
Consistent with the strategic vision set out in Building Britain's
Future: New Industry, New Jobs published 20 April 2009, Budget 2009
announces a package of measures that will support the adjustment
towards renewed economic growth and improve the UK's competitiveness,
offering:
* an increase in capital allowances for new investment to 40
per cent for one year, with effect from April 2009, to allow a higher
proportion of private investment to be offset in that year against
taxable profits;
* a £750 million Strategic Investment Fund to support advanced
industrial projects of strategic importance, of which a third of the
funding will be earmarked specifically for low carbon projects; and
* the implementation of a package of reforms to the taxation
of foreign profits, including the introduction of an exemption for
foreign dividends, supported by a limited restriction to the interest
deduction rules.
Further details on these and other measures are set out below:
Enhanced First Year Capital Allowances
The Government today announces the introduction of an enhanced
first-year capital allowance of 40 per cent for one year, introduced
with effect from April 2009. This will double the rate of relief
available to businesses and support around £50 billion of investment.
This is in addition to the significant benefit the vast majority of
businesses already receive from the £50,000 Annual Investment
Allowance.
Extra support to loss-making businesses
The 2008 Pre-Budget Report announced a temporary, one-year
extension of loss carry-back for businesses from one to three years,
for losses up to £50,000. The Government today announces further
enhancements to this support, to help more businesses through the
downturn, by:
* extending this enhanced relief for two years rather than one
(from 24 November 2008 for companies, and for the 2008-09 and 2009-10
tax years for unincorporated businesses). Together with the change made
at the 2008 Pre-Budget Report, this will benefit an expected 140,000
businesses ; and
* allowing struggling businesses expecting to make losses to
offset these against tax bills due on profits from the previous year,
using HMRC's Business Payment Support Service.
Business rates
As announced on 31 March 2009, the Government will enable
businesses to spread the payment of the April 2009 uprating to business
rates over three years. The Government will also allow those affected
by the end of the 2005 transitional relief scheme to spread payment of
the increase in their bills over three years.
Strategic Investment Fund
The Government today announces it will establish a £750
million Strategic Investment Fund to support advanced industrial
projects of strategic importance. This includes £50 million for the
Technology Strategy Board and £10 million for UK Trade and Investment.
£250 million of this fund will be earmarked for low carbon investments.
Vehicle scrappage scheme
The Government announces the introduction of a temporary
vehicle scrappage scheme. A discount of £2,000 will be offered to
consumers buying a new vehicle to replace a vehicle more than ten years
old which they have owned for more than twelve months. The Government
will set aside £300 million for this scheme with funding matched by
manufacturers participating in the scheme.
Trade credit insurance
The Government today announces a 'top-up' trade credit
insurance scheme to help UK businesses maintain their finances in the
current economic climate. Under this scheme, the Government will offer
to top up private sector trade credit insurance provision if insurers
reduce cover from any business operating in the UK. Cover provided
under this scheme will be time-limited and capped at £5 billion,
providing a real breathing-space for businesses to adjust to changing
circumstances. Further detail on the trade credit insurance top-up
scheme can be found at: http://www.businesslink.gov.uk/creditinsurance.
Foreign profits
The Government confirms the introduction of a package of
reforms to the taxation of foreign profits, including a tax exemption
for most foreign dividends received by UK groups. This will be
supported by a restriction on interest deductibility (worldwide debt
cap) and the replacement of the Treasury Consents rules with a new
post-transaction reporting requirement. As a necessary consequence of
the dividend exemption, there will also be changes to the Controlled
Foreign Companies (CFC) rules. These measures will support and enhance
the competitiveness and attractiveness of the UK as a location for
multinational business.
North Sea fiscal regime
Following the consultation launched at the 2008 Pre-Budget
Report, Budget 2009 announces a package of measures to encourage the
economic recovery of the UK's oil and gas reserves. This package will
include the introduction of incentives to encourage investment in small
and technically challenging fields, which could assist in unlocking
around 2 billion barrels of the UK's remaining oil and gas reserves.
