Thursday, 25 March 2010

2010 Budget. A Quick Summary

Today saw the presentation of Alistair Darling’s much anticipated pre election budget.

Let’s face it, it was hardly going to be an easy task with three main issues to contend with.

The first big challenge for Mr Darling was that of the current financial deficit.

The second headache to contend with is that of unemployment.

Finally, there was the added pressure of knowing that this budget was the last one before the upcoming General Election, with all the media and public attention that would, inevitably ensue.

The Basics

Mr Darling confirmed a growth forecast of 1-1.5% for 2010 and growth of 3-3.5% in 2011. The national debt was forecast to fall from 56% to 54% of GDP in 2009/10.

Borrowing was lower than the £178 billion forecast in the last Budget at £167 billion for 2009/10.

He also predicts the national deficit will fall to £163 billion in 2010/11, £131 billion in 2011/12, £89 billion 2013/14 and £74 billion in 2014/15.

There are a number of reasons why the deficit is not as bad as predicted.

Firstly, there is the income derived from bankers’ bonuses. The super tax was originally introduced to deter high bankers’ bonuses, however, much to the dismay of the banks’ shareholders, these bonuses were still paid, resulting in a £2 billion reduction in the overall deficit.

Secondly, with the announcement of the increase of the top level of income tax to 50%, from 6 April, many business owners will have taken larger than normal dividends from their companies, in order to take advantage of the 40% rate, while they still can.

Whilst this will have swelled the coffers of the Government, for now, it’s likely that, as a result, April will be a particularly bad month.

Also, the return of the VAT rate, to 17.5%, will have had an impact on incoming revenues.

Public sector cuts of £5 billion were announced for the coming financial year and £11 billion of further efficiency savings, with 15,000 civil servants to be relocated out of London within the next five years. Public sector pay rises will be held at maximum of 1% until 2013.

The Highs

There were no new hikes in VAT, income tax, capital gains tax or national insurance. The inheritance tax threshold is frozen at £325,000 for a further four years.

Mr Darling moved to combat financial exclusion with the guarantee that everyone will have a basic bank account under new legislation to be announced.

The child tax credit to increase by £4 a week for one and two-year-olds from 2012.

The guarantee of a job or training for all 16 to 24-year-olds, who have been unemployed for 6 months, was extended, by a year, to March 2012.

The tax-free ISA limits, having risen from £7,200 to £10,200 (with 50% being in cash) will now increase annually in line with inflation.

Help will be provided for first-time buyers, and the faltering housing market, through the doubling of the stamp duty threshold to £250,000 for two years but for first-time buyers only. The measure will be paid for through an increase in stamp duty to 5% for homes priced at £1 million and above, effective midnight Wednesday.

The 3p fuel duty increase previously announced will now be phased in by 1p a month from April, another 1p in October and a final 1p in January 2011. The chancellor also allocated £285 million to improve motorway network and £100 million for the maintenance of local roads.

Higher winter fuel payment for pensioners will be renewed for another year - worth £250 or £400 a year for over-80s. Also, from next month, because of above-inflation increases in the basic state pension, and the introduction of the pension credit, every pensioner will be entitled to a weekly income of £132.60.

According to the chancellor, almost 400,000 more people now go to university than when Labour came to power in 1997.To help support this growing student base, the government will provide £270 million funds in 2010/11, with a specific focus on key subject like science, engineering, tech and maths.

The chancellor announced a £2.5 billion one-off growth package to help small businesses and invest in key skills. New measures to force Lloyds and RBS to issue £94 billion of new business loans were also announced. A new growth fund of £200 billion for small businesses unveiled for coming financial year. Annual investment tax allowance for small businesses doubled to £100,000 and entrepreneur tax relief threshold increased to £2 million.

Mr Darling also vowed to sell shares in state-owned banks in a way that "gets all taxpayers money back" - but offered no concrete measures.

The feared increase in VAT, from 17.5% to 20%, in line with some of our European cousins, never actually materialised, neither did any hikes in PAYE & National Insurance. (Let’s see what happens after the Election)

The Lows

Duty on cider will rise at 10% above inflation from midnight Sunday in measure designed to tackle binge drinking.

Duty on beer, wine and spirits to rise by 2%, also from Sunday.

Tobacco duty will rise at 1% above inflation from midnight Wednesday.


So, once again, on the face of it, there are way more highs than lows in this budget, but it is a cautious and, some would argue, non committal one. Then again, few of us would expect anything any different, this close to an Election.

On the whole, this budget has been welcomed, as a positive step forwards, but there are many, myself included, who have concerns as to the over optimism of many of Mr Darling’s predictions.

CBI director-general Richard Lambert summed up the general consensus in his statement;

"With the election just weeks away, this was a clever, political Budget. However, anxiety remains on how the deficit is going to be paid down, and the growth forecasts for 2011 and beyond are still on the optimistic side"



Nice post. Its always better to think before investing money in stock market. Investment should be done in share market but with the aim to increase our funds so speculation should not be the mode of investment. Investors should know why they are investing money in any stock.

small business bookkeeping calgary said...

Well said, I wonder what's inside the box he is holding.


What a budget.