Budget 2009: an outline summary

Budget 2009: an outline summary
Wednesday, 22 April 2009 15:01

The Chancellor has delivered one of the most important Budgets in years against a backdrop of rising unemployment, soaring government borrowing and quite possibly the hardest hitting recession since the Second World War.

Below is a summary of the more significant announcements.

The economy and public finances

The Chancellor described the global downturn as the most serious for 60 years. In the 1930s, a failure to act turned a serious downturn into a prolonged recession, but Mr Darling said the same mistakes will not be made again.

He argued that the action already taken in the UK, and internationally, will help the economy to begin expanding again towards the end of the year.

Mr Darling said that measures taken to save the banking system and to promote lending are having an effect.

But he conceded that, as an open economy, the UK has suffered through the collapse in demand around the world. Consequently, he cut his predictions for growth.

For the first quarter of this year, he forecasted that the UK economy will shrink by 3.5 per cent over the whole year.

However, he predicted the economy would recover, growing by 1.25 per cent in 2010 and reaching a on-trend expansion rate of 3.5 per cent in 2011.

Consumer Price Index inflation is expected to fall, reaching 1 per cent by the end of 2009. The Retail Prices Index will drop to -3 per cent before moving back into positive territory next year.

The Chancellor said that the recession has seen a reduction in the government’s tax revenues and that tax income will require a number of years to recover.

Public borrowing will be £175 billion in 2009, the equivalent of 12.4 per cent of GDP.

In 2010/11 it will be £173 billion, then £140 billion, £118 billion and £97 billion in the following years.

Debt will rise to 59 per cent of GDP this year, increasing to 68 per cent, 74 per cent and 79 per cent, before beginning to fall in 2016.


To help companies with cashflow problems, the scheme that allows loss-making firms to reclaim taxes over the last three years is extended to November 2010.

To help the car industry, a scrappage scheme will be introduced next month giving drivers a £2,000 discount on new vehicles if they trade in cars that are more than 10 years old. The scheme will run until March 2010.

The main capital allowance rate for business investment will double to 40 per cent for 2009/10.

A new £750 million Strategic Investment Fund is to help emerging technologies and regionally important sectors in advanced businesses.


The new top-rate income tax rate of 45 per cent announced last year has risen to 50 per cent for those earning more than £150,000 a year and will come into force from next April, a year sooner than planned.

As from April 2011, pension contributions tax relief for those earning more than £150,000 will be cut so that it gradually reduces to 20 per cent.

Those earning more than £100,000 annually will lose their personal allowances from next April.

Fuel duty will increase by 2p per litre in September and by 1p a litre above indexation each April for the next four years.

The duty on alcohol rises by 2 per cent from midnight on 22 April and on tobacco by 2 per cent as from 6pm on 22 April.


The annual limit for tax-free ISAs has been raised to £10,200, of which £5,100 can be saved in cash. The new ceiling applies this year to savers aged over 50 and to all savers next year.

Jobs and training

The Chancellor said that it was not in any government’s power to prevent job losses, but that the government could help people to find new work quickly and to retrain.

An extra £1.7 billion of funding for the Job Centre network is to be found.

Young people are to get more employment help with a guarantee that, as from January, everyone under 25 who has been out of work for 12 months will get a job or training.

Statutory redundancy pay is to rise from £350 to £380 a week.

Housing and homeowners

A scheme to help people pay their mortgages when they lose their jobs is to be extended for six months.

The government is also to guarantee mortgage-backed securities in order to promote more mortgage lending.

The stamp duty holiday for homes worth up to £175,000 is to be extended to the end of the year.

Some £500 million will go towards kickstarting housing projects that have stalled because of the credit crunch.

Government efficiency

There will be £9 billion worth of efficiency savings by 2013-2014 to help fund investment in employment strategies, green measures and support for the housing market.

Green measures

The Chancellor said that he was unveiling the world’s first carbon budget and he committed the UK to cutting carbon emissions by 34 per cent by 2020.

There will be an additional £435 million of support for energy saving measures for homes and public buildings, as well as £525 million for wind power projects.

Mr Darling promised £405 million to promote low-carbon energy and advanced green manufacturing, and to encourage investment in small-scale, technologically innovative projects.


From April next year, there will be a £20 increase in the child element of the Child Tax Credit.

Children with disabilities are to receive an extra £100 a year through the Child Trust Fund.

The basic state pension will increase by at least 2.5 per cent, irrespective of the Retail Price Index on which it is based.

The winter allowance will remain at £250 for over-60s and £400 for over-80s for a further year.

From November, the limit on the amount of savings allowed to pensioners before they lose benefit will rise to £10,000.

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