The package also includes measures to assist asset trades and give
companies the certainty and stability they need to underpin investment.
Budget 2009 also announces reforms to remove barriers to
projects that reuse North Sea infrastructure for other activities,
including gas storage, carbon capture and storage and wind energy.
Export Credits Guarantee Department Letter of Credit scheme
The Government today announces that the Export Credits
Guarantee Department (ECGD) will shortly consult on a new facility to
provide Government support for short-term trade finance through sharing
risks with banks in confirming letters of credit. This facility will
give exporters greater certainty of payment when selling goods in
difficult markets.
Digital Britain
The Budget today announces that the Government will pursue
Universal Service in broadband at 2 Megabits per second alongside
further support to promote broadband take-up and basic digital skills.
The Budget also announces a review of the powers and duties of
Ofcom to ensure it can strike the right balance between delivering
competition and promoting investment and confirms approval for 'Digital
Region', a £100 million project led by Yorkshire Forward that will
roll-out next-generation broadband to South Yorkshire.
Exploring the tax treatment of Intellectual Property to
enhance the competitiveness of the UK
As part of the Government's commitment to examine the
challenges facing the UK tax system and ensure its competitiveness, and
focus on supporting the high value-added priority sectors in which the
UK can excel in the future, the Government will consider the evidence
for changes to the way the tax system encourages innovative activity
and the relative attractiveness of the UK to global firms as they make
decisions on where to locate their R&D and other innovation
activities. Working with representatives across the business community,
the Government will examine the balance of taxation of innovative
activity, including IP. The Government will assess the evidence on the
potential impacts of any reforms on economic activity, consult further
with industry and set out its assessment and proposed approach before
the Pre-Budget Report.
Water competition
In response to the final report for the Independent Cave
Review of Competition and Innovation in the Water Markets published
today, the Government announces a consultation on a package of reforms
to further competition and innovation for large non-domestic customers,
with a commitment to consider opening the market to all businesses at a
later stage. The Government will also take forward further work on
recommendations concerning establishing a value for water, and the
industry's innovative capacity. Up to 26,600 businesses will benefit
from the reforms by enabling them to switch supplier, which will result
in downward pressure on prices, increased service levels and the better
use of water.
Pilot City-Regions Announced
Budget announces new pilot city-region arrangements for
Greater Manchester and Leeds, building on the Government's recent
economic reforms through the Sub-National Review. The pilot
city-regions will benefit from the stronger integration of planning,
housing, transport, regeneration, employment and skills programmes,
increasing their ability to drive sustainable growth and economic
development.
The pilots will be overseen at Ministerial level and will draw
on recent work from the Manchester Independent Economic Review and on
innovation in the Leeds city-region in order to agree joint priorities
with the Government that will support economic growth. Further work is
also underway with partners in the West Midlands on their proposals for
an accelerated development zone and employment and skills.
Insolvency package
The Budget announces that the Insolvency Service will launch a
consultation in June 2009 on measures to help companies in financial
difficulties. In addition, to prevent creditors from being unfairly
treated through the abuse of pre-pack sales, Budget 2009 announces that
this summer the Insolvency Service will publish the first of a series
of regular reports on the monitoring of pre-pack sales.
Tax simplification
Following discussions with business, Budget 2009 sets out the
next stage in the Government's rolling programme of tax simplification,
including further progress on its tax simplification reviews. Budget
2009 announces that since 2006 the Government has implemented or
committed to new measures that will deliver administrative savings to
business of around £540 million per annum.
HELPING PEOPLE FAIRLY
Low inflation and interest rates mean many households will
have higher real incomes in 2009. In addition, households have
benefited from action that the Government has taken to support economic
recovery, including an increase in the personal allowance and a
temporary cut in VAT. However, the Government recognises that many
households have been hit by the downturn, including those affected by
rising unemployment or by falling hours or wages.
