Britain's chancellor unveils pre-budget report

by Peter Barker

LONDON, Dec. 9 (Xinhua) -- Britain's Chancellor of the Exchequer on Wednesday unveiled his pre-budget report, revealing anew one-off tax on bankers' bonuses, an increase in Value Added Tax, a forecast fall in GDP of 4.75 percent for 2009, and higher-than-expected government borrowing requirement of 178 billion pounds for this year.

Chancellor Alistair Darling, the UK's finance minister, revealed his pre-budget report (PBR) in a lunchtime statement to the House of Commons. The PBR is significant as it comes after a period of financial turbulence that has seen the country suffer the worst recession since the Second World War. It also comes just six months before a general election in which Darling's Labor Party looks set to be punished by the electors.

Darling's headline announcements were: a one-off tax on bankers' bonuses; a 0.5-percent increase in National Insurance contributions, which helps fund the National Health Service (NHS);a forecast decline in 2009 GDP of 4.75 percent; higher public sector borrowing requirement (PSBR) of 178 billion pounds for 2009;a commitment to halve PSBR over the next four years; an increase of 2.5 percent in the State pension; a 0.8-percent cap on public spending growth; a cap on public service workers pay increases of 1 percent for two years.

"I am confident that the UK economy will start to grow again by the turn of the year," Darling said. "While I am confident that the UK economy is on the road to recovery, we cannot be complacent."

TAX

Most attention was on bankers' bonuses, a sore subject with voters. Justifying a supertax on bonuses, Darling said: "There is no bank that has not benefited either directly or indirectly from government help."

Darling said he will immediately introduce a one-off tax of 50 percent on bonuses paid by banks to employees. It will affect bonuses above 25,000 pounds. The chancellor said the tax would apply to all banks operating in the UK, whose employees work in the UK.

Bonuses for each bank would be paid into a pool which would then be taxed. The remaining amount would then be proportioned to the bankers getting a bonus, and they would then have to pay tax on them at the usual rate, which in almost all cases would be 50 percent.

The bank bonus tax was the major headline grabber in the chancellor's PBR, which is delivered to the House of Commons each year usually six months before the main budget.

But the change that will affect most people in the UK is a 0.5-percent increase in National Insurance (NI) contributions. NI is used to pay for the free NHS, and almost all workers in Britain have to pay it and almost all will be affected by the increase. This comes on top of an already planned NI increase of 0.5 percent.

"The biggest burden will fall on those with the broadest shoulder," Darling said of his tax changes.

Darling said he would create a ceiling at 20,000 pounds annual income below which there would be no increase in NI payments. NI is usually paid at source under the Pay As You Earn scheme, being deducted by employers out of employees' salaries and paid straight to the Treasury.

The chancellor froze the inheritance tax threshold, payable on the value of a dead person's estate, at 325,000 pounds for the next year. There had been no talk of Darling increasing income tax rates, so it came as no surprise when the chancellor confirmed they would remain the same.

From April 2012 the point at which the higher rate of income tax (40 percent) kicks in will be pegged at an annual income of 43,000 pounds, to increase the number of higher rate payers. The empty property relief threshold will be extended, meaning that tax will not have to be paid on 70 percent of empty properties.

Darling also announced some help for small businesses. He deferred an increase in corporation tax into 2010, in a move he said will help 850,000 small firms.

In an expected move, the chancellor said he would reintroduce Stamp Duty -- a tax of 1 percent paid on the selling price of all homes -- starting from the beginning of next month. Stamp Duty on homes selling for less than 125,000 pounds was removed at the end of last year in a bid to stimulate collapsing house prices. The average price of a home in the UK is now 167,000 pounds, having increased in each of the past five months.