Darling expects economy to start growing again

LONDON Wed Apr 22, 2009 1:39pm BST

Chancellor Alistair Darling arrives for a visit to a Telephone Exchange in north London April 22, 2009. Darling and Prime Minister Gordon Brown were viewing an upgrade of the exchange to new fast-fibre broadband and training of Openreach apprentices. Chancellor Darling is set to deliver the gloomiest budget in a generation today, as government borrowing soars to a record high and the economy shrinks at its fastest pace since World War 2. REUTERS/Toby Melville

Chancellor Alistair Darling arrives for a visit to a Telephone Exchange in north London April 22, 2009. Darling and Prime Minister Gordon Brown were viewing an upgrade of the exchange to new fast-fibre broadband and training of Openreach apprentices. Chancellor Darling is set to deliver the gloomiest budget in a generation today, as government borrowing soars to a record high and the economy shrinks at its fastest pace since World War 2.

Credit: Reuters/Toby Melville

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LONDON (Reuters) - Below are highlights from Chancellor Alistair Darling's Budget statement to parliament on Wednesday.

TAX-FREE SAVINGS ACCOUNTS

"Tax-free ISAs have been a great success. 18 million people have taken them out, saving in them almost 290 billion pounds. Since they were introduced 10 years ago, the annual limit has only been increased once, and now stands at 7,200 pounds. I want to go further. To help savers on the tenth anniversary of ISAs, I intend to increase the total annual limits to 10,200 pounds, of which 5,100 pounds can be saved in cash."

BUSINESS CAPITAL ALLOWANCES

"I want to go further to promote investment now. So for this year, I will double the main capital allowance rate to 40 percent. This will encourage firms to bring forward investment, in particular those companies in the growth sectors that will deliver the rewarding jobs of the future."

NORTH SEA OIL

"There is, at the moment, less incentive to explore and extract oil from the North Sea.

"So I am bringing forward incentives to encourage smaller fields to be brought into production, which could lead to an extra two billion barrels of oil and gas that would otherwise remain under the North Sea.

"They will also remove fiscal barriers so the North Sea can become a hub for energy of the future -- gas storage, carbon capture and off-shore wind."

LOW CARBON INDUSTRIES, HOMEOWNERS

"There will also be 1 billion pounds to help us combat climate change, by supporting low carbon industries and green collar jobs. There is close to 1 billion pounds to help homeowners, meet future housing supply and allow the construction industry to recover quickly."

ALCOHOL AND TOBACCO TAX

"Alcohol duties will go up by 2 percent from midnight tonight. There will be an increase in tobacco duty of 2 percent from 6 pm tonight. Taken together, these measures will raise over 6 billion pounds by 2012."

FUEL TAX

"I will continue to monitor oil prices, but I expect that fuel duty will increase by 2 pence per litre in September, and then by 1 penny a litre above indexation each April for the next four years."

TAX FOR HIGH EARNERS

"As the economy recovers and wages start to grow again, it is right that we take additional steps.

"I believe that it is fair that those who have gained the most should contribute more. Only those with incomes over 100,000 pounds a year -- or 2 per cent of the population -- will be affected.

"In November, I announced a new rate of income tax of 45 per cent on incomes above 150,000 pounds -- the top one per cent of taxpayers.

"In order to help pay for additional support for people now, I have decided that the new rate will be 50 per cent, and will come in from next April -- a year earlier.

"In November, I also announced that I was reducing personal allowances for the very highest earners with incomes over 100,000 pounds.

"These allowances are worth twice as much as those of basic-rate taxpayers. I have now decided to fully withdraw the benefit of that allowance for those with incomes over 100,000 pounds from next April."

PENSION TAXATION

"From April 2011, I will restrict pension tax relief for those with incomes over 150,000 pounds so it is gradually tapered to the same 20 per cent rate the majority of people receive. We will consult on implementation. I am introducing measures from today to prevent forestalling."

GOVERNMENT BORROWING

"Our own figures for public sector net borrowing will be 175 billion pounds this year, or some 12.4 percent of GDP. From 2010, as the economy starts to recover, and the measures announced in November and today take effect, borrowing will fall to 173 billion pounds, then 140 billion pounds, 118 billion pounds and 97 billion pounds.

