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Budget June 2010 - the economy

  • Published: Tuesday, 22 June 2010

The government’s first Budget puts the private sector at the heart of economic recovery. The Chancellor has introduced a number of measures to restore confidence in UK business, support economic recovery and keep down inflation.

UK borrowing

Tackling the deficit is the government’s top priority. The British state is borrowing one pound for every four it spends. The pre-Budget forecast from the Office for Budget Responsibility shows a record deficit for this year.

The Budget marks the start of the government’s five-year plan to move to an economy built on savings, investment and exports. Key is that this growth is spread across the whole of the UK.

Public finances

As a share of the economy, borrowing will fall from 10.1 per cent of gross domestic product (GDP) this year to 1.1 per cent in 2015-16. Public sector net borrowing will be:

  • £149 billion this year
  • £116 billion next year
  • £89 billion in 2012-13
  • £60 billion in 2013-14

By 2014-15, £29.8bn of the additional savings will be made from public sector current expenditure (PSCE) and £2.2bn from public sector gross investment (PSGI).

There will be no further reductions in capital spending totals in this Budget. This will be looked at again in the autumn spending review.

Inflation

The inflation targets remain at 2 per cent, as measured by the Consumer Prices Index. Consumer price inflation is expected to reach 2.7 per cent by the end of the year before returning to target in the medium term.

Economic forecast of growth

The Chancellor predicted that government measures would put them on track to have debt falling by the end of its five-year plan. He estimated growth in the UK economy for the coming five years to be:

  • 1.2 per cent this year
  • 2.3 per cent in 2011
  • 2.8 per cent in 2012
  • 2.9 per cent in 2013
  • 2.7 per cent in both 2014 and in 2015

Freedom for enterprise

The Chancellor wants to support business and make the UK more competitive. To help promote growth, corporation tax will be cut from 28 to 24 per cent over the course of four years from April 2011. There will also be a reduction in small profits rate of corporation tax to 20 per cent from April 2011.

There is help for small business through the Enterprise Finance Guarantee (EFG) which supports lending to small business. This increases by £200 million to £700 million. The 10 per cent capital gains tax rate for entrepreneurs increases from £2 million to £5 million.

To help create jobs in parts of Britain outside the East, London and the South East, the Chancellor is exempting new employers from up to £5,000 of employer NICs payments for each of their first 10 employees hired. There will also be a National Insurance Contributions (NICs) holiday for businesses that start-up in certain areas of the UK.

The point at which employers pay National Insurance will rise to £21 per week above indexation in April 2011.

Bank levy

In a bid to introduce a more responsible approach to investment, banks will face a bank levy set at a rate of 0.07 per cent, with a lower initial rate of 0.04 per cent in 2011.

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