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Bail-out to cost more than WWII: Everyone earning more than £19k is worse off
CHANCELLOR Alistair Darling yesterday unveiled a £20bn gamble to beat the recession – but the country will spend years paying for it.
Mr Darling is temporarily cutting VAT by 2.5 per cent from Sunday to try to revive the flagging economy, while 3bn of public spending on schools, motorways, housing and energy efficiency programmes is to be brought forward.
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Video: Reaction from Westminster
How the VAT cut could affect your shopping bill
The 120 saving for basic rate taxpayers – designed to settle the 10p tax fiasco this year – is also being made permanent.
Pensioners and families with children will get cash handouts, while homeowners struggling with mortgages will be given more breathing space –and ailing small businesses extra time – to pay their bills, along with temporary relief from some taxes.
But the spending splurge will send national debt through the 1trillion mark as the Government borrows more this year than Winston Churchill borrowed from the United States to help pay for the Second World War. Mr Darling yesterday laid bare the cost to middle and high earners in the longer-term.
The Treasury admitted that anyone earning more than 19,000 a year will be worse off by 2012-13, thanks to a 0.5 per cent increase in national insurance contributions from April 2011. Increases in duty on fuel, alcohol and tobacco will hit home when VAT is restored to 17.5 per cent in April 2010. Changes in passenger duty could also send air ticket prices soaring.
Higher earners will also be hit if Labour wins the next election, with a new 45 per cent income tax rate for those earning more than 150,000 from 2011 and a phasing out of personal allowances for those on more than 100,000 a year.
As official figures are set to confirm in January that Britain is now in a recession, Mr Darling had to downgrade previous economic growth predictions. He said he expected the economy to shrink by between 0.75 per cent and 1.25 per cent next year, but would then bounce back in 2010 with positive growth of 1.5 per cent to two per cent.
Borrowing will soar to 118bn this year and will continue at high levels until 2015-16, while the national debt will hit 57 per cent of economic output by 2013-14.
It is hoped that the cut in VAT – costing the Treasury 12bn – will entice shoppers out before Christmas and give retailers a boost. Mr Darling claimed it was the fairest way of providing a "much-needed extra injection of spending into the economy right now", while the Treasury claims average households will save 250 to 270 a year, although critics doubt whether the cut is bold enough to get people spending.
The financial markets appeared to like the plans yesterday as the FTSE index soared nearly 10 per cent, the biggest one-day gain in its 24-year history.
Mr Darling said action was needed to rescue the economy and insisted he was taking "fair and responsible steps".
However, Tory Shadow Chancellor George Osborne said the measures announced would double the national debt to 1 trillion and leave a "huge unexploded tax bomb" ticking under the public purse.
He told MPs: "The Chancellor has just announced the largest amount of borrowing ever undertaken by a British government in the entire history of this country. To pay for it he has placed a huge unexploded tax bombshell timed to go off underneath the future economic recovery."
Liberal Democrat Treasury spokesman Vince Cable said: "This is a national economic emergency and what is required alongside radical cuts in interest rates, radical action on bank lending is a serious tax cut concentrating on the low-paid."
Union leaders broadly welcomed the package but the director general of the Confederation of British Industry, Richard Lambert, said Mr Darling's growth forecasts looked "optimistic".
THE MAIN POINTS
3bn spending on schools and roads to safeguard jobs
Borrowing to rise to 118bn in 2009
VATdownto15per cent, but petrol duty up 4p. Alcohol and cigarettes also up
National Insurance up 0.5 per cent – between 5 and 74 extra a week
Car tax up 5 from next year
Tax on long-haul flights – 60 for a trip to US
State pension up, plus 60 one-off payment
Help for small and medium sized businesses
Banks to delay repossessions by three months
Link between wholesale fuel price and household bills to be studied
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Tuesday 22 May 2012
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