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TAX NEWS - June 2010

UK Tax: UK budget to see £40 billion in public spending cuts and £10bn in new taxes

The Chancellor has apparently confirmed the broad shape of an emergency Budget to come tomorrow which could see £40 billion in public spending cuts and £10bn in new taxes.

While refusing to go into the detail of individual cuts or taxes, he confirmed there would be a ratio of around 80:20 between the demand for savings and the need to raise more income if the UK deficit is to be curbed.

Labour have accused him of using the deficit as a cover to push through anti-public sector policies the Conseratives believe in, and of using the Liberal Democrats as a front.

But there was a glimmer of good news for Scotland and other areas outside the south of England. Business Minister David Willetts confirmed proposals for a tax break for new firms setting up in areas likely to be worst hit by public-sector cuts.

Those outside London, the South East and the East regions will be exempted from paying National Insurance contributions on their first 10 employees. The measure is expected to cost around £900 million and be worth up to £50,000 for each business or £5000 per employee.

George Osborne's first Budget will be so severe the political backlash is under way before his speech has even been written, but the details were agreed on Friday in a meeting with Prime Minister David Cameron and LibDem coalition partners Nick Clegg, the Deputy Prime Minister, and Chief Treasury Secretary Danny Alexander.

Among the measures thought to be in play are an increase in VAT from 17.5%, a pay freeze for public sector employees earning more than £18,000, means testing of some payments such as child benefit, and a tax on banks based on balance sheets.

In a television interview 48 hours before his Budget, he all but confirmed he will ignore pleas from within his party and go ahead with a hike in capital gains tax to bring it up to the same level as income tax. He blamed the current level of CGT for massive tax avoidance because of this disparity.

Referring to it as an "unavoidable Budget", Osborne told the BBC: "We have inherited a truly awful financial situation, and unless we take the determined and concerted action to deal with that then I am afraid we will find our country on the road to ruin.

"We will find higher interest rates, businesses going bust, unemployment rising and our living standards declining. I am not prepared to put up with that."

He added: "What I am ­determined to do is make sure the measures are tough but they are also fair and that we are all in this together."

Shadow chancellor Alistair Darling responded: "No one's arguing about whether you get the deficit down, what they are arguing about is policies that go further and faster, ones that appear to be driven by an ideological war against the public sector.

"My worry is that they seem to be oblivious to the fact that if you cut and you don't have a counter-balancing strategy for growth, you will get into the problems that we're now beginning to see in Europe."

The Tories were using the economic situation as a cover for policies they were always committed to in any case, and were using the Liberal Democrats as a front to make them acceptable, said Darling.

Osborne's hope that public sector workers could be persuaded to accept pay restraints as a price worth paying to save jobs cut little ice with trade unionists. Bob Crow of the RMT union called for an emergency meeting of the TUC to plan a campaign of industrial and political action.

Crow said: "It could not be clearer that the ConDem administration are setting out to drive down pay, working conditions and pensions. When someone's winding up to give you a kicking you have a clear choice: you can either take them on right from the off or you can roll over and hope that they go away."

 

What the papers predict
 

Sunday Herald

Tax hikes:

VAT: Up from 17.5% to 20%, bringing in £11bn.

Capital Gains: Raising level of 18% to a tapered high of 50% could net £2bn.

Spending cuts:

Total cuts: £85bn

State benefits freeze: £15bn saved between now and 2013.

Public sector pay freeze: £18bn saved over next two years.

Trident: Tory manifesto identified £20bn savings if upgrade is abandoned.

 

Sunday Times

Tax hikes:

Total increase: £10bn

VAT: Up from 17.5% to 20%.

Capital gains: Up from 18% to 40%.

National Insurance: Up 1%.

Spending cuts:

Total cuts: £40bn

Children: Upper family earnings limit of £30,000 for child benefit; upper limit of £25,000 for child tax credits, down from £58,000.

Public sector: Workers earning over £18,000 to have their pay frozen for one year.

 

Sunday Telegraph

Tax hikes:

VAT: Up from 17.5%. A 20% rate would raise more than £10bn a year.

Bank tax: Levy on banks expected to raise £1bn.

Duties: Higher taxes on tobacco, wine, beer and spirits as well as an increase in air passenger duty.

Spending cuts:

Public sector: Pay freeze for staff earning more than £18,000.

Child benefits: Families earning more than £30,000 will no longer receive the benefit.

 

Scotland on Sunday

Tax:

Tax breaks for business: Start-up companies will not pay National Insurance on the first 10 staff they employ.

Spending cuts:

Defence: Cuts likely to see 2400 fewer servicemen in the country; Queen Victoria School in Dunblane, which teaches the children of army personnel, may close; RAF Kinloss and Lossiemouth likely to close.

Welfare: Reduction in child and unemployment benefits.
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