Chancellor Alistair Darling’s first Budget was an underwhelming event with few concrete measures aside from a batch of green taxes and a revised economic growth forecast.
He started his report with a 0.25% downward revision for economic growth in the UK. The forecast is now for between 1.75% and 2.25% of growth this year, although Darling said this was still faster than Japan, the US and the Euro area.
As expected, Darling outlined several green measures in the Budget. He confirmed plans to increase fuel duty by 0.5p per litre in real terms from 2010 but, in light of higher petrol costs, did postpone a 2p increase in fuel duty for six months until October.
The chancellor also announced new funding to underpin national road pricing to ease road congestion.
And, from April 2009, he proposed a major reform to vehicle excise duty to encourage manufacturers to produce cleaner cars and by introducing new bands as incentive for drivers to choose the least polluting car.
From April 2010 there will also be a new first-year rate based on carbon dioxide emissions of the car.
Cars that emit less than the proposed 130 grams per kilometre European standard of carbon dioxide emissions will pay no car tax at all in the first year but a higher first year rate will be introduced on the most polluting cars.
Carrier bags were singled out by Darling as causing damage to the environment when only used once. He therefore confirmed that the government will force shops to charge customers for plastic bags if they fail to do so on a voluntary basis.
He also announced £26 million of funding next year for a Green Homes Service to help people cut their carbon emissions and their fuel bills. This would include cavity wall insulation and more energy efficient appliances and light bulbs.
Property and home finance
Despite touching on the impact of the credit crunch in the US, Darling didn’t introduce any dramatic plans to support the floundering housing market in the UK.
However, he did unveil plans to allow first-time buyers and key workers who can only afford half the price of a home to borrow money from new shared equity schemes from this April. Previously, those eligible had to be able to afford 75% of the property value.
Despite calls for stamp duty thresholds to increase, or for first-time buyers to be made exempt from this levy, Darling failed to announce any changes. However, people who buy shared ownership homes will not have to pay stamp duty until they have built up 80% of their home.
During the Budget, Darling championed long-term mortgages as providing more stability for borrowers, and said he wanted to see more lenders offer “flexible and affordable” fixed rates of up to 25 years.
However, he failed to expand on how the government will encourage this sort of innovation by banks and building societies.
Finally, the chancellor announced that as part of the government’s target of building three million more homes by 2020, it has identified sites for 70,000 more homes.
From 6.00pm this evening a packet of 20 cigarettes will increase by 11p, while a packet of five cigars will increase by 4p.
Darling also increased taxes on alcohol in a bid to tackle binge drinking. He revealed that alcohol duties will increase by 2% above the rate of inflation in each of the next four years.
From midnight on Sunday 16 March, alcohol duty rates will increase by 6% above the rate of inflation. Beer will rise by 4p a pint, cider by 3p a litre, wine by 14p a bottle and spirits by 55p a bottle.
Children and education
Darling reiterated the government’s pledge to eradicate child poverty by 2012 during his Budget and outlined measures to help more parents into work.
From October 2009, the rules for housing and council tax benefit will change to ensure parents are better off in work than on benefits.
As a result, Darling says that a working family with one child on the lowest income will gain up to £17 a week.
He also announced changes to child benefit payments so that parents will receive £20 a week for their first child from April 2009 rather than 2010 as originally planned.
The child element of the child tax credit for families on low and middle income will also be increased by £50 a year above inflation from April 2009.
Darling used the Budget to pledge a £10 million investment over the next five years to create a £30 million Enthuse Science fund, giving every science teacher in secondary and further education access to professional development.
He also announced an extra £60 million funding over the next three years to provide training opportunities for adults.
Following from January’s amendment for capital gains tax for entrepreneurs, Darling used the Budget to emphasise the government’s support for small and medium enterprises in the UK.
He announced that funds available through the Small Firms Loan Guarantee scheme will be increased by £60 million for the coming year. And from April, the scheme will be extended to small and medium firms.
Darling also confirmed that the amount of investment on which tax relief is available under the Enterprise Investment Scheme will be increased from £400,000 to £500,000, while the employee share limit for tax relief under the Enterprise Management Incentive Scheme will increase from £100,000 to £120,000.
Darling told the Chambers that, in order to encourage more people to save, the savings gateway scheme will be launched nationally by 2010.
He also promised to help pensioners facing pressures such as higher energy bills by raising the winter fuel payment for over 60s from £200 to £250 and for the over 80s from £300 to £400.
And, Darling said he might introduce legislation to force gas and electricity companies to give a "fairer deal" to customers who use pre-payment meters.
Finally, housing benefit reforms will be brought forward, meaning from 2010 all long-term recipients of incapacity benefit will attend work capability assessments.
A hugely unpopular tax paid on property and share purchases. Stamp duty on property is levied at 1% for purchases over £125,000 (£250,000 for first-time buyers) which then moves up at a tiered rate. For property between £125k and £250k you pay 1%, then 3% from £250k up to £500k and then 4% from £500k to £1m and then 5% for properties over £1m. But unlike income tax, which is “tiered” and different rates kick in at different levels, stamp duty is a “slab” tax where you pay the rate on the whole purchase price of the property. On shares, stamp duty is charged at a flat rate of 0.5% on all share purchases. Figures correct as of May 2011.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
Enterprise Investment Scheme
A scheme set up to encourage investment into small, unquoted trading companies and give investors tax breaks to compensate for taking risk. Because the companies in the scheme are not listed on a stock exchange they often carry a high risk, so the tax relief is intended to offer some compensation. An EIS company cannot be a subsidiary, must trade wholly in the UK, can’t employ more than 50 people and certain activities (including forestry, farming and hotels) preclude companies from offering EIS relief.
Child tax credit
A scheme started in 2003 that sought to replace a raft of other tax credits and benefits, the payout depends on the number of dependant children in a family, and its level of income. The amount of credit is reduced as income increases. It is payable to the main carer of a child, usually the mother, and is available whether or not the recipient is working.
Capital gains tax
If you buy an asset – shares, a second home, arts and antiques – and then sell it at a later date and make a profit, that profit could be subject to CGT. You don’t pay CGT on selling your main home (which is why MPs “flipped” theirs so regularly) or any securities sheltered in an ISA. Individuals get an annual CGT allowance (£10,600 in 2010/2011) but if you have substantial assets it’s worth paying an accountant to sort it for you.