Budget: Lower Growth, Higher Borrowings

123jump.com Staff
12 Mar, 2008
New York City

UK Finance Minister Chancellor of Exchequer Alistair Darling proposed financial budget that lowered UK economic growth rate estimate in the year 2008-09. The government proposes to increase borrowing to sustain spending in healthcare, transportation, and education. Darling also proposed to tax domiciled foreign residents and simplify corporate taxes. Capital gains tax will be relaxed.

[R]6:00PM London – UK proposes to increase government spending and borrowing to sustain a lowered rate of economic growth.[/R]

UK presented its budget with a rise in public debt and lowered its GDP growth target for the current year.

The public sector debt is now estimated at 37.1% of GDP at the end of March 2008 and is expected to rise to 38.5% at the end of the fiscal year 2008-09.

Total receipts in the fiscal 2008-09 are expected to be £575 billion and expenditures are £618 billion with a budget deficit of £43 billion.

Of the total spending, defense budget will be £33 billion, education budget £82 billion, healthcare £111 billion, and social protection £169 billion. Interest on debt will be 31 billion in the fiscal year.

Income tax revenue of the total revenue of £575 billion is estimated at £160 billion, national insurance of £105 billion, corporate tax of £52 billion, excise duties of £42 billion, and VAT of £84 billion.

GDP growth is forecast to slow from 3% in 2007 to 1¾ to 2¼ per cent in 2008, before picking up to 2¼ to 2¾ per cent in 2009 and 2½% to 3% in 2010.

The government also proposed to offer £100 to households with residents over 80 years old and £50 to households with residents over 60 years. The move will benefit 9 million homes.

Alcohol duty will increase by 6% and tobacco prices will rise by 11p for a pack of cigarettes. The planned fuel duty increase of 2 pence per litre in April 2008 will now be postponed until 1 October 2008.

Main road fuel duty rates will rise by 1.84 pence per litre on 1 April 2009, and will increase by 0.5 pence per litre above inflation on 1 April 2010.

UK also plans to tax overseas earnings of foreign residents beginning this year. Adults using the remittance basis of tax, who have been resident in the UK for longer than 7 out of the past 10 tax years, will be subject to an annual tax charge of £30,000 a year as regards the foreign income and gains they leave outside the UK, unless their unremitted foreign income and gains are less than £2,000 a year.

This means that adults who continue to benefit from the special remittance basis rules after 7 years in this country will make an additional contribution through the charge

The government proposed to keep corporate taxes at 28%, lowest among G7-nations.

The government raised VAT registration requirements threshold from £64,000 to £67,000 and estimated 6,000 small businesses will be out of the system. As of October 2008 new minimum adult wage per hour will increase to £5.73.

As announced at Budget 2007, the Government will simplify the personal tax system by removing the 10 pence starting rate and cutting the basic rate of income tax from 22 pence to 20 pence from April 2008. The Government will maintain the existing 10 pence rate for savings income. There are no changes to the main rates for taxing dividends. The 10 pence savings rate and the 20 pence basic rate bands will be raised in line with inflation.

As announced at the 2007 Pre-Budget Report, for disposals on or after 6 April 2008, CGT will be set at 18 per cent. In addition, as announced on 24 January 2008, a new entrepreneurs’ relief will also be available on the disposal of a trading business or shares in a trading company, provided the seller is an officer or employee of the company and has a minimum 5% stake in the business.

This will reduce the effective tax rate to 10% for up to the first £1 million of gains made over a lifetime. Budget 2008 confirms that the tax-free annual exempt amount for 2008-09 will rise to £9,600,