The big political event this week has of course been the Budget. It’s worth a reminder of the overall context – despite all the difficult decisions taken so far we will still have spent £126 billion more than we’ve raised in tax this year. The financial crisis has left much of the Eurozone in recession and a chilling effect on our own economy. The absolute priority in the Budget was therefore to show that we can and will stick to our plans to live within our means. The official public debt figure is over £1 trillion and growing.
The Government’s first priority for tax reductions is to take the lowest paid out of tax. Increasing the amount we can all earn tax free to over £9,000 means that over 24 million people will keep more of what they earn, and over 2 million will be taken out of tax altogether.
In April pensioners will receive the largest ever cash increase in the Basic State Pension of £5.30 per week. We need to simplify the complex means-tested system and so the Government will consult on creating a new single tier pension estimated at around £140 a week. That way everyone will know what state pension they will get in retirement – and that they will be better off if they put something away for themselves.
The higher personal tax allowances for pensioners will be frozen. This measure will simplify they system by, in the long run, avoiding the need for pensioners to file tax returns. This change won’t affect 5 million pensioners at all and nobody will be worse off in cash terms overall.
The next priority is to support small businesses – vital to getting our economy growing again. We’ve introduced a £20 billion loan guarantee scheme to help small businesses borrow from banks – and to reduce the interest rate by 1%.The Government has also introduced a £2.5 billion Business Growth Fund to back established and growing business and a new £1 billion Business Finance Partnership fund to invest in small businesses through non-bank channels. These steps complement a much wider set of measures to support British business – cutting corporation tax, doubling small business rate relief, and tackling the burden of red tape.
The Government have also increased the funding to the Local Enterprise Partnerships with the Derby, Derbyshire, Nottingham and Nottinghamshire LEP receiving an additional £8.5m to help support growth in our area.
I also warmly welcome the Government’s decision to set up a Transport Technology and Innovation Centre to help ensure we get great new ideas in this sector into commercial development. I’ve been urging the Government to establish one of these – and where could be better to base it than Derby with the great businesses we have here.
Perhaps the most controversial decision has been to reduce the top rate of income tax from 50p to 45p. The 50p rate, introduced by Labour as a temporary measure, meant that Britain had the highest income tax rate in the G20 – higher than our direct competitors like America, France and Germany.
Business organisations and international observers agree it undermines the competitiveness of the UK economy and independent studies showed that the rise to 50p was only raising £100 million, while driving many people away from the country. That’s why we’ve chosen to reduce the rate to 45p -and we are introducing new taxes on the richest in our society, including a cap on tax reliefs, which together raise £500 million and a new 7 per cent of stamp duty. So as a result of this Budget the richest pay more – in fact 5 times more than they save by the rate reduction.