Tax rises and pay caps but can it stop the rot?

Published on Wednesday 9 December 2009 22:05

WITH the UK drowning in debt, here are the Chancellors key proposals to get Britain back on road to recovery

PUBLIC-SECTOR PAY

MR DARLING announced that all public-sector pay settlements will be capped at 1 per cent for two years from 2011. In Scotland, the public-sector pay settlement will be announced early next year, but the SNP government has signalled there will be a "period of pay restraint".

Government ministers have had their salaries frozen, as have senior civil servants, and action has been taken to curb the bonuses of quango bosses. UK public-sector workers earning more than 100,000 will be asked to contribute more towards their pension, and any UK government department paying a salary of more than 150,000 will need to seek approval from the Treasury.

PENSIONS

THE ceiling at which high earners can receive higher rate tax relief on their pension contributions is to be lowered to 130,000. Under measures announced in the April Budget, those earning 180,000 and over will only get pension tax relief at the basic rate from April 2011, with the relief tapered down from the higher to the basic rate for those earning between 150,000 and 180,000. Now the restriction will be extended to include all pension contributions. Those with pre-tax incomes of below 130,000 will not be affected. It was also revealed that government contributions to public sector pensions will be capped at 1 billion a year from 2012.

EMPLOYMENT

ALISTAIR Darling claimed that every 16 and 17-year-old would be guaranteed a place in training and education. From January, he said, nobody under 24 would be unemployed for longer than six months before being offered a job or a place on a training scheme. The current threshold is 12 months. He also offered financial support for 10,000 low-income undergraduates to enable them carry out internships.

But elsewhere, his announcement of a 0.5 per cent increase in National Insurance contributions from 2011 was greeted with dismay by analysts, who said it was a tax on jobs that did little to help entrepreneurs employ staff.

BANK BONUSES

THERE is to be no windfall tax on the profits enjoyed by UK banks.

The Chancellor said they should concentrate on building their capital reserves before announcing a widely anticipated 50 per cent tax on discretionary bonuses above 25,000 in a move that is expected to raise some 550 million for the Treasury. The tax will come into force today and run until 5 April and measures will be put in place to stop banks delaying payment until after that deadline, thereby avoiding the tax.

The bonus tax will be imposed on the overall pool of bonuses paid out by a bank, rather than individual payments.

THE ENVIRONMENT

A SCRAPPAGE scheme that will offer households 400 to replace old boilers with more efficient models is part of a 200 million package of environmental measures outlined in the PBR.

The Chancellor also revealed an extension to the Warm Front home insulation scheme and there was a commitment to 160m of investment in low-carbon and renewable projects and tax rebates for the installation of wind turbines and solar panels that feed into the national grid.

He also announced electric powered cars will be exempt from company car tax for five years.

STAMP DUTY

CALLS to boost the property market by extending the stamp duty holiday were ignored by the Chancellor. The 1 per cent charge was suspended on properties between 125,000 and 175,000 in September 2008 as the government sought to give the struggling mortgage market a kick-start. But property industry requests for it to be extended for at least another six months fell on deaf ears. Bank of Scotland estimates that around a fifth of Scottish first-time buyers have benefited from the threshold increase.

The Chancellor has extended mortgage repayments support for borrowers on income support.

OTHER MEASURES

ONE of the biggest reactions from the opposition benches during the Chancellor's statement came with his announcement that bingo duty was to be cut from 22 to 20 per cent.

The move, which will see the levy on the takings at bingo clubs, drop, has received a cautious welcome from the industry.

Elsewhere, Mr Darling announced a new monthly 50p tax on the installation of landline telephone lines to pay for the rollout of superfast broadband in remote parts of the UK.

He also revealed that spending on overseas aid was set to rise to 0.7 per cent of GDP by 2013.

PRE-BUDGET REPORT: MORE REACTION

• Bill Jamieson: Broke, helpless Darling has run out of steam

• Chancellor 'ducking big decisions' as main measures delayed till after election

• Tax rises and pay caps but can it stop the rot?

• Windfall tax on bankers' bonuses labelled a drop in the ocean – but a blow to the City

• SNP claims spending delay will hit Scotland

• Gerri Peev: Blueprint for recovery looks more like a death certificate

• Sceptics claim failure to tackle public finance deficit outweighs plus points

• Analysis: Short-term political gains may not pay off in the long term