Budget 2009 announces further Government action to support
employment, to help savers and families with children, to support
pensioners and to help people manage their finances, including:
* an additional £1.7 billion set aside for the Department for
Work and Pensions to sustain the high numbers of individuals currently
moving off Jobseeker's Allowance in the early months of each claim and
provide support for the minority who remain unemployed for longer
periods;
* a guaranteed job, training or work placement for all 18-24
year olds who reach 12 months unemployed to ensure no young people are
left behind due to long-term unemployment;
* an additional payment alongside this year's Winter Fuel
Payment, worth £100 for households with someone aged over 80 and £50
for households with someone aged over 60;
* an increase in the annual investment limit for Individual
Saving Accounts to £10,200, up to £5,100 of which can be saved in cash.
These higher limits will be available to people aged 50 and over from 6
October 2009 and available to all from 6 April 2010, directly
benefiting over five million people who currently use their full ISA
allowance;
* an increase to the child element of the Child Tax Credit of
an additional £20 a year above indexation from April 2010, providing
valuable support to families with children;
* an additional £125 million in 2009-10 and £145 million in
2010-11 allocated to the Social Fund; and
* an increase in the level of statutory redundancy pay, making
the weekly rate £380.
Budget 2009 also announces a package of measures to help
homeowners, homebuyers and the housing market:
* a £600 million funding package of measures to build more
homes through unlocking sites currently sitting dormant; and
* an extension of the stamp duty holiday for all houses
costing up to £175,000 until 31 December 2009.
In addition, Budget 2009 announces:
* that from April 2010, an additional rate of income tax of 50
per cent will apply to income over £150,000, and the income tax
personal allowance will be restricted for those with incomes over
£100,000;
* that from April 2011, tax relief on pensions contributions
will be restricted for those with incomes of £150,000 and over, and
tapered down until it is 20 per cent; and
* changes to alcohol and tobacco duties, and a package of
measures which will protect £3 billion of tax receipts a year by
2010-11 from tax evasion and avoidance.
Further details on these and other measures are set out below:
Child poverty
Budget 2009 reiterates the Government's commitment to the
sustainable eradication of child poverty and the Government's intention
to enshrine this pledge in legislation will drive continual progress
towards these goals. Budget 2009 reinforces the Government's commitment
to support all households through the economic downturn and announces
further targeted support for vulnerable households including:
* increasing the child element of the Child Tax Credit by an
additional £20 a year above indexation from April 2010, providing
valuable support to families with children;
* amending the law to make clear that the current 4-week
run-on in the Working Tax Credit extends to the childcare element,
including for couples when only one partner falls out of work, helping
to minimise disruption to children during these difficult changes;
* taking further steps to help low-income households gain
access to the support they are entitled to, such as the extra tax
credits available to people suffering a fall in income (already helping
355,000 people by an average of £35 per week); and
* outlining further detail on the child poverty Bill.
Jobcentre Plus funding
Budget 2009 announces that an additional £1.7 billion will be
set aside for the Department for Work and Pensions over the next two
years to ensure Jobcentre Plus and Flexible New Deal capacity is in
place to respond effectively to rising unemployment. The effectiveness
of this support helps ensure that most people who become unemployed
find work again very quickly - 25% within a month and over half within
3 months
Support for individuals who have been unemployed for 12 months
The Government is introducing additional support for the long
term unemployed, building on the extra support now available to those
unemployed for over 6 months. The package will offer guaranteed support
to 18-24 year olds who have been unemployed for 12 months, to prevent
them becoming detached from the labour market. As part of this, the
Government will allocate funding for Local Authorities and voluntary
sector partners to provide 100,000 new jobs in socially useful activity
and a further 50,000 jobs in areas of dense unemployment across the
country. It is expected that 10% of these will be green jobs. The
guarantee will also offer new training courses, and Community Work
placements.
Budget 2009 also announces CareFirst, offering 50,000
traineeships for young people in the care sector. In the first half of
last year, there were over 100,000 job vacancies in social care. The
scheme will support providers to recruit young people to this growing
sector, whilst providing opportunities for those in need of work.
