UK Budget 2008 - Main Points

Click here for the full text of the 2008 Budget

First to go under the cosh of Alistair Darling’s first Budget announced on Wednesday, March 12th are all those who enjoy a tipple. Tax increases of 6% above the inflation rate were slapped on beer (4p a pint), wine (14p a bottle) and spirits (55p a bottle).

This prompted an immediate outcry from many in the hotel and pub industry, who are still reeling from depressed sales and record business closures, partly attributable to the prohibition of on-premise smoking last year.

Anyone who also likes a smoke with their alcohol at home was delivered a double whammy as taxes were raised 11p on a packet of 20 cigarettes and 4p per packet of cigars.

Despite the imposition of severe ‘sin’ taxes, the Chancellor announced that he intended to borrow £140 billion over the next four years in order to balance his books. £2 billion of this will be spent on extra funding for British troops in 2008. Mr Darling said that the Budget deficit will be £10 billion in the coming financial year.

On the plus side, pensioners were given a one-off handout of £50 as an addition to their Winter Fuel Allowance. However many are saying that all this does is help to temporarily defray the substantial energy price increases over the last year.

There was a small increase in Child Benefit with families receiving an extra £20 a week for their first child from April next year. Low and middle class families will also receive an extra £50 a year above inflation added to the Child Tax Credit.

Darling announced a modest (below inflation) increase in the ISA investment limit from the current £7000 up to £7,200 from April with the amount that can be held in cash rising £600 to £3,600. If the ISA limit had been increased at the same rate as inflation since its introduction in 1999, the overall annual allowance would be approaching the £10,000 mark.

The Chancellor confirmed the previous announcements of basic rate tax cuts to 20% from 22%. Some of these earners will not win in the end: the 10% income tax band disappears from April, meaning the marginal rate of tax doubles for some. Higher rate taxpayers will end up paying about £500 more on National Insurance as the 11% levy moves up from an earnings ceiling of £34840 to £40040.

The Chancellor confirmed the 18% flat CGT tax as previously announced. Also caught in that net are 1.7m members of Save As You Earn schemes who were previously only liable for 10% CGT on realisation of their savings. Now they pay 80% more, as after April 5th the tax moves up to 18%.

Small businesses are also being hit by an increase in their corporation tax rate to 21% in 2008/9 rising to 22% in 2009/10.

Vague aims were mentioned for small businesses to win 30% of public sector business.

Some non-domiciles will be squeezed out of the country as the Chancellor refused to budge on the imposition of the controversial £30,000 levy. Non-domiciled residents who have lived in the United Kingdom for 7 out of the last 10 years will need to pay the levy, or they will be taxed on their worldwide income.

13th MAY 2008 UPDATE

Following widespread dismay over the removal of the 10p tax bracket, backbench Labour MPs revolted and forced the chancellor to make a major concession. The government is to raise the personal tax allowance by £600 to £6,035, to be backdated to the 6th April. More here.