[FT]Darling plans tax hit to fund £20bn fiscal stimulus

Darling plans tax hit to fund £20bn fiscal stimulus
By Jamie Chisholm

Published: November 24 2008 15:37 | Last updated: November 24 2008 18:02

Alistair Darling said Britain faced an unprecedented global crisis as he delivered his pre-Budget report on Monday.

“These are extraordinarily challenging times for the global economy,” the chancellor of the exchequer told the House of Commons.


To jeers from the opposition benches, Mr Darling said the UK economy had entered the downturn in good health. But he accepted that the importance of the financial services sector in the UK meant the economy would be hit hard by the worldwide financial crisis.

Mr Darling downgraded the government’s 2008 forecast for growth to 0.75 per cent, while in 2009 gross domestic product would fall by between 0.75 per cent and 1.25 per cent, he said. Growth in 2010 would be between 1.5 per cent to 2 per cent.

To combat this slowdown, the government would introduce “a substantial fiscal loosening”, totalling £20bn or 1 per cent of GDP, he said.

Borrowing would rise to £78bn this year and then £118bn in 2009-10, and would only fall to the level of net investment by 2015-16. Public sector net debt would surge above the current limit of 40 per cent of national income this year, reaching 57 per cent by 2013-14.

His pre-Budget report was condemned by George Osborne, shadow chancellor, as “a huge unexploded tax bombshell, timed to go off at the time of the next economic recovery”.

The headline proposal was for a reduction in value-added tax from December 1 from 17.5 per cent to 15 per cent until the end of 2009. Mr Darling said the measure was intended “to help everyone and deliver a much need injection into the economy.”

In the short term, there would also be extra spending on infrastructure and social housing, the chancellor said, with £775m being spent this year and next on new homes and renovation projects in social housing.

To help multinational companies, he announced he would exempt foreign dividends from corporation tax. Small businesses would be able to spread over time payment of all their tax bills, including corporation tax, national insurance and VAT.

To help fund the big expansion in spending, Mr Darling said the government would find £5bn in efficiency savings in 2010-11. Public spending would be squeezed after 2011, while the growth rate after inflation would be cut from 1.9 per cent a year to 1.2 per cent a year.

He confirmed that from April 2011 he would introduce a 45 per cent rate of income tax to those earning £150,000 a year, and would cut the value of personal income tax allowance for those with incomes above £100,000.

Addressing homeowners in difficulty in the wake of the credit squeeze, Mr Darling said lenders had agreed to wait for three months before initiating repossession proceedings.

The chancellor was also at pains to give a green tinge to his statement. A raft of energy efficiency measures included providing £100m for home insulation.

He increased petrol duty to help offset the effect of the VAT cut on fuel consumption. Mr Darling said the government would also force energy companies to cut prices if their charges to consumers did not reflect the fall in wholesale prices.

The chancellor said he wanted the UK to be well-positioned to benefit from the return to growth of the world economy. He insisted, however, that the global financial crisis had originated in the US, and this had exacerbated an economic slowdown that was already under way.

영국정부는 부가가치세는 줄이는 대신 소득세율을 높히고, 과세구간도 낮추기로 했다. 경기부양을 위해 부채비율을 늘려 공공주택개선작업을 시행할 것이다. 중소기업들에게는 법인세도 면제해 주기로 했다. 과연 과거와 달라진 고든브라운이 세계 경기회복기에 영국을 떠오르는 해로 만들 것인가?