Pre-Budget Report Nov 2009 - Securing the Recovery
Economic Articles
Submit Articles Back to Articles
Issued 09 December 2009
Securing the recovery: growth and opportunity
The Government’s objective is to build a strong economy and a fair society,
where there is opportunity and security for all. The 2009 Pre-Budget Report,
Securing the recovery: growth and opportunity presents updated assessments and
forecasts of the economy and public finances and reports on how, in the face of
the downturn, the Government is delivering support to the economy, businesses
and households to secure the recovery and provide a platform for growth and
opportunity.
The Pre-Budget Report announces:
- support for business and growth, including extending empty property
relief, extending the Enterprise Finance Guarantee and deferring the increase
in the Small Companies rate for another year, a £200m addition to the
Strategic Investment Fund in 2010-11, the establishment of Infrastructure UK,
and the introduction of a patent box from April 2013;
- support for low carbon growth, through doubling from two to four the UK’s
commitment to fund carbon capture and storage demonstration projects,
increasing support for low carbon vehicles, and additional funding for low
carbon industries and energy efficiency, including Warm Front; and
- support for individuals, so that 18-24’s claiming Jobseekers Allowance for
six months will be guaranteed a job, work placement or work-related skills
training, and extending free school meals to primary school pupils in low
income working families.
The Pre-Budget Report announces that a temporary payroll tax of 50 per cent
will apply to discretionary bonuses above £25,000 for each individual employee.
The Pre-Budget Report announces action to maintain the path of fiscal
consolidation and to protect front line public services:
- an increase of 0.5 per cent in the employee, employers and self-employed
rates of national insurance contributions (NICs) from April 2011, alongside an
increase in the point at which individuals start to pay NICs to protect 15
million people on incomes below £20,000;
- a freeze in the point at which individuals start to pay the higher rate of
income tax in 2012-13; and
- the restriction of pensions tax relief from April 2011 will apply to those
with gross incomes over £150,000, where gross income incorporates all pension
contributions, including those funded by an employer.
The Pre-Budget Report confirms that the Government will stick to planned
levels of overall departmental spending in 2010-11, and announces that public
sector current expenditure will grow by an average of 0.8 per cent a year in
real terms from 2011-12 until 2014-15. It sets out a package to ensure that in
2011-12 and 2012-13, 95 per cent NHS front line spending rises in line with
inflation, spending on front line schools rises by 0.7 per cent a year in real
terms and that sufficient funding will be provided to enable the number of
police officers to be maintained. To free up resources for this, it also
announces £11 billion of savings through smarter government, £5 billion from
targeting and prioritising spending and in addition reforms will be made to
public sector pay and pensions.
The Pre-Budget Report sets out the Government’s plans to reduce borrowing to
5.5 per cent of GDP in 2013-14, consistent with debt falling in 2015-16. These
plans will be embedded in legislation through the Fiscal Responsibility Bill.
Maintaining Macroeconomic stability
Global shocks have precipitated the most severe and synchronised global
recession since the Great Depression, leading to a sharper fall in UK output at
the start of this year than was expected at Budget 2009. However, timely and
effective action by governments around the world has helped to avoid a
significantly worse outcome and there are tentative signs of recovery in the
world and UK economies.
In the UK there is evidence that, compared with the 1990s recession,
employment has held up relative to output, fewer firms have gone into
liquidation and fewer houses have been repossessed.
This reflects the action that the Government has taken to promote labour
market flexibility since 1997 and to support jobs and businesses with cash-flow
problems during the downturn. In line with the Budget 2009 forecast, GDP growth
is expected to return by the end of the year, before picking up through 2010 and
2011. However, risks to the recovery remain and withdrawing support too quickly
could undermine recovery. The Government will continue to provide support where
it is needed to secure sustainable growth, in particular policies to ensure
well-functioning financial markets are crucial to the future of the economy.
Bank Rate is at a historically low level of 0.5 per cent and is expected to
continue to provide an on-going and powerful stimulus throughout next year.
Setting a credible consolidation path to ensure sustainable public finances
is a key element of the Government’s macroeconomic strategy, and is essential
for economic stability and the long-term health of the economy. Despite weaker
than expected economic growth in the first part of the year, the Pre-Budget
Report projection of public sector net borrowing in 2009-10 is broadly unchanged
from Budget at 12.6 per cent. As a result, the estimate of cyclically-adjusted
net borrowing has declined to 9.0 per cent of GDP. This Pre-Budget Report
announces measures that maintain the path of consolidation set in Budget 2009
and reinforce the fairness of the tax system. The measures include:
- an additional 0.5 per cent increase in the employee, employer and
self-employed rates of national insurance contributions (NICs) from April
2011, alongside an increase in the point at which individuals start to pay
NICs to protect 15 million people on incomes below £20,000;
- the point at which individuals start to pay the higher rate of income tax
will be frozen in 2012-13; and
- the restriction of pensions tax relief from April 2011 will apply to those
with gross incomes of £150,000 and over, where gross income incorporates all
pension contributions, including those funded by an employer. This will be
subject to an income floor, so that individuals with pre-tax incomes
(excluding employer pension contributions) of less than £130,000 will be
unaffected.
In addition, public sector current expenditure will grow by an average of 0.8
per cent a year in real terms between 2011-12 and 2014-15.
Public sector net borrowing reaches 5.5 per cent of GDP in 2013-14, as
forecast at the Budget, more than halving the 2009-10 level of the deficit over
four years. Government borrowing falls year-on-year across the forecast horizon.
The plans set out in this Pre-Budget Report are consistent with debt falling as
a share of GDP in 2015-16. These consolidation plans will be embedded in
legislation through the Government’s Fiscal Responsibility Bill.