Providers will receive a subsidy for offering sustained employment and
training to young people who have been out of work for 12 months,
giving them the skills and experience they need for a permanent career
in the sector.
Local Housing Allowance
The Government is reforming the Local Housing Allowance (LHA)
so that it is more equitable and promotes work incentives. From April
2010, households will no longer be able to keep any of the surplus if
the LHA they receive is higher than their rent. For those already
receiving LHA, this reduction will not apply until the anniversary of
their claim. It is essential that the LHA represents good value for
money for the taxpayer and as this measure will only affect surpluses,
it will not produce rent shortfalls.
Social Fund
The Social Fund provides interest free 'Budgeting' and
'Crisis' loans for vulnerable people, allowing them to meet and spread
the payment of unexpected costs. The Government announces an additional
£125 million in 2009-10 and £145 million in 2010-11 to ensure that the
Social Fund across the UK is able to respond to increased demand.
Details of the loan scheme and eligibility can be found at http://www.jobcentreplus.gov.uk.
Personal Tax
The Budget announces changes to the income tax system designed
to deliver further consolidation to ensure the stability of the public
finances. These changes are focused on individuals with the highest
incomes who are most able to contribute. From April 2010:
* the additional rate of income tax will be 50% on income over
£150,000, with a rate of 42.5% for dividends; and
* the value of the personal allowance will be restricted for
those with incomes over £100,000, tapering down to zero.
These changes replace the 45% income tax rate and the
two-stage taper of the personal allowance announced in the 2008
Pre-Budget Report.
Pension tax relief
The Government announces that from April 2011 tax relief on
pensions contributions will be restricted for those with incomes over
£150,000. From that level of income the value of pensions tax relief
will be tapered down until it is 20 per cent for those on incomes over
£180,000, making it worth the same for each pound of contribution to
pension entitlement as for a basic rate income tax payer. The
Government will consult on the implementation of this measure.
In anticipation of this change, the Government is also
introducing legislation to prevent individuals taking advantage of the
pensions tax relief while it is still available to them at a higher
rate, by making substantial additional pension contributions prior to
the restriction taking effect. Those who have never earned in excess of
£150,000 are unaffected, as are those who continue with their regular
pattern of contributions.
Support for savers
The Government today announces that the annual ISA investment
limit will rise to £10,200, of which £5,100 can be saved in cash. These
higher limits will be introduced for those aged 50 for tax year
2009-10, with the first deposits being available from 6 October 2009.
This will enable those who have retired or are beginning to prepare for
retirement to move taxed savings into a tax-advantaged ISA, rewarding
those who have saved by improving their returns. The higher limits will
then apply to everyone from 6 April 2010. This will give over 18
million ISA holders the opportunity to increase their tax-advantaged
savings and directly benefit over 5 million individuals who make full
use of either their cash or their overall ISA allowance.
Pensioner savers
The Government is introducing measures to target support on
lower income pensioners who may have seen a fall in their income from
savings. From Autumn 2009:
* the first £10,000 of savings held by pensioners will not be
taken into account for assessment of their entitlement to Pension
Credit, Housing Benefit and Council Tax Benefit. This will increase the
income of around 540,000 Pension Credit claimants who have savings
above the current disregard level of £6000. They will benefit by around
£4 per week; and
* Pension Credit recipients who may have overpaid tax on their
savings income in the past 6 years will be contacted as part of a
taxback campaign. This campaign will encourage people to claim tax back
on savings income and, where possible, register to avoid overpaying tax
in future. Those who claim are expected to receive around £200 on
average.
Support for pensioners
Building on the Government's commitment to help pensioners,
Budget 2009 announces an additional payment of £100 to households with
someone aged 80 or over and £50 to households with someone aged 60 or
over, to be paid alongside the Winter Fuel Payment in 2009-10.
