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Budget 2009 - Comment & Analysis

If there was a theme to this year’s Budget announcement it was one of building – “building” on the work already underway to “re-build” our economy, “building” a low carbon future, “building” up the public finances to put us back on a sustainable footing and “re-building” trust in the banks. The Chancellor Alistair Darling used the phrase over 20 times in his speech today and the title of this year’s “Red Book”, which contains all the details of the budget, is “Building Britain’s Future”.

The Government’s striking confidence in both the future and in recovery from the current “unprecedented economic crisis” was outlined in ambitious predictions that there should be a return to growth in GDP by the end of 2009 with growth targets of 1¼% for 2010 and 3½% from 2011. A number of initiatives will be funded through the issue of Gilts which in 2010/11 will be a staggering £220bn gross.

The second theme of this Budget was an environmental one, with Mr Darling dubbing it the “world’s first ever carbon budget, which commits Britain to cut carbon emissions by 34% by 2020” and predicting that green technology would be a “major growth sector” in the future. Several measures were introduced to move Britain towards a low carbon future with more “green collar jobs” including funding to encourage off-shore power generation and to build green businesses, particularly in emerging technologies and bio-technology.

Alongside the expected recurring rises in fuel duty and taxes on tobacco and alcohol, there were a few surprises – most notably the rise in the top rate of income tax to 50% from April 2010 for those with income over £150,000. Car owners were compensated somewhat by the introduction of a £2000 trade-in allowance for cars over 10 years old against the purchase of a new car.

The slump in house building was addressed by a combination of an extension on the stamp duty holiday for homeowners on properties sold for less than £175,000 until the end of the year and £500m of financial support for housing projects. Help was also on hand for businesses who have suffered the effects of the credit squeeze. Loss-making companies will be allowed to reclaim taxes on the losses they have incurred during the last 3 years.

Individuals earning higher sums were also targeted with changes to the Pensions Tax Relief rates (restricted from 2010/11 for those earning over £150,000 so that it is gradually tapered to 20%) and a reduction in personal tax allowances for those with incomes over £100,000 and full withdrawal of the benefit of that allowance from April 2010. Savers will be encouraged by the rise in the annual ISA limits to £10,200 or £5,100 in cash although these rates will only be available to those over the age of 50 this year before being opened up to all savers from 2010.

There was also good news for investors with improvements to the carry back of relief for investment in the Enterprise Investment Scheme (EIS). It is currently possible for an investor to carry back income tax relief to the previous year on an EIS investment made prior to the 6th October subject to a limit of half of the subscriptions in that period, up to an overall limit of £50,000 subscribed. The Finance Bill 2009 will remove these restrictions with effect from the tax year 2009/10 and subsequent years and will allow the full amount subscribed to be carried back, subject to an overriding limit of £500,000. 

On a less positive note taxpayers who fail to file their returns or pay their tax on time may in future be subject more severe penalties.

Mr Darling promised to introduce a tougher regulatory environment for banks and hedge funds, ushering in more transparency and discouraging risk-taking. The details of these recommendations “for wide-ranging reform” will be outlined in a Treasury paper due out shortly.

The Chancellor was at pains to defend his decision as “tough but fair” not to make any cuts in public spending, saying that it would be the “wrong thing to do” at this time. He concluded his speech by stating that “you can grow your way out of recession – you can’t cut your way out”. 

View the key facts and figures from the 2009 budget by clicking on the pdf above.