The aim of this most recent Budget was to help the UK recover its position as a manufacturing country. To achieve this, we need to make it easier for businesses to start up and thrive, as well as to reduce the proportion of GDP represented by the state. According to the Budget Statement, GDP growth forecasts have been cut from 2.1% to 1.7% due to weaker than expected 4Q10, higher inflation and increased commodity costs. However, the future looks stronger with the economy set to grow by 2.5% next year, rising to 2.9% in 2014. Additionally, borrowing for the year is forecast at £146bn, falling to £29bn by 2015/16 and CPI inflation is likely to remain between 4% and 5% for 2011, before reducing to 2.5% next year and to 2% in two years’ time.
Personal taxation
The personal allowance – already set to rise by £1,000 to £7,475 – will be increased for 2012/13 by a further £630 to £8,105, for under-65s. The government will consult on merging the tax and National Insurance systems, in order to simplify their operation for businesses. This will not affect pensions or other forms of income. The 50% income tax rate is not seen as permanent, but future tax indexation will be in line with the CPI rather than the (generally) higher RPI. This means that thresholds will not keep pace with the higher measure of inflation in future. This also applies to ISA limits from April 2012. The tax relief available on Enterprise Investment Schemes increases from 20% to 30% and the capital gains tax entrepreneurs’ lifetime relief is doubled to £10 million. The fuel duty escalator announced in 2009 Budget is abolished and replaced by a ‘fair fuel stabiliser’, paid for by a levy on oil companies. The main fuel duty rate was cut by 1p per litre from Budget day.
Business taxation
The main rate of corporation tax is cut by 2% rather than the 1% previously announced, producing a rate of 26% from April 2011. It will be cut by a further 1% each year, until it reaches 23%, making it lower than in France and the US. The tax system is being simplified with the removal of more than 100 pages of code. To help small businesses in particular, £350 million worth of specific regulations are being removed and 21 new Enterprise Zones are being created, offering businesses up to 100% discount on rates, new super-fast broadband and the potential to use enhanced capital allowances in zones where there is a strong focus on manufacturing. The small business rate relief holiday has also been extended by one year from 1 October 2011. Overall, it is to be hoped that, while there is little short-term joy for families, there is real potential for an economic recovery that can make us all better off over the longer term.
Exert taken from the Financial Planning Partners Ltd eNewsletter. More news to be released in future blogs - for independent, excellent advice from one of our IFA's visit the website. Our services are offered around Berkshire - including Ascot, Wokingham, Camberley, Bracknell and Sandhurst.
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