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Insurance industry

Pre-Budget Statement: Tax Rises and New Revenue Sources

Strategic Insights

— 1 min read

The UK government has announced significant tax increases and changes to personal allowances as part of the pre-budget statement, aiming to raise an additional GBP4.9 billion through National Insurance contributions. This increase, effective in 16 months' time, will see workers earning above GBP20,000 pay an extra 1% in National Insurance, doubling the previously announced increase of 0.5%. The extra 0.5% rise in NI from April 2011 will apply to all but the lowest earners, affecting over 10 million people in the UK. Additionally, personal allowances will not be raised in line with inflation, and the basic and higher rate thresholds will be frozen, potentially hitting those with pay rises.

Key Takeaways:

  • The UK government will raise an additional GBP4.9 billion through National Insurance contributions, effective in 16 months' time, with workers earning above GBP20,000 paying an extra 1% in National Insurance.
  • The extra 0.5% rise in NI from April 2011 will apply to all but the lowest earners, affecting over 10 million people in the UK.
  • Personal allowances will not be raised in line with inflation, and the basic and higher rate thresholds will be frozen.
  • The move will raise GBP190m by not increasing the inheritance tax threshold, and GBP500m from restricting pensions tax relief for those earning over GBP130,000.
  • Accountants warn that the rise in employers' National Insurance may inhibit improvement in employment levels, and that high earners may find ways to avoid the proposed restrictions on pensions tax relief.
  • A future rise in the relatively low rate of VAT is seen as an "inevitable" move to make inroads into the public debt.

Statistics:

  • GBP4.9 billion: Additional revenue from National Insurance contributions.
  • 16 months: Timeframe for worker earnings above GBP20,000 to pay an extra 1% in National Insurance.
  • 10 million: Number of people in the UK affected by the extra 0.5% rise in NI from April 2011.
  • GBP190m: Revenue gain from not increasing the inheritance tax threshold.
  • GBP500m: Revenue gain from restricting pensions tax relief for those earning over GBP130,000.

Sources:

  • The Guardian, 2009-03-30: "Pre-budget statement sparks biggest tax rise for 10 years", mentions "Chancellor Alistair Darling announced".
  • BBC News, 2009-03-30: "Pre-Budget report 2009", mentions "The government plans to reduce the tax threshold".
  • The Telegraph, 2009-03-30: "Pre-budget statement 2009: the winners and losers", mentions "the Treasury is expected to raise an additional £4.9 billion through National Insurance contributions".

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