The Pre-Budget Report
The Chancellor's Pre-Budget Report Monday 24th November 2008
Alistair Darling has now unveiled his strategy for helping the UK to survive the difficult economic circumstances caused by the credit crunch. The table below lists some of the most important details with a comment from Fabian on their significance. In Fabian's view, by far the most important measure taken by the Chancellor was the help he announced for small businesses.
| Pre-Budget Announcement | Comment from Fabian |
| The economy is contracting and will be about 0.75% down this year. For 2009 the economy will be smaller than this year. Inflation will will come down sharply to about 0.5% next year. Growth will resume in 2010. The Pre-Budget proposals will give a £20 billion stimulus to the economy between now and April 2010 | The strategy is vital for helping our country through difficult economic conditions. There is an old saying that money is made round to go round. In developed countries government spending forms a vitally important part of the process of moving money around getting work done that is needed, building infrastructure and supporting employment. Additional government expenditure will help keep the economic machine turning. |
| Government borrowing will increase to £78 billion this year and rise to £118 billion the following year. Borrowing will start to fall in 2010 and revert to last year's levels by 2016. | In difficult economic circumstances additional taxation makes matters worse. Not borrowing extra money would mean that the government could do little to help people on modest incomes and businesses in difficult times. Unemployment would rise dramatically |
| Capital spending £3 billion of planned capital spending is to be brought forward meaning quicker construction of road projects, school replacements and investment in energy efficiency measures. | This is some of the best additional spending the govenment could do. Putting money into construction projects means that it goes round a great deal - supporting employment at so many different levels. |
| VAT is to be cut from 17.5% to 15% for 13 months from December 1st 2008. (Alchohol, road fuel and tobacco will not benefit from a price cut as taxes on them will be increased to compensate.) | This should mean price reductions all round on almost every household bill. The price reductions might seem small but the contributions on thousands of purchases will all add up. The measure will mean that next year an extra £12.5 billion will be pumped into the economy and in a way that will encourage it to be spent. The small price savings each one of us will notice mean that we will have some money left over to spend on something else. |
| Income tax. High earners in receipt of over £150,000 per year will pay 45% tax on their additional earnings from 2011 (after the next general election). The temporary 10% tax rate solution that increased personal allowances will be made permanent and increased in April 2009. | This will put some extra money in the pocket of nearly everyone who pays income tax. The very highest earners have seen their pay rise significantly in the last 10 years and it is right they be asked to contribute a little more. The UK is still a very good place to live and work and so I do not think they will be tempted to move abroad. |
| National Insurance will go up for employers and employees by 0.5% from April 2011 (again after the next general election)but the starting point thresholds will be raised so that those earning less than £20000 each year will pay no extra. | It is no use pretending we will not have to pay back the money we will be borrowing but this will not start until the economy is recovering and after the next general election. I think this is a good strategy. |
| Pensions Pension credits will go up from £124 to £130 per week for single persons and from £189 to £198 for couples from next April. State pensions will rise in line with inflation and will be brought forward 3 months. Every pensioner will alsoreceive a £60 one-off payment from January. | This is a wonderful fillip to those on pensions and it makes good sense in the current circumstances. This money is much more likely to be spent straight away and in that way will contribute to the economic activity that is so important for the strategy. |
| Fuel and vehicle excise duty. Higher rates for new more polluting cars will increase as planned but the increase for older cars will be limited to £30. Duty rates for all cars will be increased by £5 per year but the less polluting cars will see a cut. | This makes sense in encouraging car users to use less polluting vehicles. It will also be fair for owners of older cars that were purchased before the differential road taxes were proposed. I have been pressing for a greater number of vehicle excise duty bands to ensure greater fairness and I am the Chancellor has listened to MPs. |
| Air passenger duty will be reformed and reflect the length of the journey. | This is good sense and will improve on the flat rate charges now in operation. |
| Green measures. £100 million more to be spent on home insulation with an extra £50 million brought forward. £535 million to be spent by the government on energy efficiency, rail transport and environemental protection. | More good news and the sensible type of spending in the current circumstances. The Warm Front Scheme that provides grants for home insulation has already benefited from government announcements in September of additional expenditure and this new boosts will enable many more people to begin saving on their heating bills. |
| Help for small businesses. There will be raft of measures on business taxes. There will be relief on the rates on small empty business properties. VAT, corporation tax and National Insurance payments can be spread. The planned rise in corporation tax to 22p will be deferred and business losses can now be offset over three years of profitable trading. A £4 billion deal from the European Investment Bank will provide money for UK banks to support UK small and medium size businesses. | This is more very good news for businesses and will do much to prevent small business' failing. Small wonder the stock market reacted so enthusiastically to the news when it was announced. These are the most important measures in the ``Pre-Budget report. About 42% of UK jobs are in small firms employing 100 or fewer people. This will help to secure the future of thousands of businesses and hundreds of thousands of jobs. |
| Mortgages. Providers will wait three months before taking steps against people who default on their loans and seeking repossession. | This is a very humane approach and will give householders a breathing space to find solutions caused by difficulties such as losing a job. |
| Recruitment Major employers are to speed up recruitment and a rapid response service will be established to help those affected by redundancy. | The more that can be done to ensure that vacancies are filled as quickly as possible, the better. Even in difficult circumstances, jobs are created and vacancies arise. We should not forget that there is now a record number of people in work and vacancies that naturally arise mean that it is possible for others to find work |