Fiscal Responsibility Bill
The Pre-Budget Report announces that the Government is introducing the Fiscal
Responsibility Bill to Parliament. The Bill enshrines the Government's
consolidation plans in legislation and represents a significant reform in the
way that the Government is held to account for delivering its fiscal plans,
giving Parliament a clear role in the setting and monitoring of medium-term
fiscal plans.
Reforming financial services
A strong and thriving UK financial services sector supports UK growth and
prosperity. In order for this positive contribution to be delivered, market
participants and regulators need to ensure that the sector’s development is
sustainable and supports long-term economic growth.
The Government attaches great importance to tackling the remuneration
practices that contributed to excessive risk-taking by the banking industry. The
2009 Pre-Budget Report announces that:
- a temporary bank payroll tax of 50 per cent will apply to discretionary
bonuses above £25,000 awarded in the period from Pre-Budget Report to 5 April
2010 for each individual employee.
The Government has taken decisive steps to maintain financial stability and
promote the flow of credit to the economy. The success of these financial sector
interventions is reflected in a downward assessment of their eventual net fiscal
cost. Building on these interventions, the 2009 Pre-Budget Report announces that
the Government will:
- explore ways of encouraging more sustainable, transparent and standardised
mortgage-backed securities markets;
- consult on and promote the UK regulated covered bond market; and
- publish a discussion paper on developing non-bank lending channels.
The Government will shortly announce a package of measures to reduce the
impact of any future failure of systemically important investment banks. It is
also working at the national, EU and global level to shape the future
development of the financial services sector. The 2009 Pre-Budget Report
announces:
- the introduction of a Code of Practice on taxation for banks;
- a new advisory group on professional and financial services;
- measures to promote a level playing field for Islamic finance products;
- a specific Governance Code for Building Societies and other mutuals; and
- the commencement of a new regulatory framework for recognised
inter-bank payments systems.
Competition and choice are central to responsive and well functioning
markets. The Government is taking steps to promote competition in financial
services, and to ensure that consumers are empowered to make informed choices,
have access to the services they need, and are appropriately protected. The 2009
Pre-Budget Report announces:
- £20 million to fund the national rollout of the Money Guidance service in
2010-11, helping one million people to manage their money better; and
- £5 million to fund extended opening hours at Citizens Advice bureaux in
2010-11, helping an additional 300,000 people.
Further details on these and other measures are set out below.
Code of Practice on taxation for Banks The Chancellor announced on 16 March
2009 that HM Revenue & Customs (HMRC) would publish a Code of Practice to
encourage banks to comply with the spirit as well as the letter of the law.
After a period of consultation the Government will today introduce the Code,
which it expects all banks operating in the UK to adopt. The Code asks banks to
have governance around tax, integrated into business decision-making and open
and transparent relationships with HMRC.
A response document and Impact Assessment are published today on the
HMRC website.
Advisory Group on Financial and Professional Services
The Government remains committed to ensuring that the UK's financial services
sector remains strong in the long term, given its economic importance, and that
the UK's comparative advantage in this sector remains.
The Pre-Budget Report announces that the Chancellor will convene a new
advisory group on financial and professional services, as a smaller and more
focused successor to the former High-Level Group. It will act as a critical
sounding board for the Government with respect to policies pertaining to the
long-term future of the sector and their cumulative impact, and will ensure that
the conclusions from the competitiveness reports are followed through.
Bank payroll tax
The Government attaches great importance to tackling the remuneration
practices that contributed to excessive risk taking by the banking industry. It
announces, with effect from today, that where bank or building society employees
are awarded discretionary bonuses above £25,000 in the period from the
Pre-Budget Report to 5 April 2010, employers paying these bonuses will pay an
additional bank payroll tax of 50 per cent on the excess over this threshold.
This one-off tax will not be deductible in computing the taxable profits of
affected companies.
The tax will apply until 5 April 2010, but the Government will consider
extending the period of charge so that the tax remains in place until the
relevant provisions of the Financial Services Bill come into force. Where there
is evidence of avoidance schemes being put in place the Government will take
action to close those schemes.
More details of this tax are in a Technical Note, published today on
HMRC’s website.
Supporting business and growth
Following a year in which the global economy entered the most severe and
synchronised recession since the Great Depression, the Government is determined
to ensure that the UK remains an attractive place to do business, and to create
a strong and stable platform for future growth.
The action that the Government is taking to put the public finances onto a
sustainable footing, and to ensure that the financial markets are properly
functioning, is key to providing the macroeconomic stability that business
needs. In addition to action economy-wide, the Government continues to take
targeted measures to:
- support businesses into the recovery: by continuing the Business Payment
Support Service that has already enabled over 160,000 businesses to spread
over £4 billion of tax; extending the temporary increase in the threshold for
empty property rate relief; and further deferring the increase in the Small
Companies’ Rate of corporation tax;
- ensure that business has access to the capital it needs: through the
legally binding lending commitments made by the Royal Bank of Scotland and
Lloyds Banking Group; by making an additional £500 million of lending
available to small and medium-sized enterprises through a 12-month
continuation of the Enterprise Finance Guarantee; and by creating a new Growth
Capital Fund, along with the £325 million UK Innovation Investment Fund;
- build on the unprecedented investment in infrastructure over the last
decade and ensure the UK is ready to face the challenges of the transition to
a low-carbon economy by creating Infrastructure UK, which will help facilitate
private sector investment in infrastructure, and help ensure that
publicly-funded infrastructure is effectively prioritized and delivered; and
- drive innovation by introducing a Patent Box, a reduced rate of
corporation tax applying to income from patents from April 2013, to strengthen
the incentives to invest in innovative industries, and through additional
funding of £200 million for the Strategic Investment Fund that will include
£150 million to support low-carbon investment, as set out in Chapter 7.
