Emergency Budget 2010: round up

22 June 2010

A VAT rise to 20%, an increase in capital gains tax for higher earners and public sector pay freezes for two years were some of the main policies announced by George Osborne in the Budget.

He said the Budget would deal decisively with the deficit and look to reward those who work and protect the most vulnerable. Osborne added that it was a tough but fair and 'progressive Budget'.

In a clear slight to the previous government the chancellor said he would not bury the bad news from the public in the smallprint.

He made reference to the new independent Office of Budget Responsibility, which he said would be responsible for a forward-looking fiscal mandate to improve the accuracy of economic projections.

On the back of its latest report he said the structural deficit should be in balance by 2015/16 and may even be cleared earlier by 2014/15.

Over the next five years, Osborne said the budget would be cut as follows - 1.2% this year, 2.3% in 2011, 2.8% in 2012, 2.9% in 2013-14 and 2.7% in 2014-15. The inflation target remains at 2%.

In setting out his policies the chancellor said he had looked for "lower spending rather than higher taxes" and used a 80/20 rule of thumb - 80% cuts and 20% increase in taxes.

The cuts:

Departmental budgets

  • 25% cut to department budgets with probable exceptions for the education and defence departments
  • NHS and overseas aid also exempt

Public sector 

Osborne said public sector workers must "share the burden when we pay to clear up the recession".

  • Two-year pay freeze - protection will be extended to 1.7 million who earn less than £21,000, they will receive £250 raises each year
  • Pensions - greatest long-term pressure to our finances - Lord John Hutton has been asked to carry out an investigation - report due in September this year
  • Accelerate the increase to state pension age of 66


He said there has been a 45% increase in the welfare bill in the past 10 years from £132 billion to £192 billion and added that the system is "wasting the talents of millions and spending billions on it in the process".

Because of this, benefit and welfare will be increased in line with the consumer prices index rather than retail prices index, which Osborne said would be a fairer approach than freezing them altogether.

Child benefits and allowances

  • Abolish child tax credit payments to families earning over £40,000, 
  • Abolish the health in pregnancy grant from April 2011
  • Sure start maternity grant provided to first child only
  • Freeze child benefit for the next three years

Disability and living allowance

Osborne said he would not reduce the rate but will introduce a medical assessment, which will apply to new and existing claimants and improve incentives to work.

Housing benefit

The chancellor said the state currently spends more on housing benefit than on police and universities combined and that there are some families receiving £104,000 housing benefits a year. To combat this he will restrict local housing allowances and limit social tenancy to appropriately sized houses

Maximum limits on housing benefits will be introduced:

  • £280 for 1 bed
  • £400 for 4 bed


Corporation tax

Cut by 1% each year for the next four years taking it down to 24% from 28%, smaller companies corporation tax to be cut to 20% next year.


A levy will be introduced on the banks from 2011 because the recession started in the banks, so they should make more of a contribution to get us out of it.

This will not punish smaller banks but will provide £2 billion of annual revenue. Both the French and German governments have co-ordinated with the UK in the introduction of this policy.


Will rise to 20% from 17.5% as widely expected and will generate over £13 billion a year in extra revenues. Osborne said he will keep everyday essentials like food and children's clothing outside VAT.

Insurance premium tax

Also increases from 17.5% to 20% as the higher rate and from 5% to 6% for the standard rate.

Council Tax

Osborne said the government would make a deal with local authorities to freeze council tax if they can keep costs down - this will save each family an average of £35 a year.


Will increase in order to create a 'fairer' tax system.

  • 18% rate maintained for basic-rate taxpayers
  • 28% from midnight tonight for higher-rate taxpayers

Annual exemption of £10,100 will be maintained and will continue to raise with inflation, entrepreneurs will continue to get a reduced rate of 10% CGT.

Income tax

Tax-free allowance will increase by £1,000 in April to £7,475 and this will take 880,000 of Britain's poorest out of paying income tax altogether.

Added extras

Osborne also committed to:

  • Abolish landline duty - "we will support private broadband expenditure instead".
  • Continue regional transport redevelopment
  • Give lasting help to pensioners by re-instating the earnings link for basic state pension from April next year.
  • Provide additional support to families in poverty by increasing the child element of the child tax credit by £150 over indexation from next year.

For more details on the Budget announcements go to our Budget page.

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