Wednesday, 22 April 2009

Budget 2009. What Does It Mean To Us?

Another highly anticipated Budget comes and goes, so what are the key points in this one?

The Chancellor used the Budget speech to cut his growth forecasts. The economy is now expected to contract by 3.5% this year, but grow 1.25% in 2010. If he's correct, this would mean growth starting towards the end of this year
  • Public sector net borrowing will be £175bn this year, 12.4% of GDP. From 2010, it will be £173bn (11.9% of GDP), then £140bn (9.1%), £118 bn (7.2%) and £97n (5.5%).
  • National debt as a percentage of GDP, including the cost of stabilising the banking system, will increase from 59% this year to 68%. It will rise to close to 80% by 2013/14 - twice the level Labour inherited in 1997. The Chancellor expects underlying current budget deficit to come back into balance two years later. RPI inflation is forecast to remain negative, falling to minus 3% by September, before moving back above zero next year. Inflation is expected to continue falling sharply, reaching 1% by the end of this year. The Bank of England inflation target remains unchanged at 2%.
  • The UK's current deficit is expected to halve within four years

So that's all the numbers out of the way. How does this affect most of us?

Personal taxation

The following changes have been announced which will come into effect from April 2010:

  • an additional Income Tax rate of 50 per cent will apply to people earning over £150,000
  • the income tax personal allowance will be reduced for those with incomes over £100,000

Pensions and Savings

The Budget announced the following changes to pensions:

An increase of £100 to over-80s households and £50 to over-60s households in 2009/10, alongside their Winter Fuel Payment.

Tax relief on pensions contributions will be reduced for those earning £150,000 and over

The overall annual investment limit for ISAs rises to £10,200 of which £5,100 can be saved in cash.

These higher limits will be available to over-50s from 6 October 2009 and to everyone from 6 April 2010.

Housing and Homeowners

The Stamp Duty land tax threshold on residential properties costing £175,000 or less will be extended until 31 December 2009.

As a result of this 'holiday', some 60% of UK homes are currently exempt from Stamp Duty.

Local Housing Allowance (LHA) is being reformed - households will no longer be able to keep any surplus LHA if it is higher than their rent.

Budget 2009 announced a £600 million fund to kick-start housebuilding, with the aim of delivering an additional 10,000 homes in England over the next two years.

This package includes £100 million 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 is planned to stimulate housing development as well as boost the capacity of the house building industry in the long-term.

Motoring and Transport

The Government has announced a temporary vehicle scrappage scheme - it offers consumers a £2,000 discount when buying a new vehicle to replace a vehicle more than 10 years old, provided they have owned the vehicle for at least a year.

Budget 2009 confirmed the fuel duty increase announced in the 2008 Pre-Budget report, and further increases from 2010 to 2013.

Alcohol and Tobacco

Alcohol duty rates increase from 23 April 2009. The duty will increase by 2 per cent, adding one penny to the price of a pint of beer, 13 pence to the price of a bottle of spirits and four pence to the price of a bottle of wine.

Duty on tobacco will increase by 2 per cent from 22 April 2009.

Employment and Training

The Budget announced that 18 to 24 year olds who have been unemployed for 12 months will be guaranteed a job, training or a work placement.

An extra 54,500 places will be created in the next academic year for 16 and 17 year olds who wish to take them up.

Other Changes

  • Statutory Redundancy Pay is to increase from £350 to £380 a week.
  • Help is to be extended to allow loss making companies to reclaim taxes on profits made in the last 3 years to November 2010.
  • Businesses main Capital Allowances Rate has been doubled to 40%, giving enhanced tax relief for capital expenditure of up to £50bn this year.
  • The intention is to raise £1bn of extra revenue, by closing a number of tax loopholes and schemes.
  • From April next year, the child element of Child Tax Credit will increase by £20.
  • Pensioners' Winter Fuel Allowance is to be kept at the higher level of £250 for over 60-s, and £400 for over 80-s for another year.

For a link to the full Budget report, click on the heading of this feature, or you can check out a pdf of it from the 1st Addition web site.