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News : EU Economy Last Updated: Dec 9, 2009 - 3:33:49 PM

UK Pre-Budget Report: GDP to contract 4.75% in 2009 - - worst in peacetime since 1930s; Tax on bankers' bonuses proposed
By Finfacts Team
Dec 9, 2009 - 1:59:10 PM

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UK Chancellor of the Exchequer, Alastair Darling, discusses the Pre-Budget Report with ministers and officials at the Treasury.

The UK Chancellor of the Exchequer, Alastair Darling, said today in his Pre-Budget Report that he now expects GDP (gross domestic product) to contract 4.75% in 2009, - - the worst peacetime performance of the economy since the 1930s. The forecast is bleaker than a prediction of 3.5% he gave in the Budget earlier this year and today, he also announced a one-time tax on bankers' bonuses.

Darling stuck with his Budget prediction that the economy will grow between 1% and 1.5% in 2010 and accelerate to a 3.75% pace in 2011.

"I'm confident the UK economy will start growing by the end of the year,"Darling told the House of Commons."To cut support now (for the economy) could wreck the recovery."

The UK is the only major economy still in recession and Prime Minister Gordon Brown's Labour party is trailing the opposition Conservative Party in opinion polls for an election that must be called by May 2010.

The government has imposed a 50% tax on bankers' bonuses.

Darling said it was payback time for banks that lost a combined £80 billion last year and needed taxpayer-funded bailouts to stabilise the system.

"There are some banks who still believe their priority is to pay substantial bonuses to some already high paid staff," Darling told the House.

"Their priority should be to rebuild their financial strength and to increase their lending,"he added. "If they insist on paying substantial rewards, I am determined to claw money back for the taxpayer."

The tax will be levied on 2009 bonuses of more than £25,000. It will be imposed on the pool of bonuses paid by a bank, rather than individual payments and it will be paid by the bank -- not the recipient of the bonus.

Darling said that measures to keep people from avoiding the bonus tax would be introduced"with immediate effect."

The Chancellor raised his 2009-2010 borrowing forecast slightly to £178 billion, from £175 billion previously.

He announced an increase in the state pension and a package of measures to help the unemployed.

In last year's Pre-Budget Report, Darling increased all National Insurance contributions by 0.5% for all employees and employers. Today he added another 0.5% from April 2011.

Darling claimed government action to pump money into the economy had made a "real difference" to families and businesses. VAT will return to 17.5% on January 1st as planned from the temporary cut to 15% last year; no other changes were made to VAT.

He said unemployment in the UK would keep rising for some time but said promoting employment remained a top priority for the government.

From next month, no-one under 24 needs to be unemployed for longer than six months - - down from the current 12 months - - before being guaranteed work or training.

He also unveiled guarantees of a training or education place for every 16 and 17-year-old to be available to school-leavers again in September 2010.

The Chancellor also announced that a 1% increase in Corporation Tax for smaller companies is to be deferred, leaving the 2010 tax rate unchanged.

The minimum number of hours those over 65 need to work to receive Working Tax Credit is also to be reduced.

The basic state pension will rise by 2.5% in April, a real-terms increase of nearly 4%. From next year's Budget, Bingo Duty is to be cut from 22% to 20%.

Green initiatives in the report included tax rebates for electric cars and wind turbines and a boiler scrappage scheme along the lines of the car scrappage scheme.

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