UK Chancellor Announces Pre-Budget Report

The UK Chancellor of the Exchequer, Alistair Darling, has delivered his pre-Budget report (PBR), setting out the main themes that will be delivered in the full Budget early next year. This year’s PBR carries extra significance, as it is the last to be delivered before the next UK general election, scheduled for 2010. The focus of the PBR this year is on how the UK government plans to tackle the large budget deficit resulting from the bank bailouts and financial stimulus packages for the economy. Below are the main takeaways from the PBR:


The Chancellor raised the 2009 borrowing forecast raised by £3bn, to £178bn. Beyond this he estimated borrowing levels to be at £176bn in 2010 and £140bn in 2011, falling to £96bn in 2013, in line with planning to halve the Budget deficit by 2013. The PBR also reduced the estimated public loss from bank bailouts to £10bn, down from £50bn.

Economic Forecasts

The UK economy is forecast to shrink 4.75% in 2009, which is worse than 3.5% forecast from April. The PBR expects the economy to grow by 1-1.5% in 2010 and by 3.5% in 2011 and 2012.


All national insurance rates in the UK are to rise by 0.5% from April 2011, a move that is designed to raise £3bn a year in taxation. From 1 January 2010, VAT in the UK is to return to 17.5% from 15%. The Chancellor didn’t announce any other future changes to VAT. Bank bonuses of more than £25,000 are to be subject to a 50% windfall tax.


The PBR shows that the 1p increase in corporation tax for small firms that had been planned is to be deferred. New initiatives include a 10% tax on patent income, which is designed to aid scientific development, and a 50p tax on landline telephones, which will go to supporting the rollout of super-fast broadband.


Total government spending in 2010-11 is predicted to rise by £31bn, with no spending review for time after that.


Electric cars are to be taken out of the company car tax bracket for five years. The PBR also promises a boiler scrappage scheme for 125,000 households, £160m to be spent on low-carbon and renewable projects, and a tax rebate for installation of wind turbines and solar panels.


The basic state pension in the UK will rise by 2.5% in April 2010. The PBR also announced that contributions to public sector pensions are to be cut by £1bn a year, and all public sector pay settlements to be capped at 1% for two years from 2011.


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