Pre Budget Report

Alistair Darling presented his pre budget report yesterday and committed himself to spending his way out of recession. The package of measures announced will cost around £20 billion, but apart from the leaked changes to VAT and income tax, there was very little to encourage the population to spend.

The Economy

The Chancellor predicts the economy will continue to shrink until 2010 when he expects some modest growth. During this period Government borrowing will rise to £118 billion, which at 8% of the national income, is the highest since modern records began in 1970.

Inflation is expected to fall to 0.5% by the end of 2009.

Income Tax

From April 2011 a new 45% rate of income tax will be introduced for people earning £150,000 or more.

Personal allowance rules will also change. Currently everyone can earn £5,435 before paying tax, but from 2010 those earning over £140,000 will have their allowance removed, and those earning between £100,000-£140,000 will have their allowance reduced.

The temporary increase in personal allowance for basic taxpayers, designed to compensate for the earlier abolition of the 10p tax band, will rise to £145 and be made permanent from April.


Will be reduced to 15% for 13 months from Monday. This will not affect petrol, alcohol and tobacco where tax will be increased to offset the cut in VAT.

National Insurance Contributions

National insurance contributions will rise by 0.5% from April 2011 but those earning under £20,000 will not pay any additional contributions.

Child Benefit

The planned increases in Child Benefit for April will be brought forward to January. The benefit for the first child will go up to £20 per week and to £13.20 per week for subsequent children. Child tax credit  and Guardian's Allowance will also go up.

Mortgages and Housing

Major lenders have agreed to not consider starting repossession proceedings before borrowers are 3 months in arrears. In practice most mainstream lenders are unlikely to have done this within 3 months before the announcement.

The Mortgage Interest Scheme, which helps borrowers who have lost their job stay in their homes, will now cover the interest on mortgages up to £200,000.

Following the release yesterday of the Crosby Report into mortgage finance, the government will seek EU permission to provide a temporary guarantee for securities backed by new mortgages. This should ease some lender concerns, and make mortgages more available.

More money will be available to help people insulate their homes

Road Tax and Air Passenger Duty

The proposed changes to road tax for cars with higher emissions will now be phased in.  The first-year rates on new cars will go ahead in 2010, but new rates for older cars will only be increased by maximum of £5 from next year, and £30 from 2010.   Air passenger duty will be changed so that those travelling further and having a bigger impact on the environment will pay more. State Pension

Pension payments will increase from £90.70 to £95.25 per week, with  further increases made in pension credits and winter fuel allowances.

Energy Costs

The Government want the energy companies to cut gas and electricity bills to mirror the fall in wholesale prices. If companies do not comply, new legislation to force them to cut bills may be introduced.


A new Government backed savings scheme called Savings Gateway, aimed at those on low incomes, will be launched in 2010. In it, the government will contribute 50p for every pound saved.

Call our expert
advisers now
Call free from mobile or landline
Open 7 days a week until 8pm weekdays