Emergency Budget sees public sector pay freeze and hike in VAT

The emergency budget from the new coalition government was announced this lunch time (Tuesday 22 June 2010).

The Chancellor of the Exchequer, George Osborne announced that there will be a two year pay freeze for public sector workers, although the 1.7 million lowest paid will get a flat £250 pay rise.

Also in the budget, Mr Osborne announced that child benefits will be frozen for the next three years and the government will expect lone parents to look for work when their first child goes to school.

The decision to raise VAT from 17.5% to 20% from 4 January 2011, was announced.

The following decisions were also outlined in the emergency budget: 

• From next year, with the exception of pension and pension credit, benefits, tax credits and public service pensions will rise in line with consumer prices rather than retail prices - saving over £6bn a year by the end of the parliament
• A medical assessment will be applied to new disabilities living allowance claimants from 2013
• Corporation tax will be cut by 1% per year for four years from next year, bringing it down to 24%, while the employers' National Insurance threshold is to rise.
• Housing benefit will be limited to a maximum of £400 per week for a four-bedroom house under radical reforms
• Small companies' corporation tax will be cut to 20% next year
• Expenditure on Royal activities through the civil list will remain static at £7.9m a year, says Mr Osborne. It will be scrutinised by the National Audit Office in future
• From January 2011, a levy will be imposed on UK banks and the UK operations of foreign banks which will generate more than £2bn in annual revenue. The French and Germans have also agreed to impose levie
• There will be no new increases in duties on alcohol, tobacco or fuel -  the imposed increase on cider prices has been reversed
• The extension of the Manchester Metrolink will not be affected
• From midnight, higher-rate taxpayers will pay 28% on their capital gains. From 18%
• The tax-free personal allowance on income tax will be increased by £1,000 in April, giving 23 million people up to an extra £170 per year and taking 880,000 out of the tax system altogether, the chancellor says.
• The child element of child tax credit will rise by £150 above inflation next year. 

The Chancellor has described the cuts as ‘tough but fair’ and outlined that they aim to lower spending but not raise taxes, the best practice method they will put in to place sees a 77% spending reduction and a 23% tax increase.