Darling unveils borrowing gamble

[4me2]

Darling unveils borrowing gamble



Chancellor Alistair Darling announces a rise in top-rate of tax


Chancellor Alistair Darling has cut VAT but taken UK borrowing to record levels as he battles to save the country from a deep and long-lasting recession.
Top earners also face more tax and all National Insurance contributions will rise, he said in his pre-Budget report.
Alcohol, tobacco and petrol duty rises to offset the 17.5% to 15% VAT cut.
Mr Darling said "exceptional measures" were needed with the economy set to shrink next year - but the Tories said he had "mortgaged" Britain's future.
KEY POINTS
VAT cut by 2.5 percentage points
45% tax rate on earnings over £150,000 from 2011
All National Insurance to go up by 0.5% from 2010
Economy to shrink by up to 1.25% next year
Borrowing to hit record £118bn
Phased increase in vehicle excise duty



At-a-glance: Pre-Budget report


Shadow chancellor George Osborne, for the Conservatives, accused Mr Darling of "bringing this country to the verge of bankruptcy" by doubling the national debt, which is set to reach £118bn next year.
Mr Osborne accused the government of creating "a huge unexploded tax bombshell timed to go off at the time of the next economic recovery".
He said Mr Darling had offered "temporary tax giveaways paid for by a lifetime of tax rises on the British people and he said the country's future had been "mortgaged to bail out the mistakes of the past".
Lib Dem treasury spokesman Vince Cable said VAT cuts would not be enough to boost consumer spending and "it would be much more sensible to put money directly in the pockets of low paid workers by cutting their income tax".
In his Commons statement, Mr Darling slashed economic growth forecasts for next year from 2.75% to between minus 0.75% and minus 1.25% - the biggest downward revision on record.
In these extraordinary circumstances allowing borrowing to rise is the right choice for the country


Alistair Darling
Chancellor



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But he said the government would inject an extra £20bn into the economy, or 1% of GDP, in a bid to get it moving again funded in part by an extra £5bn in efficiency savings and a big increase in government borrowing.
The most expensive stimulus measure is a temporary cut in VAT from 17.5% to 15% aimed at getting consumers spending again.
Mr Darling says the cut - which comes into effect on Monday in time for Christmas shopping - will pump £12.5bn into the economy over the course of the 13 months it will last.
But the rise in duty on alcohol, tobacco and petrol, to ensure they do not benefit from the cuts in VAT, will be permanent.
And in measures aimed at clawing back that cost, top rate tax will increase to 45% from 2011, for people earning more than £150,000 a year and from April 2011 all rates of National Insurance (NI) contributions will be raised by 0.5% for employees and employers.
The starting point for NI will be brought into line with that of income tax so that no-one earning under £20,000 would pay any more contributions as a result, the Chancellor said.
On borrowing, Mr Darling said it would be "perverse and damaging" to stick to government rules in the current crisis so they would be temporarily suspended.
'Extraordinary circumstances'
Government borrowing would more than double to £78bn this year and £118bn next year, before starting to come down, with the books not to be balanced again until 2015/16.
PRE-BUDGET REPORT


Report in full

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"If we did nothing we would have a deeper and longer recession that would cost the country more in the long term," Mr Darling told MPs.
"In these extraordinary circumstances allowing borrowing to rise is the right choice for the country."
He added: "Taken together these steps will ensure that there is extra money flowing into the economy when it is needed most, but we can reduce borrowing when growth returns."
In other measures, Mr Darling speeded up the introduction of planned rises in child benefit.
And he softened the blow for drivers by announcing a more gradual introduction of new vehicle excise duty, with rates only going up £5 per vehicle in 2009.
Work to upgrade motorways, refurbish schools and repair council houses is also to be speeded by bringing forward £3bn of state spending.
And there will be more help for home owners, with the scheme which covers mortgage interest payments for those who have lost their jobs doubled to cover mortgages of up to £200,000.
This year's increase in the income tax personal allowance of £120 a year for basic rate taxpayers will be made permanent and increased to £145 in April, helping 22 million basic rate taxpayers - another 500,000 households not just this year but for good. The 45% top rate will not come into effect until after the next general election, meaning Labour will not break its 2005 manifesto commitment on not raising income tax. Mr Darling's Commons statement heralds the biggest shake-up of Labour's economic policy since it came to power in 1997.



http://news.bbc.co.uk/1/hi/uk_politics/7745340.stm

[BBK]

Before I start let me just preface this with the fact that I know fuck all about finance.

What I don't see is how cutting VAT is going to help the poor. I can see how it will help businesses, but not how it will help the people who need it the most. I cannot see the shops suddenly deciding to drop the cost of all their VAT-inclusive items by 2.5% and pass on that benefit, so the reduction is actually only going to benefit the business. Yes, the increase in personal allowance will help, but surely if Darling wanted to actually help the public he wouldn't increase duty on cigarettes, alcohol and petrol and reduce them instead, a cut in tax most people would feel in some way?

Strikes me as another utterly fucked up policy by Brown and his gang.

[DJ OD]

Prick should just lose all tax on energy. Make the suppliers pay for it.

Leave VAT at 17.5%

You watch, VAT will go back up if not even higher soon enough. Sooner we get shot of these clowns the better...


DJ OD

[CzarJunkie]

What I don't see is how cutting VAT is going to help the poor.

Who employs the poor, and everyone else for that matter? If businesses don't pass on the 2.5% gain in VAT then they'll benefit and in turn so will workers as business will be less likely to make redundancies or fold. The fewer businesses that suffer the more tax revenues from corporation tax.

If retailers do decide to pass on the 2.5% vat decrease to consumers then the economy should get a boost and the less fortunate will save on all non-essential goods. Retailers will see a boost in sales, who in turn will place more orders with suppliers and so on......

Either way it's a better option than cutting income tax and having people simply save it and not spend it. It was a brave decision and I applaude it.

[Over Carl]

First let me start just like bbk - I'm no economist or anything. However in response to

Who employs the poor, and everyone else for that matter? If businesses don't pass on the 2.5% gain in VAT then they'll benefit and in turn so will workers as business will be less likely to make redundancies or fold. The fewer businesses that suffer the more tax revenues from corporation tax.

With interest rate cuts, business showed their greed by holding back savings that were intended for us. If us, the people, are pushed past breaking point then having any form of business is pointless. Me as the dumb cunt who just has vague notions about how things should be reckons the people need to feel some benefits (that is, if we are going down this crazy route - I personally think Mr. Brown is trying to dig our way out of a hole), however, I seem to remember seeing analysts generally agreeing with that whilst perusing the papers.

Still, this 2.5% cut will be a shite idea imo. First thing, will any of you be enticed by a 2.12% price drop in your general purchases? Maybe on a new car or a new house, but I won't be enticed by a 2.12% drop in anything I'm likely to buy. Also apart from a few shops like tesco and aldi - pretty much all price their stuff at xx.99 or xx9.99 or whatever. I wonder how many shops will totally cock up their whole pricing structure and policy for years just to pass on a 2p saving?

Only people noticeablly benefitting from this will be shops and price label makers.

[Keva]

A 2.5p cut from a pound doesn't seem that much to be honest. Might save me a few quid a month but with National Insurance going up it seems like their giving with one hand and taking with the other.

Spoiler:

I know fuck all about finance so take my comments with a pinch of salt