Further details on these and other measures are set out below.
Supporting the recovery
Business Payment Support Service (BPSS)
Launched at the 2008 Pre-Budget Report, HMRC’s Business Payment Support
Service (BPSS) allows businesses facing temporary financial difficulties more
time to pay their tax bills. The service has already helped over 160,000
businesses, employing more than 1.2 million people, spread over £4 billon of
tax. Of this, more than £3 billion has
already been repaid.
The Pre-Budget Report announces that HMRC will continue to offer this service
to business as part of its time to pay arrangements.
Business rates: Empty Property Relief
The 2008 Pre-Budget Report announced that empty properties with rateable
values of up to £15,000 would be exempt from business rates for 2009-10,
exempting an estimated 70 per cent of empty properties from paying business
rates.
The Pre-Budget Report announces that the Government will extend the temporary
increase in the threshold for empty property relief for a further year. For
2010-11, empty commercial properties with rateable values up to £18,000 will be
exempt from business rates, continuing the exemption for an estimated 70 per
cent of empty properties.
Small Companies Rate of corporation tax
To support small companies during the recovery, 2009 Pre-Budget Report
announces a further 1 year deferral in the planned increase in the small
companies’ rate of corporation tax. The rate will remain at 21 per cent in
2010/11, after which it will increase to 22 per cent.
End of the temporary reduction in the VAT standard rate on 31 December
As announced at 2008 Pre-Budget Report and confirmed in Budget 2009, the
temporary reduction in standard rate of VAT to 15 per cent will end on 31
December 2009. The temporary VAT reduction will have delivered stimulus of about
£11.5bn into the economy.
The Pre-Budget Report confirms arrangements to smooth the transition for
businesses back to the 17.5 per cent rate. There will be a “period of grace” for
businesses trading across the midnight deadline to charge the lower 15 per cent
rate until they close (or until 6 a.m., whichever is earlier), and plans to let
shops add the extra VAT to prices at the tills for up to 28 days, giving them
extra time to complete the re-pricing of their stock.
The rates under the Flat Rate scheme are amended to reflect the end of the
temporary reduction of the standard rate of VAT, as well as the latest data on
VAT payments by the various sectors.
Ensuring access to finance
Enterprise Finance Guarantee
The Enterprise Finance Guarantee has provided targeted support for viable
businesses with less than £25 million turnover who have no or insufficient
security. PN01 7
Since its launch on 14 January 2009, nearly £1 billion of eligible applications
from almost 9,000 small and medium-sized enterprises (SMEs) have been granted,
are being processed or are being assessed.
Recognising the continuing challenges that small business face in accessing
finance, the Pre-Budget Report announces that the scheme will be continued for a
further 12 months, providing an additional £500 million of bank lending
available to SMEs.
Growth Capital Fund
The Rowlands Growth Capital Review published in November 2009 found that a
structural gap exists in the provision of growth capital to small and medium
enterprises (SMEs). There are around 30,000 growing SMEs, of which 10 per cent
in any year could struggle to access capital.
In response to the review’s recommendations, the Pre-Budget Report announces
the creation of the Growth Capital Fund to invest in small and medium size
businesses, targeting growing companies seeking amounts of between £2m and £10m.
Following an initial approach from the investment banking community and further
contact with the retail banks, the Government is in discussions with a group of
Global and UK banks who want to ensure that they are able to play a meaningful
role in ensuring the UK economic recovery. We will work rapidly with these banks
to establish a world class, fully commercial Growth Fund that will work for the
benefit of the economy and will be announcing initial investors and fund
structure in the New Year.
Investing in infrastructure
Infrastructure UK (IUK)
The Pre-Budget Report announces the establishment of Infrastructure UK (IUK).
IUK will be responsible for advising Government on long-term national
infrastructure priorities including how we support a transition to low carbon
economy. IUK will help prioritise Government's investment in infrastructure,
identify and address major cross-cutting issues affecting UK infrastructure, and
improve the way Government supports the delivery of infrastructure projects and
programmes. IUK will develop a strategy for national infrastructure by Budget
2010 that will provide a long-term vision for national infrastructure. IUK will
be led by Paul Skinner as Chair and James Stewart as Chief Executive.
Driving innovation
Government is committed to ensuring the UK remains an attractive location for
investing in and undertaking innovative activity, supporting growth and building
on the UK’s innovative strengths. Budget 2009 announced the Government would
work with business to examine the balance of taxation on innovative activity,
including intellectual property. As part of this work, the Government has looked
at the case for a reduced rate of Corporation Tax applied to income from patents
(a so called “Patent Box”).
The PBR announces that Government will introduce a Patent Box applying to income
from April 2013 to strengthen the incentives to invest in innovative industries
and ensure the UK remains an attractive location for innovation. Government will
consult with business in time for Finance Bill 2011 on the detailed design of
the patent box, which will apply to patents granted after the legislation is
passed.
North Sea
The economic production of the UK's oil and gas reserves is central to
ensuring access to secure and affordable energy supplies.
Following discussions with industry stakeholders, the Government announces
changes to the criteria for the High Pressure, High Temperature field allowance.
These changes could support the recovery of around 300 million additional
barrels of oil and gas from the North Sea. The Government also announces further
technical changes to ensure the fiscal regime is effective in supporting
investment.
The area to the west of the Shetland Islands is the last major underdeveloped
area in the North Sea, and could contain up to 20% of the UK's remaining
reserves. The Government is in discussions with industry regarding the economics
of developments in the West of Shetlands area and the case for any fiscal
support.
