Emergency Budget Details

22nd June 2010, signalled the first budget of the New Coalition Government.

Here is a summary of the key points:

• Income tax personal allowances for basic rate tax payer to rise to £7,475
• Personal Allowance for Higher Rate Tax payers remains the same
• Capital gains tax to rise to 28% for Higher Rate Taxpayers immediately
• Large Company Corporation tax to fall from 28% to 24% over 4 years
• Small Companies Corporation Tax reduced to 20% from next year
• Threshold at which Employers pay National Insurance to rise by £21 per week above indexation
• VAT to rise from 18% to 20% in 4th Jan 2011
• Tax credits cut for families earning over £40,000 per annum
• No increases in duty on fuel / alcohol and tobacco
• Levy on Banks to recoup £2 billion per annum to which France and Germany have also agreed
• Public sector pay for those on £21,000 or more frozen for 2 years
• Freeze on funds for the Royal Family
• Housing Benefit capped at £400 per week – saving £1.8 billion per annum
• Medical Assessment for those on Disability Living Allowance
• Proposed State pension age rise to 66 to be speeded up

In summary there are tax rises for the High Earners and tax cuts for the lower paid.

The government expects government spending to be balanced by 2015 to 2016, rising in the short term and falling thereafter. Government expenditure is expected to fall by £30 billion more than proposed by Labour. The Coalition is proposing to solve the crisis via a 77% spending cuts to 33% tax rise principle.

Inflation is expected to peak at 2.7% by the end of 2010. Unemployment is expected to peak at 8.1% this year and fall to 6.1% over 4 years.

I expect this budget to be in line with market expectations and hence have a limited impact on the market as a whole.  I do believe this budget will be seen as a strong step towards addressing the UK’s financial problems and hence quite possibly will be warmly received by credit rating agencies.

It is vital the UK doesnt get downgraded by such agencies as this will force up interest rates in the longer term.

My view – The unions don’t like the budget so that probably means it is a good one!!