Emergency Budget Response
In his own words George Osborne called it the "unavoidable budget" and went on to detail changes that would affect everybody in the country.
Described as a "progressive budget" the Chancellor of the Exchequer was keen to point out that it was "tough but fair".
In brief the details of the budget went as follows:
- VAT rose from 17.5% to 20% (from 4th January 2011)
- The personal income tax allowance is to be increased in April 2011 by £1000
- Capital Gains Tax remains untouched at 18% for low and middle-income taxpayers. Higher rate taxpayers will be subject to an increased 28% rate from midnight
- The CGT "entrepreneurs relief" rate of 10% on the first £2 million of capital gains will extend to cover the first £5 million of capital gains.
- The state pension age will be changed to 66.
- From April 2011 the basic state pension will be linked to earnings with guarantess to rise in line with earnings, prices or 2.5% (whichever is the greater).
- The NI threshold will rise by £21 per week from April 2011.
- Corporation Tax will drop to 27% in 2011 with an incremental 1% drop per year until it reaches 24% in 2014.
- Small Companies Tax Rate will be cut to 20%.
- A banking levy is to be introduced from Januaru 2011. It will apply to UK banks & building societies and the UK operations of foreign banks. Smaller banks will exempted from this levy.
Responding to the emergency budget, Pernille Bruun-Jensen, Managing Director Global Small Business at Intuit UK, had the following to say:
“It comes as no surprise that George Osborne has increased VAT to 20% from 4th January 2011 as part of the highly anticipated Emergency Budget. With seven months to prepare for the adjustment it is our hope that the Government is committed to making this change as easy as possible for British small businesses to manage. We know from the two recent VAT changes that these adjustments can present a significant administration headache for small businesses, forcing them to take focus off running their business while they tend to government taxes and administrative tasks. Considering that Britain’s 4.7 million small businesses contribute to almost half of the nation’s turnover, it is more important than ever that they are set up for success under these new taxes.”
“Today’s announcement for the reduction of Corporation Tax by 1% to 27% next year, and by a further 1% annually for the next three years, taking it down to 24% is an encouraging sign that the new coalition Government is committed to supporting small businesses in Britain. Research from Intuit has showed that almost one third of UK small businesses named Corporation Tax as a key concern, so it is fantastic to see the Government listening to the millions of men and women in the UK who run the nation’s small businesses and are responsible for about half of the Britain’s national turnover.”
“Prior to this announcement George Osborne, the new Chancellor, has publicly pledged support for the private sector and today’s emergency budget has seen taxes being reduced and red tape lifted to further encourage economic growth.”
“With this in mind Small Business Britain now needs to make sure they have the agility to succeed in this changing environment. One of the most basic, and important, ways to do this is for our shopkeepers and business owners to ensure that they have crystal clear insights into the finances of their business. Not only will this help them stay on top of cashflow, a primary concern for most small businesses, it will also set them up to make the most of today’s announced changes to the VAT and Corporation Tax rates.”
Despite the rise in VAT & Capital Gains Tax with conservative growth forecasts and the levy on banks, sterling responded well to the news of the Emergency Budget.
As a result the future looks a lot brighter for the pound, a leading City expert believes. Phil McHugh, senior executive dealer at leading foreign exchange firm Currencies Direct, said:
“Sterling moved up over a cent against the USD from 1.4680 to 1.4828 and even the proposed tax on banks did not dent the pound. The financial markets were already well prepared for austerity measures as the political pendulum inevitably swung from spending to cuts. George Osborne said this was a budget to ‘deal decisively with our country’s record debt’ and the pound has certainly responded well to this commitment.”