Budget points

Chancellor George Osborne described his first budget today as 'the unavoidable budget', unveiling plans to address the deficit through tax rises and spending cuts. Osborne blamed the previous Government for the state of the public finances, and said that the budget would seek to create a strong enterprise led economy.

This email sets out the key announcements of relevance to the IRC and includes a bullet point summary of the measures announced at the end.

A rise in VAT from 17.5% to 20% was the key revenue raising measure. The Chancellor announced that the rise in VAT alone would raise £13 billion by 2015. Zero-rated products such as books and children's clothing will not be affected. Rates on alcohol, tobacco and fuel will not be increased, but alcohol and aviation duty will be explored in the Autumn. The tax on cider introduced by the previous Government will be repealed. The Government will consider taxation of the National Lottery. The Government will also consider a discount on fuel duty for remote areas such as the Scottish Highlands.

The rate at which employers have to start to pay NI will rise by £21 per week and 600,000 employees will be lifted out of the tax altogether. Corporation tax will be cut by 1% each year for 4 years, ultimately reduced to 24% to encourage business investment in the UK. This would be the lowest rate of corporation tax in the UK's history, and would currently be among the lowest rates in the G20. In addition, the 'small profits rate', previously known as the 'small companies rate', would be reduced to 20%, cancelling the planned rise to 22%.

The Budget document also confirmed what Anthony Murphy told us at the IRC meeting last week that new and existing regulations would be reviewed by the Reducing Regulation Committee and that new regulations would include sunset clauses.

Each Government Department will be responsible for reviewing all of the employment laws they are responsible for, to ensure that they are proportionate and do not harm competitiveness.

A 'Growth Capital Fund' of £37.5 million will be established to support small businesses with high growth potential. The Enterprise Finance Guarantee will have its lending facility increased by £200 million, with participating lenders expected to meet a target of 20 days for processing finance applications.

The Budget announces that the Government will publish a Green Paper on business finance before the summer recess, which will invite views from business, investors and lenders on priorities and approaches to enhancing the access of credit-worthy businesses to appropriate sources of finance.

The Government will legislate to increase the level of small business rate relief, but only for one year, beginning October 2010. It will also bring forward legislation to cancel significant backdated business rate bills for newly assessed properties that were split from a larger rateable property.

The Budget document projects unemployment to be at 8.1% by the end of the year, but to fall for four subsequent years. Economic growth is expected to be at 1.2% for this year, rising to 2.3% next year and 2.8% the year after. Further details on departmental spending will be announced following the Spending Review in the Autumn.

Overall
· The budget aims to support a strong enterprise led economy, it is 'the unavoidable budget'
· Growth of 1.2% expected this year, 2.3% next year and 2.8% the year after
· Inflation target remains at 2%
· Unemployment will be 8.1% this year but fall for next 4 years
· Emphasis on lower spending rather than higher spending – 77% through lower spending, 23% through higher taxes
· Borrowing will fall from 10.1% of GDP this year to 1.1% in 2015
· Abolish the Treasury's Euro preparation unit as UK will not join the Euro in this Parliament
· Consult on reviewing the retirement age later in the year

Benefits and welfare
· Reduce tax credits including for households earning over £40k
· Child benefit freeze for the next 3 years
· Continue to support Disability Living Allowance but introduce a medical assessment to reduce abuse of the benefit
· Housing benefit to be reformed to reduce the cost to £1.7 billion per year
· In total benefit cuts will save £11bn over course of Parliament

Business
· Rate at which employers have to start to pay NI will rise by £21 per week and 600,000 employees will be lifted out of the tax altogether
· Corporation tax will be cut by 1% each year for 4 years, ultimately reduced to 24% to encourage business investment in the UK
· Reduce small companies tax rate to 20%
· Extend Enterprise guarantee scheme
· End plans for tax relief for video games industry
· 5 year plan to reduce the corporation tax burden in the UK
· Any new businesses set up outside London and SE will benefit from £5,000 NI tax rebate for their first 10 employees

Manufacturing
· Small reduction in the rates for capital allowances, majority of plant and machinery assets, the rate of allowance will fall from 20 to 18 per cent, while the allowance for longer-lived assets will fall from 10 to 8 per cent
· Therefore businesses will still receive full tax relief on their qualifying expenditure, but over a longer timeframe
· Reduce Annual Investment Allowance to £25,000 a year, to ensure support is focused on investment by smaller firms
· As a result manufacturing as a whole will pay less tax

Taxation
· VAT will rise to 20% from 17.5% from January – this will generate over £13bn
· Food, children's clothing, newspapers and books will remain exempt
· No new taxes on alcohol, tobacco, fuel – alcohol will be looked at in the Autumn – Labour's cider tax will be reversed
· Explore aviation duty in the Autumn
· Capital Gains Tax – stays at 18% for low and middle incomes, rises for higher rate taxpayers who will pay 28% – expect to see £1bn extra income
· CGT exemption to remain at £10,100
· People aged over 65 will have their personal tax allowance increased to £7,400 – but higher rate taxpayers will not benefit from this

Banking sector
· Jan 2011 – introduce a Bank Levy on larger banks expected to generate £2bn per year
· France and Germany have joined the UK in introducing this levy

Pensions
· Earnings link to pensions will be re-linked from April 2011
· Protected by a 'triple-lock' – min 2.5% increase each year
· Increase child element of child tax allowance by £150