Strategic Investment Fund Budget 2009 announced a £750 million Strategic
Investment Fund to support advanced industrial projects of strategic importance
that will drive the UK's future growth including in advanced manufacturing and
low carbon.
The Pre-Budget Report announces a £200 million extension to the Strategic
Investment Fund (SIF) including a major £150 million contribution to low carbon
projects. The SIF will continue to facilitate investment in high-growth areas as
the economy moves forward into recovery. Specific projects include £50 million
to encourage manufacturing facilities in the offshore wind industry, £30 million
to help the chemicals industry on Teesside decarbonise while maintaining
competitiveness, £30 million for low carbon transport, and £40 million for other
low carbon projects. £5 million is also allocated to the Technology Strategy
Board to advance new prize funds in emerging technologies. £45 million remains
to be allocated.
Landline Duty
HM Treasury, HM Revenue and Customs, and the Department for Business,
Innovation and Skills will shortly consult on the implementation of the Landline
Duty.
The Landline Duty of 50 pence per month for each line is being introduced to
help fund the roll-out of superfast broadband - Next Generation Access - to 90
per cent of the country by 2017. The Digital Britain White Paper committed to
introduce the new duty in the financial year 2010-11.
Maintaining open and competitive markets
Controlled Foreign Company (CFC) reform
The Government remains committed to reforming the Controlled Foreign Company
rules and the Pre-Budget Report announces that the Government will publish a
document on the shape of the new regime early in the New Year.
Enhancing Skills Support for Internships
PBR announces that, in response to the recommendations of the Milburn report
on access to professions, Government will contribute £8 million towards a new
financial support scheme to provide bursary-style support for undergraduates
undertaking short unpaid internships in professions with historically low
access. Support will be available as early as Summer 2010 and once fully
operational will support around 10,000 internships a year. Further details on
the scheme will be published in the Government's reponse to the report, due in
early 2010.
Supporting Enterprise
Enterprise support for ex-service personnel
As part of the Government's commitment to supporting service personnel
returning from conflict, including those who may be disabled as a result of
their service, PBR announces new funding of up to £5 million for enterprise
support. This funding will assist returning personnel by reducing the costs and
barriers associated with self-employment and setting up a new business. It will
also allow targeted mentoring support to help more businesses operated by
ex-service personnel to thrive and grow.
Achieving fairness and providing opportunity
Government support for people to move back into work, combined
with a dynamic and flexible
labour market, has helped over 3.2 million people to leave
unemployment benefit since the 2008 Pre-Budget Report. This has helped
unemployment remain lower than expected at the time of Budget 2009. The
Government is therefore using some of the £3 billion funding for Jobcentre Plus
and employment programmes from the 2008 Pre-Budget Report and Budget 2009 to
provide additional support for those adversely affected by the recession. This
additional support includes bringing forward the young persons guarantee, so
that 18-24s claiming Jobseeker’s Allowance for six months will now be guaranteed
a job, work placement or work-related skills training.
The Government recognises that making the transition into work
can be difficult and, to help families to make this move, the Government will
extend free school meals to primary school pupils in low income working families
in England from September 2010.
The 2009 Pre-Budget Report announces further Government action
to provide support for households during the early stages of economic recovery,
including increasing the basic State Pension by 2.5 per cent, the child element
of the Child Tax Credit by £20 above earnings indexation, and other benefits and
tax credits normally linked to the Retail Prices Index (RPI) by 1.5 per cent.
The Government announces further action to ensure that fiscal
consolidation is broad-based, with those on the highest income making the
greatest contribution:
- an additional 0.5 per cent increase in the employee, employer and
self-employed rates of national insurance contributions (NICs) from April
2011, alongside an increase in the point at which individuals start to pay
NICs to protect 15 million people on incomes below £20,000;
- the point at which individuals start to pay the higher rate of income tax
will be frozen in 2012-13; and
- the restriction of pensions tax relief from April 2011 will apply to those
with gross incomes of £150,000 and over, where gross income incorporates all
pension contributions, including those funded by an employer. This will be
subject to an income floor, so that individuals with pre-tax incomes
(excluding employer pension contributions) of less than £130,000 will be
unaffected.
In 2009-10, just 2.5 per cent of estates are expected to pay
inheritance tax. The Government is therefore freezing the inheritance tax
allowance at £325,000 in 2010-11.
The Government continues to take action to protect revenues from
those seeking to evade and avoid paying their fair share of tax. Building on
existing measures, the Government will introduce a package of measures which
will protect around £5 billion per year from evasion and avoidance.
Further details on these and other measures are set out below.
National Insurance Contributions
The Pre-Budget Report announces that the employee, employer and
self-employed rates of National Insurance Contributions (NICs) will increase by
0.5 per cent in April 2011 in addition to the 0.5% increase announced at the
2008 Pre-Budget Report.
To ensure that the lowest earners are protected from the rise in
NICs rates, the level at which people start to pay NICs will increase in April
2011 by £570 above the level previously announced. Those paying the standard
employee rate and earning under £20,000 will pay less NICs overall as result of
these changes.
Personal Tax
The Government has today announced that as part of the package
to support sound public finances, the point at which individuals start to pay
the higher rate of income tax , known as the higher rate threshold, will be
maintained in 2012/13 at 2011/12 levels. The upper earnings limit and the upper
profits limit for national insurance will continue to be aligned with the higher
rate threshold. To ensure that those on low incomes do not lose out the personal
allowance will be indexed in line with inflation in 2012/13.
