National Insurance "time bomb" from Darling in Pre-Budget Report
CHANCELLOR Alistair Darling today conceded the recession had been deeper than he’d expected as he revealed a super-tax on banks which want to pay employees big bonuses.
He also announced a 0.5% rise in all employer, employee and self-employed national insurance rates in 2011 and a squeeze on public sector pay rises to 1%.
Addressing a packed House of Commons for his hotly anticipated Pre-Budget Report – six months ahead of an expected General Election next spring – Mr Darling said the economy was expected to have shrunk by 4.75% this year – higher than his original estimates of 3.5%.
With all eyes on the worryingly large public deficit Mr Darling said it would rise to £178bn next year – some £3bn more than early predictions.
With populist measures such as a scarappage scheme for old inefficient central healing boilers and of course the widely expected tax on bankers’ bonuses – 50% on any bonus of over £25,000, which will be paid by the employer not the individual – there was little detail on how Mr Darling plans to cut Government spending.
Terry Jones, tax partner at accountants BDO in Yorkshire, said Mr Darling’s adminission of a “tax neutral” Pre-Budget Report effectively passes responsibility “to the next man” for reducing the burgeoning national debt.
“It was steady as you go. He hasn’t addressed the fundamentals, there is no plan to reduce the deficit. There is a timebomb for 2011 with the national insurance increase, which effectively is a 1% rise in insurance costs for firms as employers and employees each bear a 0.5% increase.
“Most businesses are not going to think they have had any help and for them it is still a question of surviving.”
On public sector pay, he added: “The public sector is going to bear some significant pain and that is one area of the economy that had nothing to do with the financial crisis, but it has had to take the pain.”
Mr Darling confirmed that VAT would return to 17.5% from January 1 – shunning the pleas from the retail sector to defer the hike by a couple of weeks to allow them to get past the post Christmas sales period.
There were measures too for small businesses – which will be exempt a planned corporate tax hike – while there was planned investment in high-tech industries such as low carbon-based industries and biotech companies.
Throughout his speech Mr Darling stressed that the Government wanted to promote growth without “putting the recovery at risk”.
Shadow Chancellor George Osborne said Mr Darling had not given the country a Pre Budget Report but a “Pre-Election Report” because he had ducked the key issue of cutting the budget deficit.
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