Alistair Darling's delayed Pre-Budget Report contained the expected levy on bank bonuses, together with further fundraising for the Treasury coming from increases in National Insurance Contributions (from April 2011) and restrictions on public sector pay and pension contributions.

The economy is now expected to shrink by 4.75% in 2009 with growth of 3.1% expected by 2011. After peaking at £178bn in 2009 Government borrowing is expected to fall to £96bn by 2013.

In his last Pre-Budget Report before the general election, Alistair Darling tried to balance two competing requirements:

• The need to demonstrate his financial prudence to the investment markets; and
• The continuation of the fiscal stimulus that he believes is necessary for UK economic growth.

If there is a change of Government after the election, some of the announcements in the PBR may be revised or dropped. However, given the Conservative Party’s forceful views on the urgency of reducing the Government deficit, many of the tax raising measures might well survive.

The main announcements were as follows:

• The increase in the small companies’ rate of corporation tax to 22% will be deferred for another year until 1 April 2011.
• All NIC rates will rise by a further 0.5% from April 2011 for employers, employees and the self-employed.
• The basic state pension will be increased by 2.5% in April 2010, despite the 1.4% fall in the RPI in the 12 months to September 2009. Certain other benefits and tax credits will rise by 1.5%.
• The draft rules for limiting higher rate pension contributions tax relief from April 2011 have been published. There are several important changes, including a cut in the income threshold to £130,000.
• The rules that currently limit pension contributions tax relief (‘anti-forestalling’) have been changed with immediate effect; the revisions include a new income threshold of £130,000.
• The personal tax allowance and the threshold at which 40% tax is charged will remain unchanged for 2010/11.
• Taxpayers who open offshore bank accounts in certain jurisdictions will be required to report them to HMRC. A range of anti-tax avoidance measures have been announced with immediate effect.
• There is to be a temporary bank payroll tax of 50% where banks, building societies and certain other financial businesses provide a bonus of over £25,000 to an employee. This will take effect from 9 December 2009.

Please contact Nigel Armstarong at Alliotts for more infromation

Article Date: 10th December 2009

Author: Nigel Armstrong

Firm:Alliotts