UK Government's Long-Term Economic Goal

The UK Government's long-term economic goal is to secure and maintain economic stability, in order to achieve its objective of a fair society where there is security and opportunity for all.

The world economy was hit by a succession of shocks during 2007 and 2008, with the financial crisis of late 2008 leading to a steep and synchronised global economic downturn.
Recessions are being experienced in most of the world's major advanced economies and the world economy is set to contract by 1¼ per cent in 2009, the first fall in the post-war period.

The Government is delivering a comprehensive package to support economic recovery in the UK, while ensuring sound public finances. Budget 2009 provides further targeted support to households and businesses.

Budget 2009 projects that:

• like most advanced economies the UK will experience a sharp recession in 2009 with the economy contracting 3½ per cent, before growth picks up from late 2009 with growth of 1¼ per cent in 2010. The economy is then forecast to grow strongly in 2011 at 3½ per cent as the global economy improves and Government's measures take full effect; and
• inflation will fall to 1 per cent by the end of 2009 and remain below the 2% target during 2010. Inflation is then forecast to return close to target during 2011, as the impact of interest rate cuts takes full effect.

The Government is delivering a coherent and comprehensive package of support to restore the flow of credit, support economic recovery in the UK and build a strong economy for the future while ensuring sound public finances. With the substantial macroeconomic stimulus already delivering a boost for the economy, Budget 2009 focuses on further targeted support for those most affected by the downturn and on ensuring sustained and sustainable recovery, including support for employment and investment.

In the UK, Borrowing is forecast to peak at 12.4 per cent in 2009-10, as the economic downturn impacts on tax receipts before falling as the economy recovers and the Government takes further action to build a strong, sustained and sustainable recovery. Building on the significant announcements in the 2008 Pre-Budget Report, Budget 2009 takes further action to reduce borrowing by £26 ½ billion in 2013-14.

• from April 2010, an additional rate of income tax of 50 per cent will apply to income over £150,000 and the income tax personal allowance will be restricted for those with incomes of over £100,000. From April 2011, tax relief on pension contributions will be restricted for those with incomes over £150,000 and tapered down until it is 20 per cent;
• fuel duty will increase by 2 pence per litre on 1 September 2009, and by 1 penny per litre in real terms each year from 2010 to 2013; and
• the Government will continue to improve and invest in public services while delivering the additional efficiency savings identified by the Operational Efficiency Programme over the next spending review period, rising to £9 billion a year by 2013-14. Current spending will grow by an average of 0.7 per cent a year in real terms between 2011-12 and 2013-14 and public sector net investment will move to 1¼ per cent of GDP by 2013-14.

The public finances are forecast to return to a balanced position with debt falling as a proportion of GDP by 2017-18 when the global shocks will have worked their way through the economy in full.

Where Taxpayers Money Is Being Spent

Total public spending is expected to be around £671.4 billion this year, around £10,900 for every man, woman and child in the UK. It is set to rise to £701.7 billion in 2010-11.

The Government will continue to invest in frontline public service alongside securing the best possible value for taxpayer's money. Budget 2009 sets assumptions for spending growth from 2011-12 to 2013-14 which allow continued investment in public services whilst ensuring sustainable public finances in medium term.

Government spending by function

Government receipts

Supporting business

The financial crisis has caused a steep and synchronised global downturn. Government support, alongside action to restore the flow of credit in the financial system, is helping businesses across the UK. Budget 2009 builds on this support with targeted measures that will help businesses' short-term cashflow, including:

further support to loss-making businesses, by extending the enhanced loss relief announced in the 2008 Pre-Budget Report for an additional year and expanding HMRC's Business Payment Support Service, which allows businesses to defer tax payments;
• enabling businesses to spread payment of this year's inflation up-rating to business rates over three years, as announced on 31 March 2009;
• a 'top-up' trade credit insurance scheme to help businesses maintain their finances, in which Government will offer to match private sector trade credit insurance provision, for a temporary period, if insurers reduce cover to any UK business; and
• for a temporary period, a vehicle scrappage scheme, co-funded with industry, that will enable consumers who scrap vehicles older than ten years to replace them with a brand new vehicle at a discount of £2,000.

Over the last decade, the UK has built up key strengths that provide a platform for growth as the UK emerges from the recession. Consistent with the strategic vision set out in Building Britain's Future: New Industry, New Jobs [HM Government, April 2009] published 20 April 2009, Budget 2009 announces a package of measures that will support the adjustment towards renewed economic growth and improve the UK's competitiveness, offering:

• a temporary increase in capital allowances to 40 per cent for one year, with effect from April 2009, to allow a higher proportion of private investment to be offset in that year against taxable profits;
• a £750 million Strategic Investment Fund to support advanced industrial projects of strategic importance, of which a third of the funding will be earmarked for low carbon projects; and
• implementation of a package of reforms to the taxation of foreign profits, including the introduction of an exemption for foreign dividends, supported by limited restrictions to the interest deduction rules.

Source: HM Treasury - Maintaining a stable economy
Source: HM Treasury - Where taxpayers money is spent

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