Pre-Budget report round-up
The chancellor Alistair Darling has unveiled a £20 billion fiscal injection in his second pre-Budget report, which he says will help households and businesses weather the financial storm.
You can find out all the details from the pre-Budget report 2008 here.
Below is a summary of the measures:
* From 1 December, VAT will be cut by 2.5%. The new 15% rate of VAT will continue for 13 months before returning to the
present level of 17.5% at the beginning of 2010. By this time, the
government says it expects economic recovery in the UK to be underway.
* The temporary £120 increase in personal allowances for basic rate taxpayers will now be a permanent measure, and will increase to £145 a year from April 2009. Darling says this will benefit 22 million basic rate taxpayers.
* People earning more than £150,000 will be hit with a new higher rate of income tax (45%) from 2011.
* From April 2011, national insurance contributions will increase by half a percentage point for both employees earning more than £20,000 and employers as well as the self-employed. At the same time, the starting point for national insurance will increase to align it with that of income tax.
* From April 2010, a reduced personal allowance will be introduced for people earning more between £100,000 and £140,000. There will be no personal allowance for anyone earning more than this.
* The Rapid Response Service, which provides support in the work place in the form of advice on job-search, careers, and accessing existing vacancies, will be expanding to include smaller workplaces.
* A greater provision of pre-redundancy retraining will be offered through the Train To Gain initiative.
* A new initiative to help fill the half a million vacancies will be created through the country’s major employers, including Tesco and Royal Mail. The National Employment Partnership will be chaired by the Prime Minister.
* The government has promised £1.8 billion of support for the housing market, including £15 million of new funding for free debt advice available to everyone. £775 million will be used this year and in 2009 for new affordable housing.
* Increase the upper limit of the mortgage interest scheme to £200,000 from £175,000. This was already increased from £100,000 in September 2008.
* The vulnerable homeowner scheme will be extended to include those that took about secured loans on top of their mortgages.
Small and medium-sized businesses
* Small and medium firms will be given help to reduce their costs, through temporary increase in the threshold for empty property relief and will be allowed to spread their tax payments on a timetable they can afford.
* Darling promised to take whatever action needed to ensure banks support businesses.
* The government will offer credit up to £1 million to small businesses experiencing short-term cashflow problems as part of a £1 billion scheme.
* The corporation tax increase will be deferred for small businesses.
* Small companies will be allowed to offset losses from the past three years up to £50,000.
* £3 billion of public spending will be brought forward to 2010 to be invested in the motorways, schools and social housing.
* Phasing in new rates of duty rates. In 2009, duty rates for all cars will increase by a maximum of £5 as has been normal practice. From 2010, there will be differential increases in duty. In the original proposal, some cars would have seen increases of up to £90. Now, the more polluting cars will see duty increased up to maximum of £30. And less polluting cars will see no increase or a cut of up £30.
* The government previously promised to increase the child element of the Child Tax Credit by £50 above indexation next April and by £25 above indexation in 2010. Both these increases will now be introduced together in April 2009. The increase in child benefit from £18.80 to £20 a week will be brought forward to January 2009.
* Increase in pension credit in April from £124 to £130 a week for individuals, and from £189 to £198 for couples.
* State pension will increase inline from £90.70 to £95.25 from January 2009.
* One-off payment of £60 to help with fuel from January 2009.
Darling opened his pre-Budget report 2008 with the admission that these are "challenging times" and that he would take "responsible steps to support people and business now".
He said that, as a country, the UK needed to "live within its means". He added he was confident the slowdown would be "shallower and shorter" than without the measures outlined and that the UK is in a relative position of strength.
However, Darling admits the UK will be hit more directly than other countries by the global recession.
And although interest rates have already been cut by 2% since October, Darling says monetary policy will not be enough to stimulate the economy and action is needed now to boost economic activity and help the UK emerge "quicker and stronger" from these difficult times.
He said he would not let families "go to the wall" and he would do "whatever it takes" to help people through the storm.
In order to help the British economy, Darling said public borrowing would have to rise, peaking at £188 billion in 2010. But he added that if the government did nothing, it would cost the economy more in the long-run.
Invented by a Frenchman in 1954 and ironically introduced in the UK on 1 April 1973, VAT is an indirect tax levied on the value added in the production of goods and services, from primary production to final consumption and is paid by the buyer. Its levying is complex, with a number of exemptions and exclusions. For example, in the UK, VAT is payable on chocolate-covered biscuits, but not on chocolate-covered cakes and the non-VAT status of McVitie’s Jaffa Cakes was challenged in a UK court case to determine whether Jaffa Cake was a cake or a biscuit. The judge ruled that the Jaffa Cake is a cake, McVitie’s won the case and VAT is not paid on Jaffa Cakes in the UK.
A homeowner’s worst nightmare; repossession is an action of last resort by mortgage lenders to recover money from borrowers that have failed to keep up with repayments on their mortgage or other loan secured on their home (see secured loan). Repossession is a legal procedure that has to go through several processes before the homeowner is evicted and the property reposed. These are: if a borrower keeps defaulting; the lender applies for a solicitor’s notice; the lender instigates possession proceedings through the court; at the court hearing a possession order is granted and sometimes a possession warrant; a bailiff is appointed and an eviction notice issued at which point the homeowner has two to three weeks to vacate the property.
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.
“Arrears” tend to be associated with debt. If you fall behind and miss payments on any outstanding debt, the amount you failed to pay is an arrear – the amount accrued from the date on which the first missed payment was due.
A scheme originally established in 1944 to provide protection against sickness and unemployment as well as helping fund the National Health Service (NHS) and state benefits. NI contributions are compulsory and based on a person’s earnings above a certain threshold. There are several classes of NI, but which one an individual pays depends on whether they are employed, self-employed, unemployed or an employer. Payment of Class 1 contributions by employees gives them entitlement to the basic state pension, the additional state pension, jobseeker’s allowance, employment and support allowance, maternity allowance and bereavement benefits. From April 2016, to qualify for the full state pension, individuals will need 35 years’ of NI contributions.