Child poverty
The Pre-Budget Report announces further support to families,
reinforcing the Government’s commitment to the Child Poverty Bill, which sets in
legislation the goal to eradicate child poverty by 2020. The measures include:
- Helping low income families make the transition into work by extending the
entitlement to Free School Meals to primary school aged children of low income
working families benefiting around 500,000 children. In addition to this, the
Government is also extending the current pilots testing universal provision of
Free School Meals so that there is one in every English region.
- allowing parents to divide a period of paid leave between them in the
second six months of their child's life, helping them to balance work and
family life;
- working with local authorities and schools to promote existing guidance
and advise local authorities providing grants for school uniforms on how to
target support on those who need it most;
- action to improve and join up delivery of local services, including a new
public resource in 2010 to bring together information on a range of benefits
and entitlements.
Since the Government made its pledge to eradicate child poverty
within a generation significant progress has been made. Between 1998-99 and
2007-08 some 500,000 children were lifted out of relative poverty. Taken
together, measures announced in and since Budget 2007 will lift around 550,000
children out of poverty.
Social Investment Wholesale Bank
The Pre-Budget Report announces a commitment and forward
timetable towards the establishment of a Social Investment Wholesale Bank. This
is backed up by an intention to commit up to £75m start-up funding from dormant
account assets, subject to availability and alongside other priorities.
The Social Investment Wholesale Bank will be a wholesaler of
social investment finance. It will aim to leverage in investment for
organisations with social impact from a wide range of sources to improve their
access to finance. The bank will also aim to increase financial inclusion by
supporting Community Development Finance Institutions and credit unions. The
institution would be independent from Government.
Employment package
The Pre-Budget Report announces that a guaranteed offer of a job, work
placement or work-related skills training will be made to all young people aged
18-24 unemployed for six months.
This brings forward from 12 months the young person’s guarantee
announced at the Budget in April, and builds on the success of local authorities
and private and voluntary sector partners in bidding to provide 100,000 new jobs
across the country through the Future Jobs Fund. Already, up to 95,000 high
quality jobs have been awarded for young people out of work and adults in areas
hardest hit by the recession.
Pensions
State Pension
The Pre-Budget Report announces that in April 2010 the level of
the basic State Pension will increase by 2.5 per cent, meaning a full basic
State Pension will be worth £97.65 a week. The full couples’ rate for those
whose entitlement is based on their spouse or civil partner’s pension will
increase to £156.15 a week.
These increases are in line with the Government’s commitment to
uprate the basic State Pension by RPI or 2.5 per cent, whichever is higher.
Pension credit
There will also be an above-indexation increase in Pension
Credit’s minimum income guarantee, the Chancellor announced today, to £132.60
for single pensioners and £202.40 for couples in 2009-10.
Pensions tax relief
Budget 2009 announced that, in order to ensure that the pensions
tax relief system remains fair, affordable, and sustainable, tax relief on
pension contributions would be restricted from April 2011 for individuals with
incomes of £150,000 or over.
The Government is clear that the restriction should apply as
fairly as possible between individuals in different types of pension schemes and
employment, and with different remuneration arrangements, while remaining
targeted on those on the highest incomes. For this reason, the Government
announces that the restriction will apply to those with gross incomes of
£150,000 and over, where gross income incorporates all pension contributions,
including the value of any pension benefit funded by, or eventually funded by,
an individual’s employer. This will be subject to an income floor such that
those with pre-tax incomes, excluding the value of any employer contributions,
of less than £130,000 are unaffected. In order to protect tax revenues, the
anti-forestalling regime introduced at Budget 2009 will be extended to apply to
individuals on incomes of £130,000 and over from 9 December 2009.
The Government is today launching a formal consultation on the
implementation of this change and welcomes responses. The consultation will run
for 12 weeks until 3rd March 2010. HM Treasury and HM Revenue and Customs will
be holding a series of stakeholder workshops during the consultation period.
Housing
Housing Recovery Strategy
The Pre-Budget Report announces the components of the
Government’s wider strategy to support a timely and effective housing supply
response through the recovery, in order to maximise delivery of high quality,
energy efficient homes.
The Government will be taking action to:
- Ensure more land is brought forward for development, through improving
local authorities’ five-year land supplies by carrying out comprehensive
checks, publishing results and withholding incentive funding if they are not
in place, and setting out at Budget 2010 what action might be required to
secure delivery;
- Reduce regulation and ensure requirements do not unduly constrain house
building by scaling back section 106 requirements; considering in early 2010
the case for and form of regulation on Lifetime Homes with any move to make it
mandatory not occurring until 2013 at the earliest; and establishing a
national baseline for total regulatory costs by Budget 2010, working in
parallel with industry to identify reductions;
- Promote a strong and diverse house building industry by carrying out a
study of drivers of housing growth and the steps Government or industry could
take to improve diversity and innovation, reporting by Budget 2010;
- Enhance the role of local authorities in planning and enabling housing
growth locally, and in building new social housing, including examining the
scope for local authorities to borrow against the revenues from new council
homes to support the delivery of housing where this offers value for money,
and considering interactions with wider reforms to the council housing finance
system; and
- Deliver effective and coordinated infrastructure nationally and locally,
including developing further reform proposals through Infrastructure UK and
through six Total Capital case studies, working with the Homes and Communities
Agency (HCA), local authorities and other government agencies.
Consultation on growing the Private Rented Sector
The Pre-Budget Report announces that the Government will issue a
consultation document early in 2010, which will build on the work of the Rugg
Review, to consider the contribution the Private Rented Sector could make to
addressing demand and increasing housing supply, and any barriers to investment.
