Today Alistair Darling presented his pre budget report to the House of Commons and to the world. He stated his central objective is to respond to the consequences of the global downturn on the U.K. economy so that the country will be well placed to take advantage of the eventual global recovery. He stated he would provide support for families, businesses and the economy and would keep investing in public infrastructure.
The Chancellor once again insisted that the seeds of the world's financial crisis were sown by the U.S.A.'s sub prime mortgage market and not by domestic policy. He gave a summary of the crisis at home and abroad and also of domestic and international forecasts. He stated that ,with the U.K. taking over the G20 Presidency next year, it would take the lead and do all it could to avoid such a crisis happening again. He also claimed the U.K. economy faces the present challenge from a position of "relative strength" and that letting "the recession take its course" is "no action plan", before confirming he fully intends to increase public borrowing.
It was then that Darling declared the pre budget report represents a £20bn fiscal stimulus from now until the budget in April next year.
Before moving onto the measures he was going to take, the Chancellor predicted Government borrowing will rise to £78bn this year and £118bn next year.
The highlights of the key measures Darling has pledged to implement are as follows. As expected, V.A.T. will be cut from 17.5% to 15% starting next Monday, 1st December, for 13 months. However, he will offset the V.A.T. reductions on petrol, tobacco and alcohol by raising the taxes on these commodities so customers will still be paying pretty much the same prices for them. As for vehicle excise duty, new rates will be phased in at lower rates of increase.
From April 2011, there will be a 0.5% increase in the National Insurance payments employers and employees will make, although Darling guarantees those earning under £20,000 per annum will not be subject to the increase.
Those with an income of £150,000 and above will pay 45% income tax.
Families with children can look forward to the planned child benefit increase being brought forward three months to January. Pensions are also to be increased for both individuals and couples.
The Chancellor announced a package of support for housing worth £1.8bn, intended to help current homeowners stay in their homes and to help future homeowners get on the property ladder. £1.3bn worth of employment measures in order to help the jobless and those facing redundancy were also announced.
People will be encouraged to save money through the setting up of a new saving gateway that will give the saver money back for every Pound they deposit in the bank.
May's temporary £120 allowance for people who lost out as a result of the ending of the 10% income tax rate is to be made permanent and will also be increased in April.
Darling addressed the increasingly political issue of the environment by announcing his reforms of air passenger duty, intended to help reduce emission from aviation. He also stated renewable energy and nuclear power will have an increasingly big part to play in the U.K.'s energy future.
The Chancellor assured medium to large businesses that in 2009 will come exemption for foreign dividends. A variety of measures devised to help small businesses include the setting up of a small business finance scheme, a temporary increase in threshold for empty property relief from 2010 onwards and Revenue & Customs' new commitment to allowing struggling firms to spread their tax payments for as long as necessary.
£3bn of capital spending will be invested in the motorway network, schools, social housing and energy and efficiency measures.
George Osbourne responded to the report by saying the Chancellor had dropped a "tax bombshell" on the nation, giving £20bn away but taking back £40bn in higher taxes. The shadow chancellor also likened Darling to a "gambler who can't give up" in reply to the Chancellor's plans for continued borrowing. The Liberal Democrats' Vince Cable said it would have been more sensible to cut income tax for low earners.