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What can you expect from the coalition's first Budget?

Please note this content is archived and has not recently been updated. Please contact us for the latest information.

The newly appointed Chancellor George Osborne will present the so-called 'emergency Budget' on 22 June. As part of the coalition agreement between the Conservatives and the Liberal Democrats, a plethora of changes to business, tax and employment legislation has already been outlined.

Many of the measures, which could have a significant impact on your firm and personal finances, are expected to be included in the coalition's June Budget. Here we look forward to some of the possible changes.

The Economy and the Deficit Reduction
Tax Measures
Business
Employment and Welfare
Other Measures
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The Economy and the Deficit Reduction

The coalition's Programme for Government states that the parties will continue to ensure that the economic recovery remains a top priority, whilst adopting measures to 'significantly accelerate' the reduction in the structural deficit over the course of the Parliament. It will begin with 'modest cuts' of £6.2bn this financial year to 'non-front line services'. Chancellor George Osborne has confirmed that these cuts will comprise:

  • £1.15bn in 'discretionary' areas such as consultancy and travel costs
  • £95m through savings in IT spending
  • £1.7bn through delaying or ending Government contracts and projects
  • Reductions in property costs will save £170m
  • More than £120m through a freeze in civil service recruitment
  • £600m by cutting the cost of quangos
  • £520m will be saved through other low-value spending.

Further plans to reduce the deficit are expected to be set out in the Budget, while the newly formed Office for Budget Responsibility will make new forecasts for growth and borrowing alongside the Chancellor's statement.

The Government will publish a full spending review in the Autumn.

 

Tax Measures

Corporation tax

The Chancellor has confirmed that he will set out a 'five year road for a big reform of corporation tax' in the emergency Budget. This may involve cutting the headline rate of corporation tax in a bid to tempt multinational businesses back to the UK. Experts have calculated that a 3% reduction in the corporation tax rate would cost the Treasury some £4.5 billion a year, revenue it hopes to recoup through allowance cuts and a crack-down on tax avoidance.

Small business taxation

A 'wholesale review' of all small business taxation, including the IR35 rules, is to be conducted. The Government will seek to replace existing legislation with simpler measures that prevent tax avoidance and clarify the tax status of self-employed individuals.

National insurance

The increase in employer national insurance thresholds proposed by the Conservatives will go ahead in order to stop the 'jobs tax' planned by the previous Government.

Capital gains tax (CGT)

The coalition document signals that the Government will seek to tax non-business capital gains at rates similar to those applied to income, with 'generous exemptions' for entrepreneurial business activities. Charging CGT at rates similar to those levied on income could see the current rate of 18% increased to 40% or even 50%. The tax rise would be used to fund a 'substantial increase' in the personal income tax allowance (see below).

Income Tax

The coalition will seek to increase the income tax threshold for lower and middle income earners, and in the first Budget is set to announce a substantial increase in the personal allowance from April 2011. This will be funded with the money that would have been used to pay for the increase in employee national insurance thresholds proposed by the Conservatives, together with revenues raised from taxing non-business capital gains at rates similar to those applied to income. In the long-term, the Government aims to increase the personal allowance to £10,000.

VAT

The coalition has so far refused to rule out an increase in VAT, fuelling speculation that a rise may be in the pipeline. In a survey of independent economists conducted by the BBC, 24 out of 28 experts predicted that VAT will rise in the coming parliament. Most of the economists interviewed believe that the rate will increase from 17.5% to 20% before the end of next year. Such a rise would bring in additional revenue of around £11.5bn a year.

 

Business

Loan guarantees

The Government has confirmed that it will seek ways of ensuring the flow of credit to small and medium-sized businesses, including considering a major loan guarantee scheme and imposing net lending targets for banks.

Regulation

Unpopular with many businesses, the issue of 'red tape' could also be addressed in the Budget. The coalition document states that the Government plans to cut the volume of legislation by introducing a 'one-in, one-out' rule, whereby no new regulation is brought in without existing regulation being cut by a greater amount.

As part of its aim to boost enterprise in the UK, the coalition intends to reduce the time it takes to start a new business. This will involve decreasing the number of forms needed to register a new business, and a move towards a 'one-click' registration model.

The coalition has also pledged to end the so-called 'gold-plating' of EU rules, so that British firms are not disadvantaged relative to their European competitors.

Rate relief

The Government will attempt to find 'practical ways' of making small business rate relief automatic.

Procurement

In an effort to promote small business procurement, the coalition will aim to award 25% of Government contracts to small and medium-sized enterprises. Government tenders will be published in full online and free of charge.

 

Employment and Welfare

Employment law and Equality

Employment and workplace laws are to be reviewed to ensure that they provide flexibility for both employers and employees, while protecting fairness and providing the competitive environment enterprises need to thrive.

The right to request flexible working is to be extended to all employees and businesses will be consulted on how best to implement this measure.

The coalition has confirmed that it will promote equal pay. It also plans to implement a range of measures to end discrimination in the workplace.

Pensions

The Government plans to restore the earnings link from April 2011, with pensions being raised by the higher of earnings, prices, or 2.5%.

It will also seek to establish an independent commission to review the long-term affordability of public sector pensions.

The default retirement age is set to be phased out and a review will be held to set the date at which the state pension age starts to rise to 66, although it will not be sooner than 2016 for men and 2020 for women. Rules requiring compulsory annuitisation at 75 are to end.

Unemployment

With the coalition committed to reforming the welfare system, measures may be announced in the impending Budget. All existing welfare to work programmes will end and the Government will instead create a single programme to help all unemployed people get back into work.

Jobseeker's Allowance claimants facing the most significant barriers to work will be referred to the new welfare to work programme immediately rather than after 12 months. In addition, Jobseeker's Allowance claimants aged under 25 will be referred to the programme after a maximum of six months.

There will also be a new programme – Work for Yourself – which would give unemployed potential entrepreneurs access to business mentors and start-up loans.

Child Tax Credits

The new Government has confirmed that it will reduce spending on Child Tax Credits for higher earners. With details of this policy still unclear, further information may be unveiled in the forthcoming Budget.

Child Trust Fund

The coalition has confirmed that payments under the Child Trust Fund will be significantly reduced from August, before ceasing completely from 1 January 2011. 'From 1 August, payments at birth will be reduced from £250 to £50 for better off families, and £500 to £100 for lower income families [household income of less than £16,190]; and payments at age seven stopped', the Treasury announced.

 

Other Measures

  • The new Government has suspended the use of Home Information Packs (HIPs), although sellers will still need to purchase an Energy Performance Certificate
  • Air Passenger Duty will be replaced with a per-flight duty
  • The coalition will reform the banking system to avoid a repeat of the financial crisis, which will include introducing a banking levy
  • A number of measures are expected to be implemented to help protect consumers. These include giving regulators new powers to define and ban excessive interest rates on credit and store cards and a new seven-day cooling-off period for store cards.

 

This article provides a brief overview of some of the possible inclusions in the emergency Budget, and is based on the declarations made in the coalition agreement.

We will be publishing a summary of the Budget announcements, so please visit our website regularly for all the latest information. If you would like to discuss how the changes may affect your business and personal finances, please contact us.

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