Global Arab Network | UK: Comparison Between Labour and Con-Lib Coalition Budget

Translate this article to your language:

GANPublications

e-Publications

Add Site to Favorites

Add Page to Favorites

Make Homepage

Share This Page

RSS Feed

--------------------------------------------------------------------------------------------------------------------
| |

UK: Comparison Between Labour and Con-Lib Coalition Budget

Sunday, 04 July 2010 19:15

Central to last month's budget release by Chancellor George Osborne was reduction of the UK's structural deficit. The UK's budget deficit is currently £156bn, and national debt is as high as £893.4bn or 62.1% of GDP. The new budget calls for public sector cuts totaling £40bn and tax rises of over £10bn annually over the next 5 years.

As can be seen from the budget table below, Labour and Con-Lib coalition values differ vastly which has substantial consequences for the parties' strategy and policies set out in both budgets. Ever since the global recession hit in 2008, Labour has been advocating a policy of spending to boost the economy regardless of the UK's substantial national debt. Welfare policies have historically been at the heart of Labour values. The Conservative opposition never made it a secret that they believed cuts in spending, welfare and tax reforms were needed to get the UK's budget deficit in balance again. The new Con-Lib government has released a budget that fits well within this Conservative strategy. The coalition's primary focus is the boost of private sector activity to drive recovery and create jobs and wealth. To accommodate for this, the Chancellor has introduced a radical reform of the welfare system and re-examined the country's tax system.

LABOUR 2009 CON-LIB COALITION 2010

Alcohol, Tobacco & Fuel		Alcohol, Tobacco & Fuel
Alcohol taxes to go up 2%		No extra tax on alcohol, tobacco and fuel, planned 10% duty rise on cider scrapped
Tax on tobacco to go up by 2%
Fuel duty to rise by 2p per litre from September, then by 1p a litre above inflation each April for the next four years
Winter fuel allowance to be maintained for 1 year; £250 for over 60s and £400 for over 80s

Tax		Tax
Income tax for earnings over £150,000 levied at 50% from April 2010		Personal income tax allowance increased by £1,000 to £7,475 per year in April 2011
Tax relief on pensions to be reduced for people on more than £150,000 a year from April 2011		VAT increase from 17.5% to 20% on 4 January
Close tax loopholes and schemes, provides £1bn of extra revenue over 3 years		2011Capital gains tax increased from 18% to 28% for higher rate taxpayers
		Council tax could be frozen for 1 year depending on spending control of individual councils

Welfare, Housing & Education		Welfare, Housing & Education
£1.7bn extra funding for Job Centre network		Tax credits will be cut for families earning more than £40,000 a year
Statutory redundancy pay up from £350 to £380 a week		Housing benefit will be reformed with a maximum limit of £400 a week, in a package saving £1.8bn a year by the end of the Parliament
Extra support for people who have been out of work for 12 months through the flexible new deal		Housing benefit for unemployed cut by 10% from April 2013
From January all under-25s out of work for a year to be offered a job or training place		Child benefit frozen for three years
£250m funding to help people get work experience in growth industries		Basic state pension linked to earnings from April 2011
Increase basic state pension by 2.5%		Child element of tax credit raised by £150 above inflation from April 2011
Child trust funds for disabled children to rise by £100 a year, £200 a year for severely disabled children		Health in pregnancy grant cut while the Sure Start maternity grant will be restricted to the first child only and lone parents will be expected to look for work when their youngest child goes to school
Child tax credit to rise by £20 by 2010		Medical assessment for Disability Living Allowance from 2013 for new and existing claimants
Funding to create 54,000 new places in sixth form education		Tax credits are linked to household income
Stamp duty holiday for homes up to £175,000 to be extended to end of year		Those lone parents with their youngest child over 5 will be moved from Income Support to Jobseekers allowance
£500m to kick-start stalled housing projects - including £100m for local authorities to build energy efficient homes
Extra £80m for shared equity mortgage scheme

Economy		Economy
Economy forecast to shrink 3.5% in 2009		73% of savings come from spending cuts, and 23% from tax rises
Growth expected to pick up in 2010, expanding by 1.25%.		Estimated growth this year of 1.2% and 2.3% next year - compared to its previous forecasts of 1.3% of 2.6%.
Economy to grow by 3.5% annually from 2011		Structural deficit should be in balance by 2015/16
Public borrowing to increase to £175bn this year		Average real terms budget cuts of 25% over 4 years.
Public spending growth to be cut from 1.1% next year to 0.7% from 2011-2012

Business		Business
Businesses' main capital allowance rate doubled to 40%		Corporation tax will be cut from 28% to 24% over three years
New £750m strategic investment fund to help emerging technologies and regionally important sectors		Small business start-ups outside South-East of England will be exempt from £5,000 National Insurance payments for first 10 workers
		Small companies corporation tax rate cut to 20%
		Reduce capital allowance from 20% to 18%, and special rate from 10% to 8%
		Reduce the annual investment allowance from £100,000 to £25,000. 95% of businesses will have all annual investment covered by this allowance

