Thursday, March 11, 2010
Chancellor of the Exchequer Alistair Darling confirmed in a Written Ministerial Statement on March 10 that the 2010 government budget will take place on Wednesday March 24.
With a general election approaching, and uncertain in the international markets as to whether the UK can meet its objectives on the public finances, this will be one of the most keenly-watched budget statements in recent years. The government has committed itself to halving the GBP180bn budget deficit over four years, but Darling finds himself in the unenviable position of treading an unsteady tightrope; drastic cuts in public spending are needed, while more increases in taxation seem inevitable, and the Chancellor must be careful not to choke off an economic recovery, whilst signaling to the financial markets that the government has a credible plan to cut both deficit and debt. Also, he must avoid alienating both Labour's core support and the much coveted middle class vote if the government stands a chance of being re-elected.
With increases in income tax for top earners and a National Insurance hike already in the pipeline, observers expect that the Chancellor will turn his attention to other taxes in the budget in order to raise more revenue. Capital gains tax, which at 18%, is much lower than both the top rate of income tax and the corporate tax rate, seems a likely candidate for a rate increase. A rise in the value-added tax rate, currently 17.5%, could also be on the cards, possibly by as much as 2.5% to align the UK with the European Union average.
In a speech on the morning of March 10, Prime Minister Gordon Brown foreshadowed some of the measures the government would use to reduce the deficit. One of them is a pay freeze for senior staff in the civil service, senior staff in the military, the judiciary, senior managers in the health service and the pay of consultants, doctors and dentists in a bid to shave GBP3bn from the budget by 2013-14 when combined with pay controls announced in December.
However, he also expressed his determination to protect essential front line services and leave the health and eduction budgets intact. He also hinted that there may be more pain for people on high incomes in the forthcoming budget, with those on annual pay of GBP150,000 or more facing a 50% top rate of tax from April.
"Fairness will be at the heart of the measures we take to reduce the deficit," he said. "Unlike the policies of the 1980s and 1990s - where taxes for the wealthiest people in society came down, as the burden on people on middle and modest incomes went up - we will not make those on modest and middle incomes take the greatest strain," Brown added, in a swipe at the policies of the previous Conservative administration.
He also took the opportunity to rubbish the Conservative opposition's proposals to means test tax credits and cut inheritance tax.
"It simply does not make any sense to me to cut tax credits for one million and a half middle class families on modest incomes - while at the same time proposing massive inheritance tax cuts worth GBP200,000 to a handful of estates," he argued.
"We will set out in more detail in the Budget in two weeks’ time how we deliver on our commitment to restore the public finances while protecting the fundamental public services that we all depend on," Brown said.