Child Trust Fund: disabled children
The Government will contribute £100 every year to the Child
Trust Fund accounts of all disabled children, with severely disabled
children receiving £200 per year. This further Government payment
recognises that disabled children are likely to have higher financial
needs when they make the transition to adulthood. Over 4 million
children now have a Child Trust Fund account, which will ensure that at
age 18, all young people will have access to a financial asset.
Package to support housing supply
A £600 million fund to unlock stalled housing sites and
provide a kick-start to housebuilding was announced by the Chancellor
today, to deliver up to an additional 10,000 homes in England over the
next 2 years. This figure includes Barnett consequentials for the
Devolved Administrations. This package includes £100m for local
authorities to build new social housing at higher energy efficient
standards. The current economic climate continues to have a significant
impact on housing supply. Additional, short-term, spending during the
downturn will stimulate housing development as well as boost the
capacity of the house building industry in the long term.
Stamp Duty Land Tax Holiday
To provide continued support for homebuyers the Government is
today extending the Stamp Duty Land Tax holiday for residential
properties up to £175,000 until midnight on 31 December 2009. Around 60
per cent of purchases are currently exempt from paying stamp duty as a
result of the holiday.
Offshore disclosure
A New Disclosure Opportunity (NDO) for holders of offshore
accounts will run until March 2010. This will give holders of these
accounts the opportunity to disclose, of their own accord, if they have
unpaid tax or duties and to settle debts. HMRC is also seeking to issue
notices requiring financial institutions to provide information about
offshore account holders.
Publication of names of serious tax defaulters
The Government announces that is legislating for the
publication by HMRC of the names of both corporate and individual
taxpayers who incur a penalty because they have deliberately
understated over £25,000 of tax.
Cross-border VAT changes 2010
New VAT rules on cross-border trading, from 1 January 2010,
will ensure that UK VAT is charged on most services supplied to UK
businesses, irrespective of the supplier's location, and provide a more
efficient process for UK businesses wishing to recover VAT incurred in
other EU countries. They include new reporting requirements to
strengthen the strategy for tackling fraud using cross-border supplies
of goods, and to ensure compliance with the new rules on services.
Alcohol duty rates
Budget 2009 confirms that, on 23 April 2009, alcohol duties
will increase by 2 per cent, adding 1 penny to the price of a pint of
beer, 13 pence to the price of a bottle of spirits and 4 pence to the
price of a bottle of wine.
Tobacco duty rates
Budget 2009 announces that, on 22 April 2009, tobacco duties
will increase by 2 per cent, adding 7 pence to the price of a packet of
20 cigarettes.
IMPROVING PUBLIC SERVICES
Since 1997, record levels of investment matched by reform have
enabled the Government to deliver real and lasting improvements in
Britain's public services.
The Government's short-term focus is on supporting employment
and jobs through the recession. Budget 2009 announces new spending
measures, including additional funding for Jobcentre Plus to avoid the
problems associated with long-term unemployment that took hold in
previous recessions; and that the September Guarantee of a place in
education and training to every 16 and 17 year old who wants one will
be met in full, an extra 54,500 student places in the next academic
year.
At the same time, the Government is determined to do more to
prepare Britain for the economic recovery, building the wealth and jobs
of the future. Budget 2009 announces:
* a new £750 million Strategic Investment Fund to support
advanced industrial projects of strategic importance, £250 million of
this will be earmarked for low-carbon investment;
* £500 million of additional spending as part of an overall
£1.4 billion package of targeted support to boost Britain's low-carbon
sectors; and
* a further £600 million to increase housing supply, including
through an extension to the shared equity scheme Homebuy Direct and
additional social housing investment.
