Pre-Budget report 2009: In depth
Darling announces boiler scrappage scheme
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By Adam Leveridge. |  |
Wednesday, 09, Dec 2009 02:45
By Sarah Garrod.
A subject-by-subject breakdown of Alistair Darling's final pre-Budget report before next year's general election.
VAT
As expected, the VAT holiday will end on January 1st, rising from its current 15 per cent level back to 17.5 per cent. Firms had asked the Chancellor to delay the rise, to give them time to benefit from post-Christmas retail sales, but in a disappointing move he said: "I can confirm that VAT will return to 17.5 per cent on January 1st as planned.
"Mr Speaker, I have no other changes in VAT to announce."
However, there was some relief from the industry that Mr Darling decided to return VAT to its earlier level, rather than extending it to 20 per cent and adding it to currently exempt items, such as children's clothes.
Full story: Darling forced to revise economy contraction
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Full story: Darling announces boiler scrappage scheme
Pre-Budget report 2009: As-it-happened
Pre-Budget report 2009: In-full
Comment: Pre-Budget report ignores the bad and the ugly
Tax
The key tax changes today were that national insurance will go up by a further 0.5 pence from 2011 and public sector workers face a one per cent pay squeeze.
Mr Darling said: "Public sector workers will make a greater contribution to the increasing value of pensions, with those earning over £100,000 paying more.
"I can announce that, for the two years from 2011, we will seek to ensure that all public sector pay settlements be capped at one per cent."
The stamp duty holiday will also end in January.
Mr Darling said: "Revenues from stamp duty and income tax are sharply down. And it will take time for tax revenues to recover."
The move was met with hostility from the property industry.
Peter Bolton King, chief executive of the National Association of Estate Agents, said following the announcement on stamp duty: "The chancellor missed an open goal with his statement.
"By ignoring the advice of much of the property industry there is a real danger that the property slump that has hit thousands of families hard over the past 12 months will hit thousands more, harder, in the year ahead.
"Stamp duty unfairly distorts the property market. It is prohibitive to people looking for a step up the housing market and unfairly penalises people investing in buy-to-let portfolios."
While Nici Audhlam-Gardiner, director of mortgages at Abbey and Alliance & Leicester, added: "This is disappointing news not only for first-time buyers looking to take their first step onto the property ladder but also for the wider housing market. First-time buyers are the lifeline of the housing market and it's a shame to see this support come to an end at a time when the wider housing market is still in recovery."
National insurance is expected to rise by 0.5 per cent from 2011, for employers and employees, with the income tax threshold will be frozen at £43,000.
Mr Darling said: "But in April 2012 I have decided to freeze the point at which people start paying income tax at 40 per cent for one year.
"No-one with income below £43,000 will be affected by this change.
"It's also fair that those who should pay tax don't escape their responsibilities."
He also added that no one with a salary below £20,000 per annum will be affected by the national insurance changes.
In a surprise move for tax, which caused considerable reaction in the Commons this afternoon, the chancellor announced a reduction in the bingo duty from 22 per cent to 20 per cent; perhaps an indication of what Mr Darling does on his days off?
There was good news for small and medium sized businesses (SMBs) as Mr Darling decided to extend the threshold on the hated empty property tax, saying: "I can announce it will be extended so that, for 2010-11, empty commercial properties with a rateable value below £18,000 will be exempt from business rates.
"70 per cent of all empty properties will continue to be exempt."
SMBs were further buoyed by the news the government has decided to defer the increase in corporation tax for smaller companies.
Mr Darling said: "This will leave the 2010 tax rate unchanged for 850,000 small businesses - helping them until recovery is secured."
Property
Despite his decision not to extend the stamp duty holiday, Mr Darling did have some good news for the property industry, saying: "Last year, I improved the support for mortgage interest scheme to provide better cover for mortgage interest payments for those who had lost their jobs.
"Over 220,000 people have been helped so far. I have decided this additional support will be extended for a further six months.
"There will, of course, be a cost to this and other continued government support.
