Chancellor Alistair Darling has announced a new top tax rate of 50% which will come into effect in April 2010 - a year earlier than predicted. The 50p tax rate replaces the planned 45p new top rate announced in November’s pre-budget report and will apply only to the 2% earning over £150,000 a year, who will also see tax relief on their pension contributions curbed.

The chancellor attempted to draw a clear line between Labour and the Conservatives as he announced the 50p income tax band for the highest earners after unveiling a stark Budget report on the state of the UK economy.

State of the UK Economy

He predicted that public borrowing would increase to a record £175 billion this year, whilst the economy would shrink 3.5% - its worst performance since 1945. Borrowing levels would continue to rise by £173bn, £140bn, £118bn and £97bn in the years to follow. However, Darling predicted that the economy would start to pick up in 2010, expanding by 1.25%, and continue to grow by 3.5% a year from 2011. Inflation is due to fall to 1% by the end of the year.

Mr Darling’s predictions are far worse than his pre-Budget forecast, in which he predicted 1% negative growth, and plainly challenge Gordon Brown’s decade long boast that he had abolished “Tory boom-and-bust”.

Earlier today, the Office of National Statistics revealed that net borrowing for the 2008-09 tax year totalled a staggering £90 billion, which was £12 billion more than the chancellor had predicted in his November pre-Budget report, and more than double last year’s budget forecast of £43 billion in borrowing.

Cigarettes, Alcohol and Fuel

Alongside an increase in income tax on the most wealthy, alcohol taxes will increase by 2% from midnight, raising the price of the average pint by a penny. Tax on tobacco will go up by 2% from 6pm, whilst fuel duty rises by 2p a litre from September. Mr Darling said these measures will raise more than £6bn by 2012.
This would help to pay for a boost to pensioners’ incomes in real terms, and support for grandparents who take an active role in helping raise their grandchildren.

Jobs

The Chancellor also pledged to protect investment in schools and hospitals, support homeowners and businesses, and help the unemployed get back to work quickly.

Everyone under the age of 25 who has been unemployed for more than 12 months will be offered a job or a place on a training scheme. In addition, the government aims to create 250,000 new jobs in deprived areas, and provide funding for 54,000 new places in sixth form education. Another £250 million funding will be made available for training in growth industries, and £1.7 billion in additional resources will be pumped into the job centre network.

Current employment figures show that 2.1 million people are now looking for work - the highest number since Labour came into power in 1997.

“We must ensure that short-term job loss does not turn into a lifetime on benefits,” Darling said. “You can grow your way out of a recession; you can’t cut your way out of it.”

Car scrappage scheme

In an effort to bolster Britain’s ailing car industry, Mr Darling announced a car scrappage scheme, giving drivers £2,000 towards a new car when they trade in one that is over 10 years old. The government would provide £1,000 with the industry expected to provide the other half of the money.

The environment

Mr Darling also announced a series of green measures, including pumping an extra £1 billion into low-carbon industries, providing £525m for offshore wind projects over the next two years, £435m support for energy efficiency schemes for homes, firms and public buildings and £405m to encourage low-carbon energy and advanced green manufacturing. The chancellor reiterated Britain’s commitment to cut carbon emissions by 34% by 2010.

Opposition leader David Cameron reacted to the Budget report with anger, and said that the chancellor’s speech demonstrated the “utter mess” the government had made of the economy.

He added that Mr Darling had not done enough to curb spending and “Britain simply cannot afford another five years of Labour”.

Liberal Democrat leader Nick Clegg described the Budget as a “mish mash of recycled announcements from a government skilled in raising false hopes and incompetent at delivering real help”.

This entry was posted on Wednesday, April 22nd, 2009 at 2:33 pm and is filed under Banking, Budgeting, Housing Market, Investing, Taxes. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.