What has the Budget Done for You?
Introduction
The United Kingdom formally entered recession in December 2008, and recession is being experienced by all the major economies in the world – the Eurozone, USA and Japan included – and the global economy is set to contract by 1¼% in 2009, the first fall since World War II. It was against this backdrop that Chancellor of the Exchequer, Alistair Darling, got to his feet on 22nd April 2009, to deliver his Budget speech. Mr. Darling also faced a fiscal deficit of 6% of GDP ("Gross Domestic Product") – higher than that in the recessions of the Seventies, Eighties or Nineties – as he presented his assessment and forecast of the economy as a whole, and public spending, in the face of the global downturn.
Budget 2009
Mr. Darling predicted the British economy would contract by a further 3½% in 2009, but would return to growth by 2010, expanding by 1¼% during that year, and expanding by 3½% per annum thereafter. This was at odds with the European Commission, which, although agreeing that the growth would remain negative for the first three quarters of 2009, was much less optimistic with regard to the return to positive growth. The Commission said that it expected, "virtual stagnation and only a gradual return to slight positive growth during 2010", and predicted growth of just 0.1% in 2010.
The volatility of the housing market in the UK, and the lack of available finance, especially for first-time buyers, remains an obvious cause for concern. Despite recent signs that the fall in housing prices may be levelling out, the Council of Mortgage Lenders (CML) revealed that mortgage lending in the UK fell by 9% in April. The Chancellor announced in the Budget that the stamp duty "holiday" for homes valued at up £175,000 would be extended until the end of 2009, and, moreover, announced a new scheme to guarantee mortgage-backed securities – created when a group of mortgages are gathered together and bonds are sold to other institutions, or to the public – intended to boost lending. He also announced £500 million for housing projects placed "on hold" because of the recession – including £100 million for the building of energy efficient homes by local authorities – an additional £80 million for a shared equity mortgage scheme and £50 million for Armed Forces housing.
The number of people officially unemployed in the UK stands at 2.1 million or 7.1%, and the number claiming Jobseekers' Allowance in April was just over 1.5 million, up just over 57,000 compared with March, and up nearly 720,000 when compared with the same month last year. Mr. Darling announced a further £1.7 billion would be put aside for the Job Centre network, and a flexible New Deal, which will provide extra support for those people who have been out of work for 12 months or longer. Overall, the Government hopes to work with employers to create or protect, anything up to 250,000 jobs. £250 million funding will be provided for work experience or training places for anyone under 25 who has been unemployed for at least a year, starting in 2010, and 54,000 places in sixth form education will similarly be created. Statutory redundancy pay will also increase, from £350 per week to £380 per week.
The Budget also provided a fillip for the beleaguered motor industry. In fact, the announcement of a car scrappage scheme – whereby anyone who owns a vehicle that is at least 10 years old can claim a £2,000 discount on a new car, provided that they have been the registered keeper of the vehicle for 12 months or more – came just days before the Society of Motor Manufacturers and Traders (SMMT) announced a 51.3% fall in production in the year to March 2009. The first £1,000 discount will be provided by the Government and will be matched by the motor industry.
Mr. Darling also revealed his plan for public borrowing, which he forecast to reach £175 billion this year, with a structured plan to steadily reduce the amount to less than £100 billion by 2013. The Budget also included extra help for business in uncertain times, economically, with a doubling of the main capital allowance rate to 40%, and a provision for loss-making companies to reclaim tax paid in the last three years until November, 2010. "Green" issues were likewise high on the agenda and the Budget provided £1.4 billion of further investment in the low-carbon sector, on top of the existing £50 billion, to target the problem of climate change, in the long-term.