The Government will continue to invest in front-line public
services alongside a stronger drive on value for money. Budget 2009
announces:
* £5 billion recoverable value for money savings in 2010-11,
raising the 2007 Comprehensive Spending Review target from £30 billion
to £35 billion, whilst maintaining in full the allocations planned for
key front-line services;
* plans to increase the Government's target on relocating
posts out of London to 24,000 by 2010;
* in the next Spending Review period, additional efficiencies
to help support the economy and front-line services drawn from
procurement, back office and IT, and property running costs, rising to
£9 billion of additional efficiency savings by 2013-14; and
* new incentives and mechanisms with the aim of realising up
to £16 billion of property and other asset sales in the three years
from 2011-12, with proceeds used to supplement capital budgets.
Building on these reforms, Budget 2009 sets assumptions for
spending growth from 2011-12 to 2013-14 which allow continued
investment in public services whilst ensuring sustainable public
finances in the medium term: with current spending growing by an
average 0.7 per cent in real terms and public sector net investment
moving to 11/4 per cent of GDP by 2013-14.
Further details on these and other measures are set out below:
2010-11 value for money savings and budget reductions
The 2008 Pre-Budget Report announced that the Government would
increase its £30 billion 2007 Comprehensive Spending Review value for
money target to £35 billion, delivering an additional £5 billion of
recoverable value for money savings in 2010-11. Budget 2009 announces
the departmental allocation of the £35 billion Value for Money target
and adjustments to departmental budgets.
Budget 2009 also provides details on how these savings will be
delivered, including by bringing forward savings identified by the
Operational Efficiency Programme (OEP) and Public Value Programme
(PVP). These savings will be delivered whilst maintaining in full the
allocations planned for key front-line services including schools and
local health services.
Operational Efficiency Programme
The Operational Efficiency Programme (OEP), led by five senior
private and public sector advisors, published its final report on 21
April 2009. Budget 2009 announces the Government's acceptance of the
recommendations in Operational Efficiency Programme: final report and
will work with all departments to implement and deliver the additional
value for money savings identified by the Programme.
The OEP has identified opportunities for a total of £15
billion of annual efficiency savings. Around £6 billion of this can be
delivered as part of the Government's £35 billion value for money
target in 2010-11 and the additional £9 billion by 2013-14. The
delivery of the full £15 billion will take time to achieve, due to the
nature of the areas being considered, but include savings in five
cross-cutting areas:
* Back office operations and IT, led by Dr Martin Read, has
found that £4 billion of savings a year are possible by improving the
efficiency of back office operations, and £3.2 billion of savings a
year on IT spending;
* Collaborative procurement, led Martin Jay, has found that
£6.1 billion of savings a year are possible by harnessing the public
sector's collective buying power;
* Asset management and sales, led by Gerry Grimstone, has
concluded that there is potential to realise greater value from its
asset base, and reports progress on studies into specific assets
(including British Waterways, the Dartford Crossing, Land Registry and
the QEII conference centre) launched at the 2008 Pre-Budget Report. He
has also identified a number of further assets that will be the subject
of a second wave of studies;
* Property, led by Lord Carter of Coles, has found that up to
£1.5 billion of annual running cost efficiencies could be delivered by
2013-14, rising to £5 billion a year over a ten year period.
Furthermore, £20 billion of disposal proceeds from property sales
(excluding council housing) may be possible over ten years. To achieve
this, he has recommended the creation of a small, strategic central
property function to drive the efficiency and rationalisation agenda
across the public sector;
* Local incentives and empowerment, led by Sir Michael
Bichard, has made a series of recommendations aimed at empowering
professionals to collaborate and innovate and creating the space for
progress by reducing burdens on the frontline. This includes taking
forward the new 'Total Place' initiative that will map flows of public
spending in local areas to identify where public money can be spent
more effectively.
The full report is available online at http://www.hm-treasury.gov.uk/vfm_operational_efficiency.htm
and background reports on the back office and IT, collaborative
procurement and property workstrands will be made available online
shortly after Budget 2009.