Extension of HomeBuy Direct through 2010-11
The Pre-Budget Report announces that Government is providing
further help for first-time buyers by making available over £150 million total
investment for HomeBuy Direct in 2010-11 through bringing forward funding from
this year and prioritising housing for first-time buyers within the Kickstart
programme. This will deliver an increase of around 3,000 more households helped
above the original 10,000 target.
Standard Interest Rate applied to the Support for Mortgage Interest scheme
The Pre-Budget Report announces that the Standard Interest Rate
used to calculate Support for Mortgage Interest will be frozen at 6.08 per cent
for a further six months.
220,000 homeowners have benefited from the SMI rate freeze since
it was announced in the 2008 Pre-Budget Report. The extension of the rate freeze
will run until 30 June 2010, providing continued support to those facing
financial difficulty and helping protect them against repossession.
Local Authority guideline rent increases for 2010-11
The Pre-Budget report announces that the average guideline rent
increase for 2010-11 will be reduced from 6.1 per cent to 3.1 per cent for local
authority tenants. This will help councils to set rents that are affordable and
fair for their tenants and ensure that councils have sufficient resources for
the coming year.
Fair contribution to tax
Offshore evasion
The Pre-Budget Report announces robust measures to tackle
offshore tax evasion. Legislation will be brought forward to ensure that those
who fail to declare offshore tax liabilities will face the tough penalties
attracted by deliberate tax evasion. There will also be a new requirement to
notify HMRC when opening offshore bank accounts in certain jurisdictions,
supported by a separate penalty regime. Evading tax offshore could therefore
result in combined penalties of up to 200 per cent of the unpaid tax.
HMRC is gaining access to data from over 300 financial
institutions on UK taxpayers with offshore accounts. The 'New Disclosure
Opportunity' gives those with undeclared offshore assets a final opportunity to
come forward to pay tax, interest and a reduced penalty. The deadline for
notifications is 4th January 2010. This is the last chance for offshore tax
evaders - if they do not come forward now, they can expect much tougher
penalties in the future.
Freezing the Inheritance Tax Nil Rate Band
The Pre-Budget Report announces that the Inheritance Tax
allowance for 2010-11 will be frozen at its current level of £325,000.
Just 2.5 per cent of estates left on death are expected to pay
Inheritance Tax in 2009-10. The number of estates paying Inheritance Tax has
never been lower. The Pre-Budget Report announces that the allowance is
therefore remaining at its current level to ensure that the wealthiest estates
continue to make a fair contribution to the public finances.
Alcohol, tobacco and gambling
Alcohol and tobacco duty rates
As announced in the 2008 Pre-Budget Report, alcohol and tobacco
duty rates will remain at current levels when the standard rate of VAT returns
to 17.5 per cent in January 2010.
Bingo duty
The Pre-Budget Report announces that bingo duty is to be reduced
to 20 per cent from Budget 2010.
Protecting public services
Since 1997, record levels of investment matched by reform have
enabled the Government to achieve lasting improvements in Britain’s public
services.
The Government’s short-term priority is to continue to support
the most vulnerable families andbusinesses until recovery is secured. The 2009
Pre-Budget Report announces new short-termspending measures, including £300
million to bring forward the offer of a job, training or awork placement to
every 18 to 24 year old who has been claiming Jobseeker’s Allowancefor six
months, and a freeze in the Standard Interest Rate used to calculate Support
forMortgage Interest at 6.08 per cent for a further six months, benefiting an
estimated220,000 homeowners.
The 2009 Pre-Budget Report confirms that the Government will
stick to planned levels ofoverall departmental spending in 2010-11 to help
support the economy through the downturn, but from 2011-12 onwards spending
growth will reduce to help halve the deficit over the next four years. The 2009
Pre-Budget Report announces an additional 0.5 per cent increase in employee,
employer and self-employed rates of national insurance contributions. As a
result, public sector current expenditure will grow by an average of 0.8 per
cent a year from 2011-12 until 2014-15. Public sector net investment will move
to 1.25 per cent of GDP by 2013-14 and will remain at that level in 2014-15.
The 2009 Pre-Budget Report sets out a package to ensure that, in
2011-12 and 2012-13,NHS front-line spending – the 95 per cent of spending that
supports patient care – rises in line with inflation, spending on front-line
schools rises by 0.7 per cent a year in real terms and spending on 16 to 19
participation rises in real terms by 0.9 per cent a year. Spending on Sure Start
Children’s Centres will be maintained in line with inflation. Sufficient funding
will be provided to police authorities to enable them to maintain the number of
police officers and community support officers, and spending on overseas aid
will remain on track to reach 0.7 per cent of Gross National Income (GNI) by
2013.
At the same time, the 2009 Pre-Budget Report announces new
efficiencies and reformsacross the public sector including:
- £11 billion of savings by 2012-13 through smarter government for example
through rationalising Arms Length Bodies, greater use of online systems for
providing advice and information to the public, cutting consultancy spend by
50 per cent, and better management of government assets;
- £5 billion of savings by 2012-13 from targeting and prioritising spending
including by reforming the Criminal Justice System and legal aid, reducing
lower priority provision within the adult skills budget, phasing out
temporary employment programmes, and reducing the cost and scope of the NHS
IT Programme;
- a one per cent cap on public sector pay settlements in 2011-12 and
2012-13, delivering £3.4 billion of savings a year by 2012-13; and
- reforms to public service pensions to save £1 billion a year from 2012-13
onwards.
Further details on these and other measures are set out below.
Public Sector Current Expenditure (PSCE) and Public Sector Net Investment (PSNI)
assumptions from 2011-12 to 2014-15
The Pre-Budget Report sets assumptions for spending growth from 2011-12 to
2014-15 which allow continued investment in public services whilst ensuring
sustainable public finances in the medium term: with current spending growing by
an average of 0.8 per cent a year in real terms and public sector net investment
moving to 1.25 per cent of GDP by 2014-15.
