What the pre-Budget report means for your finances

11 December 2009

If you’d somehow missed the fact there will be a general election in 2010, the pre-Budget report published on 9 December should have made it clear.

Eagerly anticipated as the government’s last chance to pull something out of the bag before the country goes to the polls, Alistair Darling’s report was mainly dismissed as a ‘damp squib’ reliant on optimistic growth forecasts and vote-grabbing policy measures.

Apart from measures to get the unemployed back into work and support for struggling homeowners, there was little focus on helping others hard hit by the credit crunch – such as pensioners and savers. 

Highlights include:
•    A new boiler-scrappage scheme
•    An increase in national insurance contributions
•    A new 50p monthly levy on landlines to help fund faster broadband
•    Bankers' bonuses above £25,000 to be hit with a one-off 50% tax
•    Inheritance tax threshold frozen at £325,000 for the next year
•    Increase in inflation-linked benefits and tax credits

Personal taxation

For working people earning more than £20,000 a year, perhaps one of the most significant changes in the pre-Budget was the decision to increase national insurance contributions by 0.5% from April 2011. This is a larger increase than previously expected, and is in addition to the 0.5% increase announced in 2008’s pre-Budget.

Meanwhile, income tax thresholds will be frozen at their current levels for the next financial year, and the point at which people start paying the higher rate of tax will be frozen for an additional 12 months from April 2012. Personal allowances will also stay at their current level.

Darling also confirmed a controversial new tax that will see households with fixed landlines forced to pay a monthly levy of 50p as part of their bills. The money will be used to help fund the roll-out of super-fast broadband to 90% of homes by 2017.

Shoppers were left disappointed by the decision not to extend the temporary 15% rate of VAT beyond 2009, although with some experts predicting a 20% VAT rate ahead of the pre-Budget, the fact that this tax will remain at 17.5% for the foreseeable future is actually a blessing.

Darling also ignored pleas to extend the stamp duty holiday into 2010, and announced that the inheritance tax threshold will remain at £325,000 in 2010/11.

Arguably the biggest headline-grabber from the pre-Budget was a new one-off bankers’ bonus tax of 50%, which banks will have to pay on discretionary bonuses above £25,000.

Benefits and tax credits

Families receiving benefits linked to inflation - such as child benefit and some disability benefits – will see the amount they receive increase by 1.5% in April. Primary school children whose parents are on low incomes in England will now get free school meals – a measure expected to benefit some 500,000 children.

Although the winter fuel allowance has been frozen at £250 for the under 80s (or £400 for people aged over 80), the government did confirm that the basic state pension will increase by 2.5% in April 2010. Pension credit’s minimum income guarantee will increase to £132.60 for single pensioners or £202.40 for couples.

From April 2011, people aged 65 and over who want to continue working will now qualify for working tax credit if they have a job for at least 16 hours a week. 

Help heating homes

One of the most 'exciting' aspects of the pre-Budget report was the unveiling of a new boiler scrappage scheme, which will help 125,000 households replace outdated and inefficient heating systems.

Households with working G-rated boilers (normally models more than 15 years old) will be offered £400 towards the cost of a new boiler or renewable heat unit. You can find out more about your boiler's rating on energysavingstrust.org.uk.

The Warm Front scheme, which helps those on low incomes to improve the energy efficiency of their homes through better insulation and heating improvements, will also be extended to help a further 75,000 households.

People with either wind turbines or solar panels who plug excess power back into the National Grid will receive tax-free payments averaging £900 a year.  


As well as confirming the 2.5% increase in the basic state pension, the pre-Budget report contained several measures that will impact workers saving for retirement – especially teachers, local government, NHS and civil service workers.

The public sector came in for special focus, with Darling revealing that state contributions to public sector pensions will be capped by 2012, saving around £1 billion a year. Public sector employees, especially those earning more than £100,000, would in turn be expected to contribute more.

Meanwhile, following April’s Budget limiting the value of tax relief on pension contributions for people earning over £150,000, Darling has now extended this to include some people earning £130,000. Those with pre-tax incomes below £130,000 before the inclusion of employer pension contributions will not be affected.


Measures to help young people, as well as older unemployed people, into work formed a key part of the pre-Budget report. Darling said he intends to provide a place in education or training for every 16 and 17-year-old leaving school this September.

Youngsters not in education at the moment will be offered an entry into employment, supported by an education maintenance allowance. And starting in January, all 18-24 year olds will be guaranteed a job, work placement or work-related skills training six months after their first JobSeeker’s Allowance claim.

The over-50s were also flagged up for support “to equip them with the confidence and skills needed to get a job”.

The successful tackling of unemployment was also link with the aversion of repossessions. The mortgage support scheme, which has helped 220,000 out-of-work people maintain interest payments on their mortgages, has been extended for a further six months.

Other changes

•    No change to alcohol and cigarette duty
•    Crack-down on tax evasion including offshore accounts
•    Electric cars to be exempt from company car tax for five years
•    Bingo duty to be cut from 22% to 20%

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