Highlights
It’s that time of year and we are not talking about Christmas, although that’s only 14 days away, but whose counting, I’m referring to the Chancellors Pre-Budget Report of 2009 that was delivered on 9th of December by Alistair Darling.
It was an interesting speech for those who where lucky enough to watch it, although questions of its political agenda arise ahead of the general election, but that discussion is for another day.
In 2008 global economies entered the most severe recession since the Great Depression, marking the UK’s economic conditions the worse since records began. It is believed global government intervention has helped reduce the impact on world economies, with signs of recovery in the UK and the Rest of the World. Government intervention in the banking sector has placed a huge debt on the UK economy that is said to cost around £14,000 per person.
So how does the Treasury plan to stabilise and grow the UK economy, EKW Group highlight the key issues in the Pre-Budget Report 2009:
Economic Forecasts
- The UK economy is forecast to contract 4.75% this year, with growth expected in the 4th qtr
- The UK economy is forecast to grow 1%-1.5% next year and a 3.5% growth in 2011-12
Borrowing
- Borrowing hit £178bn in 2009
- There is an estimated borrowing of £176bn in 2010 and £140bn in 2011, with borrowing falling to £96bn in 2013
- Over 4 years the budget deficit is to be halved
- Public loss from bailing out the UK banks is said to reduce from £50bn to £10bn
Tax
- From April 2011 all national insurance rates to increase by a further 0.5% for individuals who earn £20,000+, raising £3bn a year
- Bank bonuses of more than £25,000 comply with a one-off 50% tax; expected to raise £550m to help people back into employment
- VAT to return to 17.5% from the 1st of January 2010
Pay, Pensions and Benefits
- In April 2010 basic state pension will rise by 2.5%
- In 2010 child and disability benefit will rise by 1.5%
- Contributions to public sector pensions to be cut by £1bn a year
- For two years from 2011 all public sector pay settlements to be capped at 1%
Environment
- £160m investment into low-carbon and renewable projects
- Warm Front insulation scheme that will help 65,000 households will get an extra £200m
- 125,000 households eligible for boiler scrappage scheme to replace inefficient boilers
- Electric car will be exempt from company car tax for 5 years
- There will be a tax rebate for installation of wind turbines and solar panels
Employment
- The report forecasts unemployment will keep rising for some time
- Under-24’s who are out of work for more than 6 months will be guaranteed work or training
- Guaranteed training or education for 16-17 year-olds to be extended to 2010
Business
- Enterprise Finance Guarantee scheme to be extended for a further 12 months for small businesses, guaranteeing £500m of loans
- A new tax on superfast broadband is to be introduced, set at 50p
- A new tax of 10% on income from patents to boost science development
- The 1p increase in corporation tax for small businesses is to be deferred
Education
- An extra 500,000 low income families will be entitled to free school meals
Defence
- An extra £2.5bn will be allocated to help military operations in Afghanistan for 2010
Analysis – PBR 2009: How was it for you [Darling]?
Well at least he left the VAT rate alone.
Perhaps the biggest [only?] relief in the Chancellor’s “Pre Budget Report” [PBR 2009] in December was that he resisted the temptation of any further tinkering with VAT rates, leaving us with the already-anticipated return to a Standard Rate of 17.5% from the start of this month. Retailers had feared the introduction of further rates to cover different types of goods or services, but thankfully that danger has passed – at least until after the next election, which in case you’d forgotten, is required to be held anytime between now and the end of June. That ought to give all retailer groups time to lobby each party with a plea to limit any future fiddling with rates – or at least for an acknowledgement that the politicians understand just how much effort and disruption is caused in retail [and accounting..] businesses by apparently ‘simple’ changes to VAT rates!
Not to mention booze and tobacco..
Now let’s face it, what Chancellor in his right mind was going to announce a hike in tobacco and alcohol duty a couple of weeks before Christmas and Hogmanay, knowing also that his governement is about to face the electorate a few months later? So we can expect that onerous task to befall whoever picks up the poison chalice of the Treasury later this year, quite probably with interest added.
And he dropped the Small Companies Corporation Tax rise.
A minor concession perhaps, but for those retailers operating their businesses as limited companies – and there are many of you out there – the Small Companies’ Rate of Corporation Tax will remain at 21% for the Financial Year commencing 1 April 2010 and will not be increased to 22% as previously announced in last year’s Budget. This change of rate is likely to actually happen, since it’s due to come into effect before the most likely date of the election, and it’s one that any incoming Chancellor, wanting to be seen as ‘business friendly’, will be reluctant to reverse in his/her first post-election Budget.
Then he offered you a new [electric] van.
One of those odd things that Chancellors are prone to announcing as an obligatory nod to the “Green” lobby: 100% First Year Allowance for Electric Vans – legislation will be introduced to provide a 100 per cent first-year tax allowance for business expenditure on new, unused (not second hand) electric vans for expenditure incurred on or after 1 April 2010 (corporation tax) or 6 April 2010 (income tax). At the moment it’s estimated that there are only about fifty such vans in use in company car fleets – yes, five-zero! Frankly this is one that probably won’t happen: not only does the government admit that it is still “subject to compatibility with [EU] state-aid rules”, a discussion that will hardly be a burning topic for the Brussels bureaucrats, but even if that hurdle is cleared quickly, they’ll still have to make parliamentary time to legislate for it before the election.
Business Rates – He won’t tax your empty buildings for a bit longer.
Now there are quite a few dealers out there who’re sitting in sites that include old workshops [for example] that are simply unusable, but too expensive to demolish. The 2008 PBR announced that empty properties with rateable values of up to £15,000 would be exempt from business rates for 2009-10. In his latest PBR, the Chancellor extended this relief so that for 2010-11, empty commercial properties with rateable values up to £18,000 will be exempt from business rates, suggesting that this exemption applies to an estimated 70 per cent of empty properties. Of course you have to claim the relief through your local rating authority, who may not be awfully keen to see their income drop, and who can drag the process out until ratepeyers give up.
But he’s taking more National Insurance off us all.
What is given with one hand is taken away with the other. For the tax year 2011/12, in addition to the 0.5% increases to rates already announced at PBR 2008, the Chancellor has announced that there will be a further 0.5% increase to those rates, making a 1% increase in total from 6 April 2011. The primary threshold and lower profits limit will be increased by £570 to compensate the lowest earners. Now this is where we really do enter the world of ‘politics’ rather than ‘economics’: if there’s a change of government later this year the incoming chancellor [of whichever party] will have plenty of time before April 2011 to reverse, leave-alone or double this increase by the time it is supposed to come into effect.
And don’t forget fuel duty..
As had already been announced at the time of the Budget 2009, the main fuel duty rate will increase by 1penny per litre in real terms on 1 April 2010 and by a further 1 penny per litre for each year to 2013. The current 20 pence per litre duty differential for biofuels will cease from 1 April 2010. Another one of those areas that only a suicidal politician would touch at the present time, as unleaded and diesel prices hit 110 ppl or more. And another one that will doubtless be racked-up considerably [with due reference to the ‘Global Warming Apocalypse’ as justification] once the tiresome business of elections is out of the way.
Overall then while December’s headlines made a lot of noise, the reality is that many of the announcements made in the Pre Budget Report may have very little [if any] effect on business because of the political timetable. What’s definite is that we’ll only see the real ‘action’ Budget-wise, after the next Chancellor takes the keys to Number Eleven.
