Projections for future economic growth

• The Chancellor forecasted that growth in the economy would be minus 3.5% this year but improve by the end of 2009 and reach 1.25% in 2010 and 3.5 % from 2011
• Public borrowing forecast to be £175bn in 2009 declining in increments to £97bn in 2013.
• Net debt as a percentage of GDP to be 59% in 2009 rising to 79% in 2013.

Efficiency Savings (or spending cuts)

• an additional £6 billion recoverable value for money savings in 2010-11, largely from two departments, Health and Children, Schools & Families.
• in the next Spending Review period, additional efficiencies to help support the economy and frontline services drawn from procurement, back office and IT, and property running costs, rising to £9 billion of additional efficiency savings by 2013-14;
• new incentives and mechanisms, with the aim of realising up to £16 billion of property and other asset sales in the three years from 2011-12, with proceeds used to supplement capital budgets.

Stimulus for Employment and Training

• an additional £1.7billion to sustain those individuals moving off Jobseeker's Allowance in the early months of each claim and provide support for those who remain unemployed for longer periods;
• a guaranteed job, training or work placement for all 18-24 year olds who have been unemployed for 12 months;
• an increase in the level of statutory redundancy pay, making the weekly rate £380.

Stimulating housing

• a £600 million funding package of measures to build more homes through unlocking sites currently sitting dormant; and
• an extension of the stamp duty holiday for all houses costing up to £175,000 until 31 December 2009.

Raising income from taxation

• from April 2010, an additional rate of income tax of 50 per cent will apply to income over £150,000, and the income tax personal allowance will be restricted for those with incomes over £100,000;
• that from April 2010, tax relief on pensions contributions will be restricted for those with incomes of £150,000 or more, and tapered down until it is 20%;
• changes to alcohol and tobacco duties, and a package of measures which will protect £3 billion of tax receipts a year by 2010-11 from tax evasion and avoidance.

Supporting businesses through the recession

• support to loss-making businesses, by extending the enhanced loss relief announced in the 2008 Pre-Budget Report for an additional year
• enabling businesses to spread payment of this year's inflationary increase to uniform business rates over three years
• a 'top-up' trade credit insurance scheme to help businesses maintain their finances, in which Government will offer to match private sector trade credit insurance provision, for a temporary period, if insurers reduce cover to any UK business;
• for a temporary period, a vehicle scrappage scheme, co-funded with industry, that will enable consumers who scrap vehicles older than ten years to replace them with a brand new vehicle at a discount of £2,000.
• a temporary increase in capital allowances to 40 per cent for one year, with effect from April 2009, to allow a higher proportion of private investment to be offset in that year against taxable profits;
• a £750 million Strategic Investment Fund to support advanced industrial projects of strategic importance, of which a third of the funding will be earmarked for low carbon projects; and

Stimulating the low carbon economy

• a legally binding level of 34 per cent reduction in emissions by 2020
• an additional £375 million to support energy and resource efficiency in businesses, public buildings and households over the next two years, and £70 million for decentralised small-scale and community low-carbon energy, saving households and businesses money on bills;
• a funding mechanism to support at least two carbon capture and storage demonstration projects, and £90 million to fund detailed preparatory studies;
• £405 million to support low-carbon industries and advanced green manufacturing, such as wind energy;
• an increase in fuel duty of 2 pence per litre on 1 September 2009, and of 1 penny per litre in real terms each year from 2010 to 2013.

ECONOMIC PARTNERSHIP COMMENT

One of the aims on the budget was supposed to be to instill confidence that the government had a credible way out of the recession. But an adequate plan to deal with the public finances does not leap from the page of the 2009 Budget.

Leaving aside the increase in top rate of income tax to 50% (and the government's belief that this will not affect consumer spending!), businesses will be most shocked at the detioraton of public finances. Six months ago public borrowing projections were suggesting £118 billion for this financial year. But borrowing will soar well beyond that figure to £175 billion this year (12.4% of GDP), £173 billion next year (11.9% of GDP) and £140 billion the year after and borrowing does not come down to £118 billion until 2012-13.

And this scenario, bad as it is, depends upon the Treasury forecasts for a recovery next year to register economic growth of 1.75% and 3.25% annually for the three years after that. Given that the revised figures for GDP between January and March 2009 shows a decline of 1.9%, it hardly seems credible that the recovery will be so strong and many commentators have rubbished the Treasury figures. Having said that, it is not beyond the bounds of possibility but it is a gamble and tax revenues, when the recovery eventually, happens are unlikley to be strong.

The most worrying factor in assessing the Budget is that the Organisation for Economic Cooperation and Development (OECD) and the Institute for Fiscal Studies (IFS) reckon that more than half of our record borrowing is due to structural weaknesses in the UK’s economic model (see earlier story). Of this year’s borrowing of 12.4% of GDP, some 9.8% is thought to be structural.

The Institute for Fiscal Studies estimates that an additonal £40 billion in annual tax increases and spending cuts will need to be implemented some time between 2014 and 2018. Significantly there was no suggestion of even more pain to come in the Chancellor’s speech.