Cumbrians told to spend, spend, spend – then cough up later
Last updated 13:15, Tuesday, 25 November 2008
Cumbrians were told to spend, spend, spend Britain out of recession yesterday as the Government unveiled a £20bn rescue package for the economy.
In the most important Pre-Budget Report since Labour came to power, Chancellor Alistair Darling announced a raft of measures to put cash in people’s pockets, increase spending on big building projects and help businesses ride out the downturn.
VAT was slashed by 2.5 per cent to 15 per cent in a bid to get the tills ringing in the run up to Christmas.
The cut will last for 13 months and will put an estimated £12.5bn into shoppers’ pockets, Mr Darling said.
Petrol, tobacco and alcohol prices will remain the same, though, as duty is increased to claw the savings back.
Pensioners and families with children were given early Christmas presents.
Senior citizens saw a rise in the basic state pension and pension credit, plus a one-off payment of £60 for single people and £120 for couples in January.
A planned rise in child benefit will be brought forward from April to January.
For the lowest earners, who lost out in the abolition of the 10p tax rate, there was an increase in the personal allowance of £145, which will be permanent from April.
People who lose their jobs during the recession will also receive help, with mortgage lenders told to wait at least three months before seeking repossessions of people’s homes if they fall behind with repayments.
A drive to fill the estimated 500,000 unfilled job vacancies will also be launched, with the UK’s biggest employers, including Tesco and the Royal Mail, asked to help get people made redundant back into work quickly.
And £15m will be spent on free debt advice for families. It was a buy-now-pay-later affair, with tax rises unveiled alongside cuts.
Those earning £150,000 will help foot the bill with a new top rate of income tax of 45 per cent.
Everyone else will be asked for an extra 0.5 per cent in National Insurance, though people earning under £20,000 will be exempt.
Measures to stimulate the economy included £3bn of spending on infrastructure like social housing, improving motorways, modernising schools and increasing energy efficiency in homes.
There will also be more cash for environmental protection like flood defences.
The spending splurge could be good news for Cumbria’s two stalled building projects: the Penrith New Squares shopping development and the Carlisle Northern Development Route (CNDR), plus the proposed hospital for west Cumbria.
All three could get a cash injection as part of the spending splurge.
A decision on a bail-out for New Squares is expected on Friday.
Meanwhile, Cumbria’s small businesses will be given access to a new £1bn pot of funding to apply for loans of £1,000 to £1m to ease cash flow problems.
They will also be given extra time to pay tax bills and will be spared a proposed increase in the small business rate of Corporation Tax planned for 2009.
Low earners will be encouraged to save with the launch of a Savings Gateway scheme which will see the Government contribute 50p for every £1 saved.
It will start in 2010 and will be open to eight million people on low incomes.
Government borrowing will more than double to £78bn this year and £118bn next year to pay for the measures, Mr Darling said.
The books will not be balanced again until 2015/16, but it is a risk that cannot be avoided, he added.
“If we did nothing we would have a deeper and longer recession that would cost the country more in the long term,” Mr Darling told the House of Commons yesterday.
“In these extraordinary circumstances allowing borrowing to rise is the right choice for the country.”
Shadow Chancellor George Osborne accused Mr Darling of “bringing this country to the verge of bankruptcy” and setting up “a huge unexploded tax bombshell timed to go off at the time of the next economic recovery”.
Bob Wheatcroft, a partner at Carlisle’s Armstrong Watson accountants, welcomed the measures, but warned they would only work if people believed in them.
“It is vital how the press receives this and if the measures instil confidence.
“Only then will people start spending and the economy start to recover.
“Because retailers are cutting prices anyway, I suspect they will see the VAT cut as a chance to retain more profit.
“I think it was actually designed to do that, rather than get people spending. That’s not necessarily a bad thing, it will keep people in jobs on the New Year.
“He announced a rise in duty to claw some of the temporary VAT cut back: I wonder if that increase is temporary as well? I doubt it.
“The spending on infrastructure projects could see things like the CNDR and New Squares happen sooner than we thought, it will certainly be a boost for the construction trade.
“Most businesses in Cumbria pay the small business rate of Corporation Tax so the cut will help them and the extra time for firms to pay tax bills is also something people have been asking for.”
The rise in the top rate of Income Tax will not be a big issue in Cumbria, according to Mr Wheatcroft.
He added: “There will be some people affected, but not as many here as elsewhere.
“I remember people paying 98 per cent tax and the world didn’t end, so I don’t see any major political implications. Most people on that sort of income will end up not paying it anyway because they employ people to come with ways of avoiding it.
“The Chancellor got rid of a couple things that were going to bite him.
“He made the increases in the personal allowance for people affected by the 10p rate cut permanent and also postponed the rise in vehicle excise duty for gas guzzling cars.
“We are all going to have to pay more tax in future to pay for this, let’s hope it succeeds, it’s in all of our interests.”
Steve Livingston, of Manchester-based accountants Horwath, Clark and Whitehill, which has clients across Cumbria, said the Chancellor did not go far enough.
He added: “Overall it is not the real kickstart to the economy we would have wanted.
“I can’t see the 2.5 per cent cut in VAT doing much to get people spending.
“There was some help for smaller businesses facing trouble, but there was nothing to compel the banks to start lending, which was disappointing.
“There was some help for struggling homeowners, but overall there is little for people in Cumbria to get excited about.”
Other announcements included an extra £100m, with a further £50m brought forward, to help 60,000 more households insulate their homes, with a further £535m spent more quickly on energy efficiency, rail transport and environmental protection.
There will also be measures to force energy companies to pass on falls in the price of wholesale energy.
