Pre-Budget report: VAT will be cut

CHANCELLOR Alistair Darling this afternoon unveiled a huge £20 billion boost as part of his plans to kick-start Britain's flagging economy in his much-hyped pre-Budget report - and VAT will be cut as expected.

CHANCELLOR Alistair Darling this afternoon unveiled a huge £20 billion boost as part of his plans to kick-start Britain's flagging economy in his much-hyped pre-Budget report - and VAT will be cut as expected.

As he began to outline his measures to help the economy it emerged that the FTSE Index has jumped 301.63 to 4082.59, while the pound has also increased in value against the dollar.

VAT will be cut from 17.5% to 15% as of December 1 and will stay at the lowered rate until the end of 2009.

But alcohol, tobacco and petrol taxes will be raised to offset the VAT cut, while all rates of National Insurance contributions will rise by 0.5% from April 2011.


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And Shadow Chancellor George Osborne tore into the Government, accusing Mr Darling of planting a 'huge unexploded tax bombshell.'

He said: “The Chancellor has just announced the largest amount of borrowing ever undertaken by a British Government in the entire history of this country,

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“To pay for it he has placed a huge unexploded tax bombshell timed to go off underneath the future economic recovery.”

Mr Darling said the country is experiencing exceptional economic circumstances and he wanted to take fair and responsible steps to protect and support businesses and people now while putting public finances on the right path for the future.

The Chancellor told the Commons that the UK would be in recession by the end of the year - with output contracting over the course of 2009.

The chancellor also claimed that the UK economy is in a position of 'relative strength' compared with rivals, but that interest rates are not enough to stimulate the economy.

However, inflation is expected to continue to fall.

Mr Darling said that doing nothing is not an option, and action is needed now to revive the economy.

The main measures that he announced were:-

- Borrowing will be increased to £78 billion this year and 118 billion next year.

- £3 billion of capital spending will be brought forward to this year, to be spent on improving roads, housing and schools.

- As expected, VAT will be cut from 17.5% to 15% until the end of next year. The cut will be enforced from next Monday, December 1.

- This year's increase in the income tax personal allowance of £120 a year for basic rate taxpayers will be made permanent and increased to £145 in April, helping 22 million basic rate taxpayers.

- A new rate of income tax of 45% will be introduced from April 2011 on incomes over £150,000. The new rate will affect the top 1% of incomes.

- Alcohol, tobacco and petrol taxes will be raised to offset the VAT cut.

- All rates of National Insurance contributions to rise by 0.5% from April 2011.

- An extra £100 million to be provided to help 60,000 more households insulate their homes.

- Air passenger duty will be reformed so that those who travel furthest pay most.

- £15 million will be invested in debt advice.

- Major mortgage lenders have agreed to wait at least three months after a borrower falls into arrears before seeking repossession.

- The new vehicle excise duty bands will be phased in. The maximum increase next year will be £5.

- Pension and child benefit increases will take effect in January, three months early, and every single pensioner to get a one-off payment of £60 from January, £120 for couples.

- Pension credit to be increased in April from £124 to £130 a week for individuals and from £189 to £198 for couples.

What do you think about the Chancellor's pre-Budget report? Is it enough to stimulate the economy or was more needed?

Let us know by leaving a comment below.

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