UK emergency budget shakes up banks and tax

Britain on Tuesday launched an emergency package of higher taxation and spending cuts that are aimed at slashing the public deficit. Finance Minister George Osborne announced that he would impose a levy on banks, increase taxation on goods and services, freeze public sector pay and slash benefits spending.

Reuters

The country has a deficit of 154.7 billion pounds in the 2009-2010 financial year.

Osborne said public sector net borrowing will drop to 37 billion pounds by 2014-2015 and to 20 billion pounds by 2015-2016, according to revised forecasts from the Office for
Budget Responsibility.

"This is an emergency budget, so let me speak plainly about the emergency that we face," Osborne told parliament. "The coalition government has inherited from its predecessor the largest budget deficit of any economy in Europe with the single exception of Ireland."

Some 77 per cent of the deficit reduction will come from lower spending, with the remainder coming from higher taxes.

As a result of the new budget measures, British economic growth forecasts were revised to 1.2 per cent this year and 2.3 per cent next year, compared with previous estimates for expansion of 1.3 per cent and 2.6 per cent.

France and Germany said Tuesday that they would announce moves similar measures to tax banks.

After David Cameron's coalition took power last month, it announced plans to cut 6.2 billion pounds of spending in the year to March 2011. Last week it axed or suspended projects that were planned by the previous Labour government and would have cost 11.0 billion pounds.

Alistair Darling, Osborne's predecessor and now Labour party finance spokesman, said Osborne was risking the economic recovery by cutting spending too quickly.

The main changes

• VAT to increase from 17.5 per cent to 20 per cent in January. A measure intended to raise 13 billion pounds a year.
• Tax levied on company profits to a record low level of 24 per cent by 2014. It now stands at 28 per cent.
• Raise capital gains tax to 28 per cent from 18 per cent for the highest earners.
  For basic rate taxpayers in Britain, the level of capital gains taxation will remain at 18 per cent.
• Raise income tax threshold by 1,000 pounds to 7,475 pounds, lifting about 880,000 people out of the income tax net.
• Levies on banks aim to raise two billion pounds a year.