BUILDING A LOW-CARBON RECOVERY
The UK has led the world in taking a strategic and long-term
approach to the problem of climate change. Existing policies are
already enabling £50 billion of low-carbon investment over the three
years to 2011, and helping to support 900,000 jobs. Budget 2009 builds
on these foundations and provides over £1.4 billion of extra targeted
support in the low-carbon sector. Together with announcements made
since last autumn, measures announced today will enable an additional
£10.4 billion of lowcarbon sector and energy investment over three
years, securing new jobs and new business, and placing the UK at the
forefront of a worldwide low-carbon recovery.
To strengthen the long-term policy framework and give UK
industry the confidence to invest in lowcarbon technologies, Budget
2009 sets the world's first carbon budgets, as required by the new
Climate Change Act. These set a legally binding 34 per cent reduction
in emissions by 2020, a new level of ambition for UK climate policy.
Saving energy is the easiest way to cut carbon emissions,
saving households and businesses money on bills. Building on the one
million homes insulated last year, Budget 2009 announces an additional
£375 million to support energy and resource efficiency in businesses,
public buildings and households over the next two years, and £70
million for decentralised small-scale and community low-carbon energy.
Together, these measures will support employment, and save 380,000 tCO2
and around £60 million in energy bills each year.
Meeting carbon budgets will require a transformation of the
way the UK meets its energy needs. The Government's existing framework
will enable a ten-fold increase in renewable investment by 2020. To
protect investment and jobs in low-carbon energy, and to strengthen the
long-term framework for a low-carbon energy future, Budget 2009
announces:
* £405 million to support low-carbon industries and advanced
green manufacturing, to help make the UK a worldwide leader;
* that UK renewable and energy projects stand to benefit from
up to £4 billion of new capital from the European Investment Bank,
removing blockages in project financing;
* an uplift in support for offshore wind investments that
reach financial close between now and 2011 through the Renewables
Obligation. This is expected to support £9 billion of investment and
power up to 2.8 million homes;
* extending support for combined heat and power through
climate change levy exemptions, helping bring forward £2.5 billion of
investment and 3 GW of capacity by 2015, and supporting employment; and
* a new funding mechanism to support up to four carbon capture
and storage demonstration projects, and £90 million to fund detailed
preparatory studies.
To support the public finances, while also driving the move to
a low-carbon and resource-efficient economy, Budget 2009 announces:
* an increase in fuel duty of 2 pence per litre on 1 September
2009, and of 1 penny per litre in real terms each year from 2010 to
2013. This will contribute to mediumterm fiscal consolidation, and save
2 MtCO2 per year by 2013-14; and
* a continued increase in the standard rate of landfill tax by
£8 per tonne on 1 April each year from 2011 to 2013, to reduce landfill
in a sustainable way by encouraging further investment into alternative
waste management options.
Further details on these and other measures are set out below:
UK carbon budgets
Today the Government announces that it will set the UK's first
three five-year carbon budgets - covering the period from 2008 to 2022
- at levels requiring a 34 per cent cut in greenhouse gas emissions by
2020 with respect to 1990. Representing a step change in the
Government's level of ambition on climate change, this new target puts
the UK on track to achieve its long-term goal of cutting emissions by
80 per cent by 2050. The Government will aim to meet these carbon
budgets through domestic reductions alone in the non-traded sector,
without using offset credits.
Building a low carbon economy: implementing the Climate Change
Act, published alongside Budget, sets out in more detail the level of
the first three carbon budgets, how Government will measure progress
towards carbon budgets, and the Government's high-level response to the
advice of the Committee on Climate Change.
Support for energy and resource efficiency
The Government today announces £375 million over the next two
years for energy and resource efficiency in business, public buildings
and households.
Support for renewable energy projects
The Government today announces new measures to protect
investment and jobs in low-carbon energy, including:
* an uplift in support for offshore wind projects under the
Renewable Obligation, worth £3.5 billion over the lifetime of the
projects, protecting up to £9 billion of investment;
* UK energy projects stand to benefit from up to £4 billion in
new capital from the European Investment Bank, easing blockages in
project financing.
Low-carbon energy infrastructure
The Government today announces £405 million to support the
development of a world-leading low-carbon energy and advanced green
manufacturing sector in the UK.
