Having inherited the largest budget deficit of any European economy other than Ireland George Osbourne today unveiled the UK’s Emergency Budget stating although tough it is fair.
The conservatives have made some bold moves particularly with regards to public sector pay, VAT and Capital Gains Tax.
Looking at Taxes
VAT
From January 4th 2011 we will see VAT rise from 17.5 pc to 20pc, however the government have committed to keep everyday essentials exempt from VAT. This exemption includes food, children’s clothing and other zero related items like newspapers and printed books.
Capital Gains Tax
The most immediate change we will see is the change in Capital Gains Tax for higher rate taxpayers which will see the current 18pc level raised to 28pc from midnight on June 22nd 2010. The annual exemption for Capital Gains Tax will remain at £10,00 for 2010-2011 and basic rate tax payers will continue to pay tax at the 18pc level.
Personal Income Tax
We will see our personal income tax allowance increase by £1,000 to £7,745 from April 2011, whilst the higher rate income tax rate will remain frozen until the 2013/14 tax year.
National Insurance
Looking at National insurance contributions we will see the National Insurance threshold rise by £21 in 2011.
Other Taxes
Taxes often used to plump up the government coffers have been left alone, there are no new increases on alcohol, tobacco or fuel and the planned increase in cider duty to 10pc above inflation from the end of June has been scrapped.
The Public Sector
The Chancellor has announced a two-year pay freeze to public sector workers while announcing welfare cuts worth £11bn by 2014/15 which includes child benefit to be frozen for the next three years and housing benefit being restricted to a maximum of £400 per week.
With the black hole in pension funding we are set to see the government accelerate the increase in state pension age to 66 whilst the basic state pension will be linked to earnings from April 2011.
There are a number of bold moves being made by Mr Osbourne but many sensible given the fragility of the economy, furthering the state from overseeing markets and letting competition run them efficiently.
The Chancellor has a tough job on his hands, balancing the need to cut our country’s deficit without threatening a double dip recession, failure is not an option.
If the plan is not credible investors could well punish our currency and drive up interests rates
