Recession 'deeper than expected'

Published on Wednesday 9 December 2009 09:24

THE UK economy plunged into a deeper recession than predicted this year, Chancellor Alistair Darling admitted today.

He said the economy would shrink by 4.75 per cent in 2009 compared to his April Budget estimate of 3.5 per cent.

And he revealed that the public finances were also deeper in the red with a deficit of 178 billion this year compared to the 175 billion he had predicted.

But he insisted that the economy would start growing by the end of the year and next year would grow by between 1 per cent and 1.5 per cent.

He also warned that further support from the Government was needed while the recovery remained fragile.

In his Pre-Budget Report, the Chancellor predicted that British business would benefit as global demand picked up.

He declared: "So I am confident that the UK economy will start growing by the turn of the year."

But he went on: "Recent market reaction to financial problems in Dubai highlights just how fragile world confidence remains.

"So while I am confident that the UK economy is on the road to recovery, we can't be complacent.

"And we must continue to support the economy until recovery is established.

"To cut support now could wreck the recovery – that's a risk I am not prepared to take."

He gave a boost to pensioners announcing a 2.5 per cent increase in the state pension next year.

And there was laughter from MPs when he announced a cut in bingo duty.

He confirmed that VAT will return to 17.5 per cent on January 1 but added: "I have no other changes in VAT to announce."

As expected Mr Darling announced a levy on big bank bonuses.

Banks face a special one-off levy of 50 per cent on any individual discretionary bonus above 25,000.

He said: "This will be paid by the bank not the bank employee.

"Anti-avoidance measures will be introduced with immediate effect.

"High-paid bank staff will of course also have to pay, as usual, income tax at their top rate on any bonus they receive.

"On a cautious assumption, which includes our expectation that some banks will rein back bonuses, this one-off levy is expected to yield 550 million.

"This additional money will be used to pay for the extra measures, already announced, like help for the young and older unemployed to get back into work."

He also announced a freeze in the 325,000 inheritance tax allowance.

Despite increasing his current deficit estimate he pledged to reduce it as the economy recovers, predicting it would fall to 96 billion in 2013-14, slightly lower than forecast in April, and 82 billion in 2014-15.

But there were widespread jeers from Opposition MPs when the Chancellor said his announcements were being made "from a position of strength".

Mr Darling also confirmed a raft of heavily trailed green measures including a scrappage scheme for inefficient boilers.

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, tax free, he said.

And electric company cars will be exempt from company car tax for five years, the Chancellor announced.