Households allover the country are eager for an economic break. Yesterday’s Pre-Budget Report was eagerly awaited by all. It was designed to put a bit of money back in the pockets of consumers. The question is, is it enough?
With the economy sliding deeper and deeper into recession, The £20 billion package proposed by Chancellor Alistair Darling is designed to kick start the economy and get things moving in the right direction. There is so much speculation about what WILL be done, that it is difficult for normal citizens to tell the facts from the fiction.

Let’s break it down.

One of the biggest questions on everyone’s minds: Has income tax gone down?
Sorry, but no. How would the government ever begin to afford its “bailout package” if it went so far as to actually cut income tax!  The truth of the matter has more to do with increases in tax credits and VAT reductions. Slashing of income tax was a little too good to be true.

What about the 10p tax row rebate?
Chancellor Alistair Darling’s plan will make permanent the increase of the personal allowance of £120 a year and will also raise it to £145 in April. This will help an additional 500,000 households than the original plan.

Uh-oh. Is there going to be a higher tax rate?
Well yes, if the Labour party wins the April 2011 election, it plans to push through an agenda which would create a new 45% higher income tax rate for all persons earning more than £150,000. While only thought to affect 1% of earners, 45% is quite an increase in income tax. It would be raised sooner, but Labour does not want to seem politically fickle. It promised in a 2005 manifesto to never raise income tax.

What about higher National Insurance rates?
Well, darn. This one is fact as well, not a rumor. All national insurance rates will experience an increase by 1/2% from April 2011. The intentions of this increase are to help cover the costs of government borrowing and spending (not necessarily to cover health costs). The silver lining for the less well off is that no one who earns under £20,000 would be affected.

And VAT?
There will be a reduction in the Value Added Tax from 17.5% to 15% for a period of 13 months beginning Dec. 1st of this year. The Chancellor hopes to encourage trickle down savings to consumers. He has urged retailers to pass on the estimated £12.5 billion in benefits to customers as soon as they can to help spur on the Christmas rush.

Is there any help for the beleaguered homeowner?
The Chancellor has indeed negotiated a pledge from financial institutions to help homeowners who are struggling to make mortgage payments by providing a three-month grace period from the threat of reposession. The rescue design has even been extended to help those with second mortgages.

Oh, and the unemployed. . . ?
Indeed, the government has pledged an additional £15 million for free debt advice to all. This is designed to aid those who lost jobs with all of the rounds of redundancies. There is also a £1.3million plan launched to create half a million job vacancies with twenty major employers including Centrica, The Royal Mail, and Tescos. This will be done by expediting the recruitment and training processes.

Okay, so how are we going to pay for this?
The UK is borrowing billions and billions of pounds. It is estimated that borrowing will reach £78bn this year and £118bn next year. These numbers pale in comparison to the devastation that would affect British economy if the government made no effort to stall the current recession. Although it remains to be seen if the steps that have been taken will be enough to fend off the worst of the recession.

Related posts:

1. Forecasts for UK Mortgage Interest Rates: Dark Skies Ahead? A fairytale ending in 2008 regarding UK interest rates just...