Policy: George osborne delivers emergency budget
22 June 2010
The Chancellor presented what he called a ‘tough but fair’ Budget aiming to eliminate the structural deficit by the end of this Parliament, to be achieved roughly 80% through spending cuts and 20% through tax increases (this year the balance will be 77% to 23%). This equates to £30 billion a year in spending cuts.
This emergency budget demonstrates the enormous scale of the challenge facing third sector organisations. The spending cuts announced will hit frontline services, and it is clear our sector will be asked to do more at a time when parts of its cost base are rising (for instance as a result of the rise in VAT). Our discussions with the Government on all these issues continue, and you can read our analysis of the Budget below.
- The Budget adds to the previous Government’s plans to cut departmental spending. With health and international aid spending protected and rising in real terms, these cuts equate to an average cut to unprotected departments’ spending of 25%. More detail will be published in the Spending Review, to be presented to parliament on 20 October 2010.
- Will Hutton will lead a review into the high public sector pay, and John Hutton will lead a review into public sector pensions.
- The Budget includes a number of cuts to welfare spending, equating to a saving of £11 billion a year by 2014/15. These include cuts or reforms to housing benefit (reformed to reduce its cost by £1.8 billion a year by the end of the parliament), family tax credit (means-tested), child benefit (frozen), the health and pregnancy grant (abolished), Sure Start maternity grants (restricted), the Savings Gateway (not to be extended), and disability living allowance (a new medical assessment to be introduced from 2013). Jobseekers (including lone parents whose first children are at school) will be incentivised to seek work and most benefits will switch from being linked to the Consumer Price Index to the Retail Price Index, thereby saving £6 billion. As outlined in the Coalition Agreement, basic state pensions will be linked to earnings. The Secretary of State for Work and Pensions will propose further welfare reforms for the spending review in October.
- A number of taxes affecting third sector organisations will be reformed. National Insurance payments will be cut (from April 2011 the threshold at which employers start to pay NI will rise by £21 a week and new businesses outside London and the South East to be exempt from NI for their first 10 employees). VAT will rise to 20% from January 2011. Elsewhere, corporation tax will be cut by 4% over the course of 4 years, and the higher rate of Capital Gains Tax will rise to 28% from now. The income tax personal allowance for lower earners will increase by £1,000 to £7,475 in April, and the Government’s long-term ambition remains to raise the personal allowance to £10,000.
- The Government is considering options for implementing the EU cost sharing VAT exemption for charities working in partnership and will launch a formal consultation in the Autumn. The Budget also included pledges to continue to work on Gift Aid reform and replace current rules on substantial charity donors.
The full Budget report can be downloaded here.
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