"As a share of GDP, our borrowing will be 11.9 per cent of GDP next year, and then, as we move towards balance, 9.1 per cent in 2011-12, then 7.2 per cent and 5.5 per cent in 2013-14.

"Mr Deputy Speaker, this downturn will inevitably mean sharp increases in national debt relative to GDP.

"UK net debt, which includes the cost of stabilising the banking system, will, as a share of GDP, increase from 59 percent this year, to 68 percent next, 74 percent in 2011-12, 78 percent and 79 percent in 2013-14. It will stabilise and then begin to fall in 2015-16."

COST OF BUDGET MEASURES

"Taken together, my Budget measures today represent a fiscal easing of about half a percent of GDP this year -- followed by a tightening of 0.8 per cent of GDP per year until 2013-14.

"I believe this is a sensible pathway to sustainable public finances. It will mean, as I have said, that the budget deficit will be halved in the next four years.

"At this stage, when there is so much uncertainty, to do so quicker would prevent us helping people now, choke off the recovery, and stop us investing for the future."

COST OF SUPPORTING BANKS

"Many countries have also intervened to strengthen their banking systems. My public finances forecasts today include a provisional estimate for the potential cost of this -- totalling 3.5 percent of GDP."

CAR SCRAPPAGE

"The loss of consumer confidence and credit crunch has led to a sharp fall in vehicle sales around the world. In order to help the car industry and retail trade, I can announce that a scrappage scheme will be implemented next month.

"It will provide motorists with a 2,000 pound discount on new vehicles bought when they trade in cars over 10 years old. It will be a time-limited scheme until March 2010."

PROPERTY TAXES

"The recession and the credit crunch have made it much harder for people to take their first step up the housing ladder.

"This is not just difficult for those involved but also undermines the entire housing market. So, to help, I have decided to extend the Stamp Duty holiday on properties sold for less than 175,000 pounds until the end of the year. Sixty per cent of residential properties will continue to be exempt -- encouraging modest and middle income homebuyers."

MORTGAGE-BACKED SECURITIES

"Today I can announce the introduction, following state aid approval, of the scheme to guarantee securities backed by mortgages -- which will help to ease the flow of mortgage finance."

EMPLOYMENT FUNDING

"I am determined that this support can continue to be given to people who lose their jobs. In November, I increased the resources for Job Centre Plus and the New Deal by 1.3 billion pounds. I can announce today an additional 1.7 billion pounds of funding so that everyone can receive high-quality support."

UK CURRENT BUDGET DEFICIT

"Due to the measures that I will announce today, the current deficit is expected to halve within four years."

UK INFLATION

"Inflation is expected to continue coming down sharply, reaching 1 percent by the end of this year.

"I am today writing to the Governor of the Bank of England, in the usual way, to confirm that the inflation target remains unchanged at 2 percent.

"Retail Price Index inflation is forecast to remain negative, falling to minus 3 percent by September, before moving back above zero next year."

UK GROWTH

"The action already taken here, and internationally, and the measures I will announce today, mean that I expect the economy to start growing again towards the end of the year."

"We, as well as other countries as diverse as Japan and France, India and the US, have reduced our growth estimates. Mr Deputy Speaker, the UK economy contracted by 1.6 percent in the last quarter of 2008.

"For the first quarter of this year, I expect the economy will again contract by a similar amount. And my forecast for GDP growth for the year as a whole will be -3.5 percent -- in line with other independent forecasts.

"But because of our underlying strength, the measures we are taking, domestically and internationally, I expect to see growth resume towards the end of the year." "Next year, because of the pick up in world demand, the continuing benefit of lower prices, and the substantial recovery measures put in place, I am forecasting growth of 1.25 percent in 2010."

"From 2011, I am forecasting that the economy will continue to recover, with growth of 3.5 percent from then on. To account for the impact of the global shock, I have further adjusted trend output -- or the productive potential of the economy. But in future years, the economy will recover towards a trend rate of growth of around 2.75 per cent."

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