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'Emergency' Budget heralds spending cuts and (some) tax rises
The Chancellor, George Osborne may never deliver a more significant Budget speech than his first. The Government is faced with the twin imperatives of curbing public borrowing while encouraging growth in the private sector.
Describing the Budget as "tough but fair", Mr Osborne set out a strategy of fixing public finances through a balance of 77 per cent in spending cuts and of 23 per cent in tax rises. The aim is not only to eliminate the bulk of the structural deficit - that part of Government borrowing that does not decline as the tax take climbs - by 2015-16 but actually to balance the books.
Using the forecasts of the recently established Office for Budget Responsibility, the Chancellor told Parliament that borrowing is to be £149 billion this year, £116 billion next year and £89 billion in 2012-13, before falling to £20 billion in 2015-16.
The swathe that is to be cut through the borrowing figures will be funded in part by a 25 per cent reduction in non-ringfenced Government departmental spending over four years. Public sector pay, for many, is to be frozen for two years.
To go with the cuts, there were, inevitably, hikes in personal taxation. The most eye-catching was the 2.5 per cent rise in VAT planned for January next year. Widely predicted, it will generate £13 billion annually for the Government. The worry is that it may also dampen consumer spending.
The increase in capital gains tax made its much-heralded bow, too, up to 28 per cent. Low and middle income tax payers were rewarded with a status quo rate of 18 per cent. The personal income tax threshold has begun its slow creep up to the £10,000 mark, edging up by £1,000 for next year.
Businesses, though, were given the tax incentives they have been seeking. Corporation tax falls for both large companies (4 per cent over 4 years) and small companies (a 1 per cent drop next year). While the threshold at which employers start paying national insurance contributions is to rise by £21 a week.
It is the Chancellor's hope that the path his Budget treads over the coming months and years, between trimming the public sector and encouraging the private sector to take up the reins of growth, will lead to a sustained economic recovery, and not a double-dip recession.