After six quarters of negative growth, the Treasury forecast positive growth for 2010 of between 1% and 1.5%, rising to between 3 – 3.5% in 2011.
Forecast for public sector borrowing
The forecast for public sector borrowing for 2009/10 was revised downwards, from £178 billion to £167 billion (12.6% of GDP), and £176 billion to £163 billion in 2010/11. This downward revision was a due to lower than expected welfare payments and higher tax revenues.
The Chancellor announced that the government intends to halve the annual fiscal deficit over the next four years, by making widespread efficiency savings and through higher taxes on the better-off. The national debt, as a percentage of national income, was forecast to rise to 54% in 2009/10, and peak at 75% in 2014/15.
Inflation was expected to be 2%, in line with the Bank of England’s forecast.
Budget measures and announcements
Pay and jobs
The minimum wage – the minimum wage for adults will rise by 2.2% to £5.93 per hour from October 2010.
Public sector jobs and pay – as part of the Smarter Government intiative, public sector efficiency savings are forecast to reduce jobs in the public sector, saving £11 billion.
Public sector pay rises will be capped at 1% for 2 years, from 2011.
Youth employment guarantee – the youth employment guarantee, which guarantees 18 to 24 year-olds a job or training, will be extended until March 2011.
There is to be a staged rise of 2.5p in fuel duty, starting with a rise of 1p in April 2010.
Duty on alcohol and tobacco to rise by 1% above inflation.
The 50% higher income tax rate on those earning above £150,000 a year was confirmed – to will come into effect in April 2010.
Stamp duty is scrapped on home sales worth up to £250,000, and is increased from 4% to 5% on homes worth £1 million or more.
The government will make available £270 million in 2010/11 to fund an extra 20,000 university places in science and technology.
The part-owned RBS and Lloyds Group must provide £94 billion in new business loans, 50% of which must be made available to SMEs.
There will be a new green investment bank to fund low-carbon infrastructure projects as part of the development of a low-carbon economy. Funds of £1 billion have been made available to kick-start the bank.
2010 Emergency Budget
In his first (emergency) budget as UK Chancellor, George Osborne announced a series of measures to tackle the UK’s budget deficit. The main points from the Chancellor’s speech, delivered on 22nd June, included:
Approximately 80% of debt reduction to come from reducing public spending, with 20% from raising taxes.
Government departments will have their budgets cut by around 25% over four years, although this will not apply to ‘protected’ departments, including the NHS and international development.
The pay of public sector workers on incomes over £21,000 to be frozen for two years.
Child benefit will be frozen until 2012/13.
Tax credits will be reduced for those families earning over £40,000 per year.
The basic rate of VAT will be increased (on January 4th, 2011) from 17.5% to 20%, generating an estimated £13b per year.
There will be a £1,000 rise in the income tax threshold, which will remove approximately 1m from paying any income tax.
Corporation tax will be cut to 27% in 2011, and by a further 1% a year for three years.
From 2011, a bank levy will be imposed on UK banks and foreign banks operating in the UK.
A new Office of Budget Responsibility (OBR) was created to provide independent analysis (and control) of public spending.