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Review of the June Budget 2010

This is one of the most significant Budgets in a generation and the first big test for the coalition. However, the stakes are high. At its heart is the debate on whether you need to cut fast and deep to reassure the sovereign debt markets and protect Britain's AAA rating or whether, as President Obama suggested, the world economy is too fragile for too many countries to cut at once.

Osborne is betting on the former, with Labour suggesting that they had it right on the latter all along.The Chancellor George Osborne has announced a string of tax rises and spending cuts in this Budget aimed at cutting Britain's growing deficit, estimated to be 70% of GDP by 2013/14.

In Mr Osborne's address, he has announced that he anticipated that 77% of savings will come through spending cuts rather than higher taxation.

Let's take a closer look at the Chancellor's major announcements...

Personal taxation

• The personal allowance for under 65s will be increased by £1,000 from April 2011. The higher rate threshold will be frozen up to and including 2013/14 to ensure higher rate taxpayers pay the same amount of tax. The government will aim to increase the personal allowance towards £10,000 over its term.

• From 23 June Capital Gains Tax will increase to 28% for higher rate taxpayers, but will remain at 18% for basic rate taxpayers. A taper will not be introduced. The £10,100 allowance will remain and will increase with inflation. Entrepreneurs' lifetime allowance will increase from £2m to £5m.

• On pension income tax relief, the government will work with the industry to consider alternatives to the restriction for those earning over £150,000 including a lower annual allowance of between £30,000 and £45,000. The government is firm that any change must raise at least the £3.5 billion planned in the previous government's proposals

• On 4 January 2011 VAT will increase from 17.5% to 20%. There are no changes to zero-rated or reduced-rate products.

• Insurance Premium Tax will increase from 17.5% to 20% at the higher rate, and to 6% from 5% at the standard rate.

• The government will review the taxation of non-domiciles.

• The 50p top rate of income tax will remain "for the time being".

Savings

• The government has asked the Consumer Financial Education Body to develop a new annual family financial health check.

• The government confirms that it will index-link the annual ISA subscription limit from 2011/12.
• The government will shortly consult on removing the effective obligation to buy an annuity at age 75 and will introduce transitional measures for those yet to secure a retirement income who will reach 75 in the meantime.
• The Savings Gateway (matched saving account) will be scrapped.

Business taxation

• Corporation Tax will reduce 1p to 27p in 2011 and reduce by 1p for each of the next three years. This will be funded by restrictions to capital allowances.

• Work on an international bank levy will continue, but from 1 January 2011 the government will introduce a balance sheet levy raising £2 billion. This does not appear to include insurers.

• The effect of the increase in employer National Insurance will largely be reversed by increasing the threshold by £21 a week above indexation.

State pension

• The state pension will be increase in line with earnings. This is seen as a way of reducing the impact of means testing on saving.

• The government will publish a consultation later this week on accelerating the increase in the state pension age to 66.

Economy

• The economy is predicted to grow by 1.2 % this year, 2.3% next year, 2.8% in 2012, 2.9% in 2013 and 2.7% in both 2014 and in 2015.

• Consumer price inflation is expected to reach 2.7% by the end of 2010 before "returning to target in the medium term". The inflation target remains at 2%, as measured by the Consumer Prices Index.

• Unemployment is forecast to peak this year at 8.1% and then fall for each of the next four years, to reach 6.1% in 2015.

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