THE COALITION GOVERNMENT'S EMERGENCY BUDGET: A ROUND UP

UK Chancellor George Osborne’s highly anticipated emergency budget was unveiled on Tuesday. The Coalition’s £85 billion budget set out a four-year plan to reduce national debt through a mix of spending cuts and tax rises. Such tough measures are unavoidable according to Osborne if the £155 billion budget deficit is to be reduced significantly.

Key points set out by Osborne include:

Capital Gains Tax
The Coalition announced plans to increase capital gains tax (CGT) for non-business assets, for higher tax payers to 28%. It will remain at 18% for basic and lower rate payers. The £10,100 CGT allowance also remains static.

Pensions
State pension will rise to 66 years of age. However earnings will be restored to the state pension, which is due to increase by 2.5% per year.

Banks
The Coalition introduced a banking levy which is estimated to raise £2 billion per year. This 5 year plan will not affect smaller banks. Germany and France have pledged to join this initiative.

Corporate Taxes
The Budget will set out a plan to cut corporation tax over the next four years by a penny in the pound every year. This will leave Britain with 24% corporation tax by 2014/2015, among the lowest in the world. Small companies' corporation tax will be cut by 1% to 20% next April.

Rise in VAT
Osborne announced plans to lift the sales tax from 17.5% to 20% in January 2011. The measure won’t affect food, children’s clothing, newspapers and books.

Income Tax
The income tax allowance will rise by £1,000 to £7,475. Almost 900,000 of the lowest paid workers will be lifted out of income tax.

National Insurance
National Insurance will rise.  The threshold will rise by £21 per week for employers’ NIC. However entrepreneurs starting businesses outside the south-east will get a tax break of up to £5,000 on the National Insurance contributions of their first 10 employees. Tax break worth up to £50000 for 400000 businesses, is expected to last three years and will allow businesses to avoid NI for 12 months.

Other measures
The Enterprise Finance Guarantee will be increased by £200m to support additional lending of up to £700m for small businesses until 31 March 2011.
The government will create a new Growth Capital Fund, as well as launching a new Enterprise Capital Fund.
The government will carry out a review of IR35 and small business tax as promised.
The government will work with banks on the disclosure of regional lending data for SMEs.
Child benefit will be frozen as well as changes to Child Tax Credit and Working Tax Credit.

 

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