Finally: The Pre-Budget Report
Alistair Darling has delivered his Pre-Budget Report and there are not many surprises after the details were leaked earlier today.
The growth figures for the economy are surprisingly positive; whilst the Chancellor forecast a negative growth rate for 2008/2009 of between -0.75% to -1.25% many other institutions, including the CBI, are predicting growth to be -1.5%.
National debt in the form of a massive increase in Government borrowing, is to increase to record levels and the Chancellor appears to be gambling the levels of borrowing on a relatively quick upturn in the UK economy. He predicts economic growth, again at surprisingly positive levels, to improve to a rate of around 1.5% to 2% from 2010.
In an attempt to boost economic activity VAT is to be temporarily reduced by 2.5% from 17.5% to 15% and the chancellor urges retailers to pass on the cuts as soon as possible. The VAT cut will take effect from Monday 1st December 2008 and last until January 2010. He believes that VAT cut will put £12.5 billion into consumers’ pockets so that they can in turn spend it in order to boost the economy.
The total £20 billion fiscal stimulus, up to April 2010, is estimated to be around 1% of the country’s GDP. Government borrowing is forecast to increase to £78 Billion in 2008/2009 and as high as £118 Billion by 2009/2010; that’s as much as 8% of GDP.
Targeting SMEs specifically the government has announced it will launch a new Small Business Finance Scheme to support up to £1 billion worth of bank lending to Small Businesses. In addition there will be a £1 billion guarantee facility to support bank lending to exporting SMEs, a £50 million fund to convert business debt into equity and a £25 million loan transition fund.
There will also be a new HMRC Business Payment Support Service to allow SMEs in temporary financial difficulty to reschedule their repayment timetable of HMRC tax bills.
Small businesses that currently make losses will be allowed a temporary "carry-back" of up to £50,000 of losses to be set against taxable profits from the last three years.
Finally there will be a deferral on the increase in the small companies’s rate of corporation tax and a temporary increase in the threshold at which business rates on empty property becomes payable.
Small Businesses shjould be prepared for the temporary periods to finish because once they are through, the noraml rates will again be payable. NI contributions however, at all levels, will be increased by 0.5% from 2011.