Other		Other
Until March 2010 motorists get £2,000 discount on new cars if they trade in cars older than 10 years		Freeze the Civil List payments to the Royal Family at £7.9m a year, in future years they will be subject to scrutiny by the National Audit Office.
Britain commits to cut carbon emissions by 34% by 2020		Public sector pay freeze for public servants paid more than £21,000, with those earning less all getting a £250 rise
An extra £1.5bn to support low carbon industries		Government will introduce a bank levy, which will apply to the balance sheets of UK banks and building societies and the UK operations of foreign banks. This will generate £2bn a year
£525m for offshore wind projects over the next two years		Government department cuts of £17bn planned
£435m support for energy efficiency schemes for homes, firms and public buildings
An extra £9bn in efficiency savings is planned

Impact on Business

The Coalition government budget has been well received by the business community in the UK, according to the Institute of Directors (IoD), Osborne's budget really "faced up to the challenge" and the British Chambers of Commerce (BCC) calls it "courageous". It is evident from the budget that the coalition government attempts to move more towards a private sector economy which has led to some positive tax incentives for the business community. Corporation tax will be lowered from 28% to 24% over 3 years, which will make the UK more competitive in Europe and will attract business and investment to the country. Other tax incentives for smaller and regional businesses are meant to promote business and investment in all regions of the UK. With this, the government hopes to achieve more economic growth and create jobs all over the country.

The rise in VAT from 17.5% to 20% starting 4 January 2011 is the more controversial aspect of Osborne's budget. While the Chancellor has indicated that this move would make over £13bn per year by the end of Parliament (2014-15), the business community has reacted with apprehension. The Federation of Small Businesses (FSB) claims that not only the rise itself but implementation into the system will prove costly for many small businesses in the UK. On top of this, small businesses will have to contend with the increase of insurance premium tax from 5% to 6%. The FSB has however welcomed government assistance for small businesses through various other tax incentives (see budget table).

UK traders are also affected by the rise in VAT; UK trade associations warn that the rise could cause a drop off in trade and discourage investment. UK manufacturers have moreover indicated that severe cuts in government capital investments will be detrimental to the country's industry (see budget table). While there has been much concern regarding the rise in VAT to 20%, it is worth noting that this figure is actually more in line with current VAT charges elsewhere in Europe (see VAT table below).

The rise in VAT is also a concern for retail business as this will hit consumer spending and puts jobs at risk. It could hold back economic recovery and will likely add to inflation. The new government already has a hard task creating enough jobs in the private sector to cover for job losses in the public sector, if VAT rise will indeed create more unemployment in the retail sector, this could be a serious long-term concern.

Despite concerns from traders, manufacturers and retailers, there is a genuine recognition that savings will need to be made and a willingness to move forward with this budget. Only time can tell if this will prove a realistic budget to get the UK economy back on track.

UK Deficit in % of GDP	2009	2010
Public sector net borrowing	6.7	11.0
Surplus on current budget	-3.5	-7.5
Cyclically -adjusted net borrowing	6.3	8.7
Cyclically -adjusted surplus on current budget	-3.1	-5.3

Source: HM Treasury Budget 2010

Income tax table

Gross Income	Currently	Labour Budget 2011-12	Coalition Budget 2011-12	Coalition Budget 2012-13
£10,000	£1,175	£1,010	£840	£760
£20,000	£4,275	£4,210	£4,040	£3,960
£30,000	£7,375	£7,410	£7,240	£7,160
£40,000	£10,475	£10,610	£10,440	£10,360
£50,000	£14,190	£14,410	£14,405	£14,315
£75,000	£24,440	£24,910	£24,905	£24,815
£100,000	£34,690	£35,410	£35,405	£35,315
£150,000	£57,780	£59,060	£59,395	£59,410

Source: HM Revenue and Customs

Standard rates of VAT in the European Union and Egypt

Country	VAT %	Country	VAT %	Country	VAT %
Austria	20	Germany	19	Netherlands	19
Belgium	21	Greece	23	Poland	22
Bulgaria	20	Hungary	25	Portugal	20
Cyprus	15	Ireland	21	Romania	19
Czech Republic	20	Italy	20	Slovakia	19
Denmark	25	Latvia	21	Slovenia	20
Estonia	20	Lithuania	21	Spain	16
Finland	22	Luxembourg	15	Sweden	25
France	19.6	Malta	18	UK	17.5 (20 in Jan 2011)
				Egypt	10

Source: European Commission © The Egyptian-British Chamber of Commerce

< Prev		Next >

Last Updated on Sunday, 04 July 2010 19:25

Add comment

The opinions of the authors in articles published are theirs alone and do not necessarily reflect the views of Global Arab Network
------------------------------------------------------------------------------
Published comments are the opinions of private individuals and do not reflect the views of Global Arab Network