Today (22 June 2010) George Osborne delivered his Emergency budget speech as part of the coalition government plan to get the UK economy back on track. The main idea of the budget was to reduce the huge debt that is owed by the UK by cutting public spending and increasing taxes. According to George Osborne the budget would balance this by the ratio of 77% in spending cuts to 23% in tax increases.

It was never going to be a pleasant budget as cuts really need to be made so the main points were as follows:

Growth will be slightly less than forecast by Labour with a figure of 1.2% for 2010/11 (reduced from 1.3%) and 2.3% for 2011/12 (down from 2.6%)

We will not be joining the Euro in this parliament and the Euro Preparation Unit has been scrapped.

The cost to the taxpayer of debt interest payments amounts to 1/4 trillion GBP a year. Debt interest payments can only be reduced once the debts are reduced and this will be achieved over the term of the parliament.

The payments to the civil list will remain frozen at 7.9m a year and will be audited by the National Audit Office.

In the public sector there will be reductions in public spending amounting to an average of 25% over 4 years. Some departments will need to be shielded from these cuts including Education and Defence.

The government will aim to put in incentives to get people back to work and less incentives not to work. This includes exemptions from employer NI in specific areas (outside London etc) and a change in tax credits.

The current tax credits are unsustainable and currently there are some families whose income is as much as £83,000 who are eligible for benefits. This must be stopped and a cap introduced.

Some grants will be abolished including the health in pregnancy grant, the surestart maternity grant, free swimming. Other benefits will be frozen including a 3 year freeze on child benefit. A medical test will be introduced for the disability living allowance as it is claimed by 3 times as many people as when it was first introduced.

Housing benefit needs to be reassessed as this costs as much as the Police and the Universities together and the costs have spiralled out of control. The top housing benefit payment pays out £104,000 a year to one family, this needs to be stopped. A cap will be introduced at £400 a week for a 4 bedroom house.

In April 2011 the employer NI threshold will rise so that it costs less to employ people.

Corporation tax will be reduced by 1% per year from 28% to 24% over the term of the parliament. The small company tax rate will be cut to 20%.

The banks will be charged a bank balance sheet levy in line with France and Germany to stop the banks from creating a similar financial meltdown as we have seen.

On 4 January 2011 VAT will increase from 17.5% to 20%.

As there were large increases in duties in the March budget there will be no increases in duty on alcohol, tobacco and fuel. The increase on cider that was planned will be revoked later this month.

Council Tax charges will be frozen for a year if the councils can keep their spending down.

Capital Gains Tax needs to be changed due to people exploiting the gap between CGT and Income Tax. CGT for higher rate tax payers will increase from 18% to 28% from midnight on Tuesday.

Income Tax – to try and lift people out of the income tax system the personal allowance will be raised by £1,000 to £7,475 in April 2011. It is intended to increase this to £10,000 over the course of the parliament. The higher rate threshold will be frozen however.

Pensioners receive a significant boost by changing the link in increases from RPI to earnings with a minimum increase of 2.5% each year. However, the pension age will be increased to 66.

Summary