"But the cost to families of losing their home would be immense. And it would be a false economy for the country."
Energy efficiency and climate change
During the week of the climate change summit in Copenhagen the pressure was on for the Labour government to produce a PBR that was environmentally conscious.
As such the chancellor outlined some important changes in the pre-Budget report today, not only for the environment as a whole, but for individual households also. Off the back of the government's successful 'cash for bangers' scheme Mr Darling confirmed reports his party would be introducing a 'cash for boilers' scheme, to improve energy efficiency and lower household utility bills.
He said: "Mr Speaker, each inefficient boiler adds over £200 to household bills and one tonne of carbon to the atmosphere a year.
"Building on our successful car scrappage scheme, I will help up to 125,000 homes replace the most inefficient boilers with new models."
The announcements also included £160 million of public and private investment into low carbon projects, and a further £90 million in the European Investment Bank's new 2020 fund, which will enable ?6.5 billion of finance for green infrastructure projects.
As announced earlier, the roll-out of smart meters, which will be completed by 2020, will aim to make families more fuel efficient. Mr Darling also said an additional £200 million, from April, will be set aside to help with energy efficiency.
Concluding his announcements on energy efficiency, he said: "From April, people with a home wind turbine or solar panels who plug their excess power into the national grid, will receive on average £900 a year.
"I intend to make this payment tax free.
"To help boost the number of electric cars on our streets, I have decided to exempt them from company car tax for five years.
"And I can also announce a one hundred per cent first year capital allowance for electric vans."
Employment
No doubt many of the 2.4 million currently out of work were waiting for the chancellor's announcement on unemployment. He began by outlining that the government would support the workers of the Corus factory in Teesside who were last week told they would lose their jobs. He said yesterday he agreed with the SoS for Business to provide £30 million from within existing resources to help the industry in the Teesside area.
As ever, unemployment during the recession appears to have hit the young worse, with many 18-24 year-olds finding themselves out of work.
Mr Darling said: "Past recessions have had a very damaging impact on young people, who should be starting their working lives, but instead were unemployed.
"Our package of support for the young already includes a place for every 16 and 17 year-old in education or training.
"I intend to provide funding so that this guarantee will be available to school-leavers again next September.
"In the Budget I went further, and announced that every 18-24 year-old will be guaranteed work or training after 12 months out-of-work.
"I don't want them to have to wait that long, so I am bringing this forward.
"I have decided that from next month no-one under-24 needs to be unemployed for longer than six months before being guaranteed work or training."
He added that older people would not be forgotten, saying he would ensure over-50s receive specialist and tailored support, to equip them with the confidence and skills needed to get a job, and to make it easier for those over 65s to receive working tax credit, the government will reduce the minimum number of hours they need to work to be eligible.
Defence
Just days after it was announced the 100th British soldier to have been killed in Afghanistan this year had lost his life, the chancellor announced more funds for troops.
He said: "Mr Speaker, our first priority must be to make sure our armed forces have all the resources they need.
"The whole House will want to join me in praising the dedication and valour of our troops, especially those engaged in the conflict in Afghanistan.
"For next year, I can announce that a further £2.5 billion will be set aside for military operations in Afghanistan.
"At the same time, we will continue to improve the effectiveness of core defence spending, reducing the civilian workforce and restructuring the department."
Economic forecasts
The main point for the economy was that Mr Darling still expects the economy to exit the recession in quarter four. He said the economy would shrink by 4.75 per cent in 2009 compared with his Budget estimate in April of 3.5 per cent.
And the public finances were also deeper in the red with a deficit of £178 billion this year compared with the £175 billion he had predicted.
When it came to the recent behaviour of the British banks, who had held the government 'to ransom' over bonuses, Mr Darling said there would be no windfall tax. Instead he said: "I have decided to introduce from today a special one-off levy of 50 per cent on any individual discretionary bonus above £25,000.
"This will be paid by the bank not the bank employee. Anti-avoidance measures will be introduced with immediate effect."