What has Darling got up his sleeve?
Chancellor Alistair Darling will deliver his Budget to the House of Commons later today - his last before the general election.
But what measures has he got up his sleeve? Will he be looking to prove the government has got what it takes to guide the UK out of economic crisis or will this be an excuse for some popularist measures ahead of the election?
Darling is expected to announce measures to tackle financial exclusion, including forcing banks to provide basic bank accounts for all.
He is also rumoured to be planning to raise the stamp duty threshold to £250,000 for first-time buyers.
Darling is expected to stand by his growth forecasts of 1-1.5% this for year. In 2011, he expects the economy to grow between 3.25% and 3.75%.
Public sector net borrowing will come in around £10 billion lower than the chancellor's £178 billion forecast, although it is still expected to be at a post-war high of around 12% of GDP.
The chancellor is likely to forecast a 1.75% rise in Consumer Prices Index inflation in 2010, falling to 1.6% in 2011.
As set out in December's pre-Budget report, total public spending will rise by £31 billion this year, a 2.2% rise in real terms.
From 2011, total public spending will fall, but there is unlikely to be any detail on cuts in today's Budget. Instead, Darling will try to reassure the markets by announcing which departments will bear the brunt of initial cuts.
There are unlikely to be any pre-election "giveaways", although the chancellor will announce a handful of measures to stem unemployment and boost green investment.
Darling will confirm plans to freeze public sector pay for the highest earners.
In the pre-Budget report, the chancellor lowered his estimate of the total taxpayer loss from the bank bailout from £50 billion to £10 billion. He will confirm this, as well as backing for a global bank levy to help repair public finances.
All income tax bands expected to be frozen meaning a higher-rate taxpayer earning more than £43,875 will pay an additional £489 in tax.
A new additional rate of income tax at 50% will be confirmed for those on incomes over £150,000.
There are no plans to extend the 50% levy on individual bank bonuses above £25,000. The measure is likely to end on 5 April 2010.
Dividends potentially liable to the higher rate of tax will be taxed at 42.5%. The dividend trust rate will be increased to 42.5%, and the general trust rate of tax will be increased from 40% to 50%.
Personal allowances will be withdrawn for those with adjusted net income above £100,000, reducing by £1 for every £2 of income above £100,000.
From April 2012, the starting point for the 40% income tax rate is likely to be frozen for one year at £43,000.
All employer, employee and self-employed rates of national insurance (NI) to rise by a further 0.5% from April 2011. Starting point from which NI is payable to be raised.
VAT returned to 17.5% on 1 January from 15%, and the chancellor has said he is unlikely to announce further rises in the Budget.
The chancellor is unlikely to announce any changes in the headline rate of corporation tax.
He is expected to reaffirm plans to reform the controlled foreign company rules.
A "patent box" for UK companies is likely to be announced, applying a reduced rate of corporation tax of 10% for income derived from patents.
Pensions and inheritance tax
In the pre-Budget report, Darling said the basic state pension would rise by 2.5%, but earnings-based top-ups and a reward for delaying drawing the state pension will be frozen. Some expect Darling to announce a pension tax credit to compensate those who have lost out.
For those earning over £130,000, employer pension contributions are likely to be included in definition of tax income relating to pensions tax relief.
Darling is likely to restrict tax relief on pensions savings from April 2011 for people with gross incomes of over £150,000.
Government contributions to public service pensions will be capped.
Individual inheritance tax allowance is likely to be frozen at £325,000 for the next year.
Alcohol and tobacco duty
Alcohol duty is expected to rise by 5%, under the existing duty escalator system that imposes rises of 2% above inflation.
Darling is likely to hike duty on cigarettes, cigars and tobacco, citing the cost to the health service.
Anit-avoidance tax measures
Darling is expected to announce a crackdown on offshore tax evasion that would see the maximum penalty double to 200% of total tax owed.
He will also outline new measures to reduce tax avoidance schemes.
The government will unveil a new £2 billion investment fund to finance green projects such as wind farms and high-speed railways.
The practice of locating your financial affairs (banking, savings, investments) in a country other than the one you’re a citizen of, usually a low-tax jurisdiction. The appeal of offshore is it offers the potential for tax efficiency, the convenience of easy international access and a safe haven for your money. However, offshore is governed by complex, ever-changing rules (such as 2005’s European Union Savings Directive) and, as such, is the exclusive province of the wealthy and high-net-worth individuals.
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.
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 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.
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).
Exclusion is a potential loss or specific risk that an insurance policy does not cover and they occur in all types of insurance policies. Common exclusions include: natural hazards (exploding volcanoes, earthquakes) war, nuclear fallout, wear and tear (anticipated through the use of a product, especially motor insurance), UFO damage to vehicles, vehicles “stolen” by vengeful spouses, travelling any pre-existing health problems and travelling to countries the Foreign & Commonwealth Office deems too dangerous.
The total money value of all the finished goods and services produced in an economy in one year. It includes all consumer and government consumption, government spending and borrowing, investments and exports (minus imports) and is taken as a guide to a nation’s economic health and financial well being. However, some economists feel GDP is inaccurate because it fails to measure the changes in a nation's standard of living, unpaid labour, savings and inflationary price changes (such as housing booms and stockmarket increases).
If you own shares in a company, you’re entitled to a slice of the profits and these are paid as dividends on top of any capital growth in the shares’ value. The amount of the dividend is down to the board of directors (who can decide not to pay a dividend and reinvest any profits in the company) and they will be paid twice yearly (announced at the AGM and six months later as an interim). Dividends are always declared as a sum of money rather than a percentage of the share’s price. Although dividends automatically receive a 10% tax credit from HM Revenue & Customs (HMRC), which takes the company having already paid corporation tax on its profits into account. Dividends are classed as income and, as such, are liable for personal taxation and so shareholders have to declare them to HMRC.
The tax levied on the total value of your estate after you die. IHT has to be paid by the beneficiaries of your estate before they can receive any of the money from it. The money can’t be taken from the value of the estate _– it has to be paid before any money can be released. There is an IHT threshold – known as the “nil-rate band” – below which no tax is levied (£325,000 in 2011/12). Any amount above the nil-rate band is subject to tax at 40%. If your estate totals £600,000, there is no tax on the first £325,000; however your estate will pay 40% tax on the remaining £275,000, a total of £110,000. Prudent tax planning can reduce your IHT liability, so always consult a specialist solicitor.