PRE BUDGET REPORT

24th November, 2008

Set against a backdrop of global economic uncertainty, Chancellor Alistair Darling has announced a raft of measures in this year's much-anticipated Pre-Budget Report, aimed at stimulating the economy and boosting consumer confidence.

Emphasising the wider global recession, and highlighting the crisis in the banking system as the cause of economic slowdown in the UK, the Chancellor announced that borrowing will increase to £78 billion this year, and revised his economic growth forecast from 2.5% to 0.75% for 2008.

The Chancellor unveiled a £20 billion package, effective until April 2010, supposedly designed to help individuals and businesses to weather the storm. This includes some significant tax measures, with a cut in VAT from 17.5% to 15% for a period of 13 months, from 1 December.

The temporary increase in the basic personal tax allowance, worth £120 a year, has also been made permanent, and the tax reduction will rise to £145 in 2009/10. However, from 2011 those earning in excess of £150,000 a year will be subject to an income tax rate of 45%, and national insurance contributions will also rise by 0.5% from 2011.

The Chancellor announced help for businesses, in the form of a deferral of the 1p increase in corporation tax for small firms, and new measures allowing businesses to spread the payment of all taxes to HM Revenue & Customs. A temporary small business finance scheme worth £1 billion will also be made available, and there will be an increase in the empty property relief threshold, as well as tax breaks for foreign dividends for medium and large firms.

Other measures announced include: additional support for mortgage holders; early increases in child benefit and the state pension; and a new state supported savings scheme. Meanwhile, duty on fuel, alcohol and tobacco will be increased to offset the reduction in VAT, and new rates of vehicle excise duty will be phased in over time.

For our summary of the Pre-Budget report, please click here. This report is for guidance only and professional advice should be sought before taking any action.