The country is facing a budget deficit approaching £180bn, and significant steps need to be taken to see that reduced. Such a heavy burden is already affecting the UK economic standing around the world. Cuts in government spending have been promised, but whilst still protecting frontline services the cuts alone are unlikely to be enough. As expected the Chancellor announced that the economy contracted by 4.75% in 2009, one third more than was anticipated at the time of the April 2009 Budget; a material difference and again casting doubt on the accuracy of growth projections for next year. Higher taxes are probably inevitable, but difficult against a back drop of tax receipts being down this year by 20% as a consequence of pay freezes and reduced working hours and tax rises already introduced from April next year already, primarily the new top 50% tax rate.
Having now examined the proposals in detail, the impression one has is that the difficult decisions have not yet been taken. We have seen the introduction of the much anticipated “Bank payroll tax” which will apply to bank bonuses over £25,000 in the period up to 5 April 2010 and the usual raft of technical changes, including a further tightening of the new pension tax restrictions introduced in April. There have been a modest number of measures introduced to help smaller businesses but the largest tax hike comes in the form of an increase in National Insurance from April 2011, which are added to the already announced increases planned from that date. One area of good news is something that was not announced; the much expected increase in Capital Gains Tax from its current rate of 18%!
In conclusion the increases are not as high as we thought, which perhaps should come as no surprise in the run up to a general election!
As usual we will be going over the detail of the announcements as more information becomes available over the next few weeks. In the meantime I hope that the following analysis will help you to understand the impact of today’s changes for you or your business.
Please click on the image below to download a full copy of our Pre-Budget Report 2009 Summary.
For more information please contact Chris Maddock, Head of Private Client Tax. Alternatively, please complete and submit the online form below.