Protecting frontline public services
As the rate of spending growth slows, the Government will continue to protect
investment in key frontline public service priorities.
In assessing the resources needed to maintain high quality healthcare, the
2009 Pre-Budget Report announces a package to ensure that NHS near-cash
frontline spending - the 95 per cent or so of spending that supports patient
care - will rise in line with inflation in 2010-11 and 2012-13.
The PBR makes an assessment of the resources necessary to protect frontline
education and announces a package for 2011-12 and 2012-13 that will ensure
near-cash funding for frontline schools (3-16s) rises in real terms by 0.7 per
cent a year, and near-cash funding for 16 to 19 participation rises in real
terms by 0.9 per cent a year. Resource spending on sure start children's
centres will be maintained in line with inflation.
Sufficient funding will be provided to police authorities to allow them to
maintain the number of police officers and community support officers; and
spending on overseas aid will remain on track to reach 0.7 per cent of GDP by
2013.
Public Value Programme savings
The Government has looked at the opportunities to deliver efficiencies across
the public sector by cutting lower value or lower priority programmes or
projects. On the basis of early findings from the Public Value Programme, the
Pre-Budget Report announces £5 billion a year of additional savings by 2012-13
including for example reforming the criminal justice system and payments made to
public servants posted overseas.
Smarter government savings
The Pre-Budget Report announces further details of the £12 billion of savings
set out in “Putting the frontline first: smarter government” to be achieved
through delivering services in a smarter, more effective way and announces that
£11 billion a year of these savings will be delivered by 2012-13.
£8 billion of the £11 billion to be delivered by 2012-13 are savings
identified by five external advisers as part of the Operational Efficiency
Programme (OEP) through improving back office functions, IT, collaborative
procurement and property running costs.
£3 billion of the £11 billion are additional to OEP and the Pre-Budget Report
provides further details on how these will be achieved by 2012-13 including
through more efficient waste collection and disposal, streamlining arms length
bodies and through improving energy efficiency.
Progress towards the Government’s 2007 Comprehensive Spending Review value
for money target of £35bn
Departments have made good progress towards their targets as part of the £35
billion of cash-releasing savings. The Pre-Budget Report announces that savings
of £8.5bn have been delivered so far. This includes savings reported across all
departments in 2008-09 and, where available, departmental savings reported in
the first half of 2009-10.
Public Sector Pay and Pensions
The public sector paybill makes up around half of departmental budgets so
restraint will be critical in delivering fiscal consolidation, protecting
frontline workforces and minimising the effect of tighter budgets on workforce
numbers. The Pre Budget Report sets out an ambitious package of measures across
public sector pay and pensions - in both areas, the Government expects senior
staff on higher incomes to show leadership.
a) Public Sector Pay
PBR 2009 announces:
- Government will be seeking a 1 per cent cap on basic pay uplifts across
the public sector for 2011-12 and 2012-13, generating savings to departments
of £3.4 billion by 2012-13. This builds on an announcement in October that
Government will seek awards up to 1 per cent in 2010-11 for key public sector
workforces not in multi year deals.
- For senior staff, a set of fundamental reforms to pay-setting:
-
- new scrutiny of pay levels above £150,000 and bonuses above £50,000
- new requirements to publish salaries to increase transparency and
accountability
- the Prime Minister will ask Bill Cockburn as Chair of the Senior
Salaries Review Body to lead a review of senior pay across the public
sector, reporting by Budget 2010
This builds on Government proposals in October for a pay freeze in 2010-11
for senior groups including chief executives of NDPBs, senior civil servants,
judges, senior NHS managers, consultant doctors and GPs.
b) Public Service Pensions
As pensions become more valuable due to people living longer, cap and share
reforms in the NHS, Teachers, Local Government and Civil Service pension
schemes will cap the contribution of employers, thereby limiting the liability
of the taxpayer.
PBR 2009 announces:
- these reforms will save around £1bn from 2012-13 and at least twice this
amount over the long term; and
- as part of cap and share, the Government expects that those earning the
highest salaries will pay a greater contribution towards their pensions.
DEL Reserve in 09-10 and 10-11
The 2009 Pre-Budget Report announces an additional £2.5 billion for the
2010-11 Reserve to allow the Government to continue to meet the cost of the
Military Operations in Afghanistan.
Frontline flexibilities & Total Place
The Pre-Budget Report sets out how Government will free up frontline public
services to innovate and collaborate, building on the strong commitments made in
“Putting the frontline first: smarter government”. PBR includes interim
findings from the Total Place pilots, launched at Budget 2009 and announces
steps to increase freedoms and flexibilities for frontline staff in public
services, including consulting on proposals to extend non-medical prescribing
for certain allied health professionals and working with the NHS to explore
options to support GPs in referring patients to high quality and cost-effective
alternative settings. This demonstrates the Government's commitment to drive
forward public sector reform, accelerating the movement of power away from
Whitehall to those on the front line.
Supporting low carbon growth
The UK is playing a leading role on climate change, setting the agenda for
the internationalnegotiations and taking radical domestic action to promote
low-carbon growth. The Government is committed to an ambitious global deal at
the UN negotiations in Copenhagen.
