George Osborne on 22nd June in his first budget, which he termed ?the unavoidable budget?, split the austerity impact between 77% of spending cuts and 23% tax increases, with the new capital gains tax top rate set at 28% and much less than the 40% or 50% rates feared.
The budget tax highlights included:
? The standard rate of VAT will rise to 20% from 4th January, 2011 although goods & services currently exempt from VAT or subject to VAT at zero or 5%, will not be affected.
? In 2011/12 the personal allowance will increase by £1000 but the basic rate limit will be cut at the same time, thus not benefiting higher tax payers.
? Capital gains tax will remain at 18% for basic taxpayers but will increase from 23 June, 2010 to 28% for higher and additional rate taxpayers.
? Entrepreneur relief will remain at 10% but the lifetime limit will rise to £5 million per person from 23 June, 2010.
? To favour business, the main corporation tax will fall to 27% from 1 April, 2011 and be reduced by 1% per year over the following three years.
? From 1 April, 2011 the small profits corporation tax rate will be reduced to 20%.
? The annual investment allowance will be cut to £25,000 from April, 2012, with writing down allowances for plant and machinery also reduced.
? From April 2011, the effective requirement to buy an annuity at age 75 will be scrapped.
For those of us who participated in the recent study group in anticipation of this budget, it?s interesting to compare the Michael Webster discussion paper (refer to Pages/Study Groups/Budget1) and the subsequent commentary by Michael Barker (refer to Pages/Study Groups/Budget2) in the index column on the right, together with our associated discussion.
This emergency budget supports one view expressed in our study group to avoid putting VAT on currently exempted items such as food and clothing, to avoid overly penalising the poorer members of society. When increasing VAT to e.g. 20% it seemed better to stick to goods and services already subject to 17.5% and, therefore, if not exactly welcomed by consumers, at least they would be more used to this additional cost penalty in their normal purchases. Vince Cable has subsequently pointed out that for the less well off, the VAT increase has not touched staple items such as food, fuel and rent.
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