This will be delivered through existing schemes such as the
Environmental Transformation Fund, and as part of the Strategic
Investment Fund set aside for support in strategic sectors such as
low-carbon. This will help establish the UK as a world-wide leader in
renewables technology and advanced green manufacturing.
Carbon capture and storage
The deployment of carbon capture and storage (CCS) will be key
to the move towards a low-carbon energy supply. CCS is the process of
capturing carbon dioxide from fossil fuels and then storing instead of
releasing it into the atmosphere.
The Government announces that it will put in place a levy
mechanism for up to four new CCS demonstration projects, driving
significant private investment and making the UK a global leader in
this crucial technology.
The Government also announces £90 million to fund
post-combustion coal engineering and design studies. These will ensure
that preparations for construction of a full-scale CCS demonstration
begin at the earliest possible date and will generate useful know-how
that will be made available to promote a global understanding of CCS.
Combined heat and power
Combined heat and power (CHP) generates useable heat and power
in a single process and represents more efficient use of both fossil
and renewable fuels. At the large industrial scale, CHP can act as a
catalyst for the economic development of the nearby area by attracting
businesses with a heavy demand for heat or steam.
The Budget announces that the Government will extend the
climate change levy exemption for indirect sales of electricity from
combined heat and power (CHP) beyond 2013 to 2023, subject to State aid
approval, and also commits to continue other levy exemptions for CHP.
This package of support will help investors to plan with confidence for
the future and is expected to bring forward investments of around £2.5
billion, which will increase CHP capacity by 3GW by 2015, and promote
significant employment opportunities in the sector. By 2020, these
measures have the potential to deliver 7GW of new CHP generation
capacity, and reduce emissions by 3.2 MtCO2.
Fuel Duty
As announced at Budgets 2007 and 2008, and confirmed at the
2008 Pre-Budget Report, main fuel duty rose by 1.84 pence per litre on
1 April 2009. The main fuel duty rate is therefore now 54.19 pence per
litre.
To contribute towards the consolidation of the public
finances, Budget 2009 announces that main fuel duty will increase by 2
pence per litre on 1 September 2009, and by a further 1 penny per litre
in real terms each year from 2010 to 2013. Duty on rebated oils will
increase in proportion to main fuel duty increases on the same dates.
This will also help to reduce polluting emissions, saving 2 million
tonnes of carbon dioxide per year by 2013-14.
Company Car Tax
In response to advances in vehicle technology and falling
new-car CO2 emissions, Budget 2009 announces that, with effect from 6
April 2011:
* the CO2 emissions thresholds for main CCT bands will be
shifted down by 5g CO2 per km;
* the £80,000 cap on company car list prices for the purposes
of calculating company car benefit will be abolished, to ensure that
drivers of the most expensive company cars pay a fair amount of tax;
and
* outdated discounts for early-uptake Euro 4 standard diesel
cars, higher-emitting hybrid vehicles, gas-powered and biofuel-capable
cars will be abolished, in favour of a system that simply rewards lower
tailpipe CO2 emissions.
Landfill tax rates
Landfill tax remains a cornerstone of waste management policy
in the UK. By increasing the costs of sending waste to landfill, the
tax encourages use of, and investment in, sustainable alternative
treatment options, such as sorting machinery, recycling and anaerobic
digestion.
Budget 2009 announces that the standard rate of landfill tax
will increase by £8 per tonne on 1 April each year from 2011 to 2013,
further incentivising investment in alternatives to landfill, and
leading to emissions savings of 0.7 MtCO2e. Budget 2009 also announces
that the lower rate, applying to inactive wastes will be frozen at
£2.50 per tonne for 2010-11.
Cushion Gas Storage
Following calls for clarification on the tax treatment of
cushion gas in gas storage facilities, Government today confirms that
cushion gas is eligible for plant and machinery allowances. This
announcement will give the industry the clarity and certainty they need
to bring forward gas storage projects to meet the UK's gas storage
requirements.
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