[Skip to Content]

23 June 2010

Emergency Budget

Emergency Budget

Evangelical Alliance member debt charity Christians Against Poverty (CAP) is challenging people to do their own personal budget as the country comes to terms with a rise in VAT in the coalition Government's emergency budget.

Matt Barlow, CAP Chief Executive, said: "Once you know what is coming in and what is going out, it is easier to weather the inevitable changes that come. If you are worried about personal debt, the most important thing is you do not ignore the problem."

The headline measure in the budget is an increase in VAT to 20 percent, which will raise £13.5 billion for the public purse in a move Chancellor George Osborne claims is the first step towards eliminating the structural deficit. Capital Gains Tax has also been increased to 28 percent for higher earners.

The long term plan is for 80 percent of the savings to come through reduced spending, with the Comprehensive Spending Review in the autumn set to detail over £30 billion of additional savings.  Health and International Aid budgets will continue to grow and this means that other departments will face cuts of around 25 percent.

The public sector debt is projected to rise to 70 percent of GDP by 2014 before beginning to fall, however, the long term projections suggest that it will remain at over 40 percent for the next two decades.  The growth forecasts have also been revised with the economy expected to grow by 1.2 percent in 2010 and rising to 2.8 percent in 2012.  The budget also projected that the inflation rate would fall within the Bank of England's target range by 2012.

Further tax changes that were announced in the budget included a £1,000 increase of the starting rate of tax to lift 880,000 people out of the tax system. Corporation tax will also be reduced from 28 percent to 24 percent over four years.

Some public spending savings outlined in the budget included a pay freeze for all public sector workers earning over £21,000 for the next two years.  Housing Benefit will also be capped dependent on house size and Disability Living Allowance will be subject to a medical examination from 2013. Child tax credit will be phased out for joint incomes over £30,000.

The Institute of Directors found that 83 percent of their members thought the budget would have a positive impact with 92 percent backing the reduction in corporation tax.

However, Paul Morrison, a member of the Methodist Church's Joint Public Issues Team, speaking to Ekklesia, raised concerns about the new levels of taxation.

"Sadly, VAT hits the bottom 10 percent of society twice as hard as it hits the top 10 percent of society, so those people will be hurt and the Church is entirely against the poorest being targeted in that kind of way," he said.