A ‘tough but fair’ budget was delivered by Chancellor George Osborne on Tuesday 22 June 2010. He described the spending cuts and tax increases as being ‘unavoidable’ due to ‘the years of debt and spending’ by the previous Labour government.

The Chancellor tried to reassure us that he was being ‘fair’ and that ‘everyone will pay something but the people at the bottom of the income scale will pay proportionately less than those at the top’.

The key announcements included:

• VAT Rate rise – As anticipated the VAT rate will increase from 17.5% to 20% with effect from 4 January 2011.
• Personal Allowance increase – The personal income tax allowance is to increase by £1,000 in April 2011 to £7,475. This is worth £200 a year to a basic rate taxpayer.
• Capital Gains Tax increase – The Capital Gains Tax rate for higher rate taxpayers will increase from 18% to 28% from midnight tonight. It remains at 18% for basic rate tax payers.
• Entrepreneurs Relief extended – Entrepreneurs relief has been extended to a rate of 10% on the first £5m of gains as opposed to the first £2m.
• Corporation Tax Rate cut – The Corporation Tax rate will be cut by 1% each year over the next four years until it reaches 24%. The Small Companies rate is to be cut to 20%.
• National Insurance rise to stay – The National Insurance rate increases announced by labour remained intact and will still take place however the threshold at which employers start to pay will rise.
• No change to Cigarettes, Alcohol and Fuel – No changes were made to duty on cigarettes, alcohol or fuel and the plan to increase the duty on cider from July was scrapped.
• Freeze on Child Benefits – Child benefit is to be frozen for the next three years.
• Changes to Tax Credits – Tax credits will reduce for families earning over £40,000 next year but for low income families they will receive more Child Tax Credit with the amount per child increasing by £150 above the rate of inflation.
• State Pensions – The state pension is to be linked to earnings from April 2011 and is guaranteed to rise in line with earnings or 2.5% whichever is greater. The increase in the state pension age to 66 is to be accelerated.

For further details on the key announcements visit our website www.georgehay.co.uk where you can download a copy of our budget summary.