The UK is at the forefront of a worldwide low-carbon economic recovery. The
Pre-Budget Report provides a further £400 million to support business investment
in low-carbon growth and help households reduce energy costs. Combined with
policies announced since September 2008, this could support over £15 billion of
additional public and private investment in the low-carbon and energy sectors
over the next three years. The Pre-Budget Report announces:
- additional support for offshore wind projects accredited from April 2010
to March 2014 via the Renewables Obligation;
- doubling to four the UK’s commitment to fund carbon capture and storage
demonstration projects via contributions from electricity suppliers;
- establishing Infrastructure UK to leverage further investment in
low-carbon projects including by: investing €100 million in a European
Investment Bank-led fund to deploy up to €1.5 billion of equity and €5 billion
of debt in low-carbon infrastructure; and considering the case for a
low-carbon investment institution;
- £120 million for low-carbon industries in the UK, including new
manufacturing and testing facilities for offshore wind, and support to improve
energy use in the chemicals industry;
- £200 million to improve energy efficiency and tackle fuel poverty by:
offering £400 for up to 125,000 households to upgrade their old boilers to the
latest efficient models with a greener boiler incentive; and providing extra
resources for Warm Front to help 75,000 of the most vulnerable households with
heating and insulation;
- confirming that the income received by those who generate small-scale
renewable electricity for their home through the clean energy cash-back
scheme, worth on average £900 in 2010, will be tax free;
- helping one million more vulnerable households with discounts on their
energy bills by increasing support provided by energy companies from £150
million to £300 million by 2013-14;
- increasing support for low-carbon vehicles through exempting electric cars
from company car tax from 2010, introducing a 100 per cent first-year
allowance for electric vans, and investing a further £30 million on low-carbon
transport projects.
Further details on these and other measures are set out below.
Renewables Obligation for offshore wind projects
The Pre-Budget Report announces that the temporary increase in Renewables
Obligation Certificates (ROCs) for offshore wind will be amended so that all
projects accredited between April 2010 and March 2014 will qualify for 2 ROCs,
supporting at least an additional £400 million of investment. It also announces
that technical change to improve the certainty of the ROC price will be brought
forward to 2011.
Carbon Capture and Storage
The Pre-Budget Report announces that Government will double the commitment to
CCS and support four carbon capture and storage projects, phased over the period
2014 to 2018. This will help to commercialise this important technology in the
fight to tackle climate change. The demonstration programme will be funded
through a levy on electricity suppliers, the legislation for which is contained
in the Energy Bill currently being considered by Parliament.
Energy investment funding
The Government is establishing Infrastructure UK (IUK) to leverage further
investment in low carbon energy including by: investing €100 (£90) million into
the 2020 European Fund for Energy, Climate Change and Infrastructure to deploy
up to €1.5 billion equity and €5 billion debt for low-carbon infrastructure
projects, such as offshore wind; and considering the case for a low carbon
investment institution.
Support for low carbon technologies
The Pre-Budget Report announces an additional £150 million investment to
support low carbon technologies. This package includes:
- £50 million to investment in the development of the UK offshore wind
industry, including funding for new manufacturing and testing facilities;
- £40 million support for low carbon technologies, including continued
support for small-scale and community-level low-carbon energy generation;
- 30 million for the chemicals industry on Teesside to lead the way in
demonstrating how to decarbonise the process industry across Europe, while
maintaining its competitiveness;
- £30 million for green transport projects, including an expansion of the
Technology Strategy Board’s ultra-low-carbon vehicles competition;
Greener Boiler Incentive scheme
The Pre-Budget Report announces a £400 incentive to help up to 125,000
households upgrade old inefficient boilers to the latest energy efficient
models, (available to those who buy a new efficient boiler or renewable heat
unit to replace a working G rated boiler).
Tax-free clean energy cash-back worth around £900 per year
The Pre-Budget Report confirms that the income received by those who generate
small scale renewable electricity for their own use through the clean energy
cash back scheme (Feed-in Tariffs), worth on average £900 in 2010, will be
tax-free. This will save £180 on average for a household paying the basic tax
rate in 2010.
Help to install renewable energy
The Pre-Budget Report announces that the Government will consult next year on
measures to help low-income households take advantage of clean energy cash-back.
Support to heat homes
The Pre-Budget Report announces an additional £150m to provide resources for
the Warm Front scheme, providing free and subsidised heating and insulation for
75,000 vulnerable households to heat their homes.
Support for energy bills
The Pre-Budget Report announces an increase in the amount of help provided by
energy companies from £150 million to £300 million a year by 2013-14. These
resources could provide discounts for an additional 1 million households.
Support for low-carbon transport
The Pre-Budget Report announces further support through the taxation system
for electric vehicles, to help catalyse the markets for electric cars and vans.
From April 2010:
- all electric cars will be exempt from Company Car Tax for a period of 5
years;
- all electric vans will be exempt from Van Benefit Charge for 5 years; and
- a 100 per cent first-year allowance will be provided for the purchase of
electric vans, subject to confirming compatibility with State aid rules.
£30 million in funding will also be provided to support the development of
low-carbon transport, including through an expansion of the Technology Strategy
Board’s ultra-low carbon vehicles competition.
Company Car Tax
The Pre-Budget Report confirms that from 2012, the CO2 emissions thresholds
for Company Car Tax (CCT) bands will be shifted down by 5g CO2 per km, and the
graduated table of CCT bands will be extended downwards to a new 10 per cent
band for cars emitting up to 99g CO2 per km, in place of the existing 10 per
cent band.
Fuel Benefit Charge
The Pre-Budget Report announces that, to support the public finances and
encourage fuel-efficient travel, the fuel benefit charge multiplier will
increase from £16,900 to
£18,000 from 6 April 2010.
About the Author
© Crown Copyright. Material taken from HM-Treasury.
Reproduced under the terms and conditions of the Click-Use Licence.
Follow us @Scopulus_News
Article Published/Sorted/Amended on Scopulus 2009-12-10 13:32:21 in Economic Articles
