Osborne unveils tough emergency Budget

News Article - 22 June 2010
Category: Industry

George Osborne today unveiled the first Budget of the Conservative/Lib Dem Government, introducing the most aggressive package of tax increases and spending cuts for a generation. Claiming the 'tough but fair' Budget was unavoidable, the Chancellor said the measures would help eliminate Britain's record deficit within five years.

As experts predicted, VAT is set to rise to 20% from January 4^th 2011, although current zero-rated items will continue to be exempt. The move is expected to raise more than £13bn a year by the end of Parliament's current term, and will bring Britain more in line with rates in Europe, which average out around the 20% mark.

The Government will also offer support to low-spending councils in England and Wales, allowing them to freeze council tax for one year from April 2011. Capital Gains Tax is to remain at 18% for low and middle-income savers but will rise to 28% for higher-rate taxpayers from midnight tonight.

Businesses will benefit from cuts to corporation tax, which will be slashed next year to 27% and by 1% annually over the following three years. Smaller businesses benefit from an immediate reduction to 20%, a move that will no doubt be welcomed by the SME community, many of whom suffered heavily during the financial downturn. The controversial bank levy will be introduced in January 2011, which will be based upon the balance sheets of UK banks, building societies and the UK operations of foreign banks. Once fully operational this is expected to raise £2bn a year.

Benefits have also been targeted in an attempt to cut public spending. Child benefit is to be frozen for three years, whilst families earning over £40,000 a year will see their tax credits reduced. Reforms to Housing Benefit will save an estimated £1.8bn a year, equivalent to a maximum limit of £400 a week. And to prevent wastage occurring through welfare abuse, the Government is to introduce a medical assessment for Disability Living Allowance from 2013, applicable to both new and existing claimants.

Mr Osborne has claimed the Budget will allow the Government to cut additional current expenditure by £30bn a year by 2014-15.

At the time of writing, responses to the Budget - offered via the BBC's live reporting website - have been mixed. Some critics believe that whilst the Budget has unveiled progressive measures with regard to corporation and income tax, the spending cuts will likely hit the lower levels of society the hardest. Robert Chote, director of the Institute for Fiscal Studies, is concerned the quality of public services may be reduced by the proposed spending cuts.

The BBC's Robert Peston reports that market reaction to the Budget has been rational, with a rise in the price of Government debt, a fall in sterling and a drop in bank share prices. This suggests the measures proposed were expected, given the increasing pressure on the Government to act confidently on the spiralling deficit.

Article keywords: budget, june budget, emergency budget, george osborne

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