In his Pre-Budget Report Chancellor Alistair Darling has returned VAT and stamp duty back to 2008 levels and will increase National Insurance contributions at a time when many people have to endure pay freezes and pay cuts.
Last year Darling cut VAT to 15 per cent which he said, “put over £11bn into the pockets of consumers and retailers.” VAT will return to 17.5 per cent on 1 January 2010 as planned.
The Stamp Duty threshold will return to £125,000 from the temporary £175,000. Darling said: “By the time the stamp duty holiday finishes at the end of this month, I expect 240,000 homebuyers to have been helped.”
The Support for Mortgage Interest scheme to provide better cover for mortgage interest payments for those who had lost their jobs will be extended for a further six months. Darling said over 220,000 people have been helped so far.
Darling expects the
Partly because of the reversal of the VAT cut, Darling expects consumer inflation to rise from 1 ½ per cent to around 3 per cent early next year, before falling back. The Bank of England expects inflation to then fall below target and reach 1 ½ per cent by the end of next year.
From April 2011, all employer, employee and self-employed rates of National Insurance will increase by a further half a per cent for those earning over £20,000 a year. This will raise £3bn a year from 2011-12 for the NHS, schools and police.
Comments
Commenting on the pre-budget report, Alan Cleary, managing director of Exact Mortgage Experts, said: “Alistair Darling has had to choose the lesser of many evils. The key problem has been the need to cut the deficit to retain our AAA rating. We need this rating to keep the cost of borrowing down. The more the government spends on borrowing the more it has to take out of the economy in spending cuts or tax. Alistair Darling is already putting up taxes and making relatively severe spending cuts but a ratings downgrade will exacerbate the situation.
“While the banker bashing and windfall taxes on bonuses Darling has announced are crowd pleasers the spending cuts will mean huge numbers of public sector redundancies in the medium term. As unemployment increases, so will arrears and possessions. If they do, the housing market will start to stagnate.”
John Phillips, Financial Services Director of Kinleigh Folkard &
“The extension of the Mortgage Interest Relief Scheme by six months will be of little benefit to the housing industry. Whilst it will provide much-needed security for those who own homes and who may be struggling financially, it is less likely to give an incentive to people in such circumstances who may have been considering selling their property. This will add to an already existent shortage of stock on the sales market.”
Nick Hopkinson, Director of Property Portfolio Rescue (PPR), said: “By sharply downgrading his economic growth forecast for 2009 to -4.75%, reinstating VAT at 17.5% and ending the stamp duty holiday for properties between £125,000 and £175,000, the Chancellor has set the scene for another extremely tough year for homeowners.
“Government plans to reduce the massive public deficit and their expectations of economic growth in the near future are a political fantasy and will fool no-one.
“Household incomes are currently growing at the slowest rate on record and increasing taxation at a time when unemployment continues to rise will only worsen the situation for those already struggling with their mortgage repayments, forcing more into arrears and closer towards the brink of repossession.
Stamp Duty
The Stamp Duty decision is widely unpopular. Peter Bolton King, chief executive of the National Association of Estate Agents, said: “The Chancellor missed an open goal with his statement. By ignoring the advice of much of the property industry there is a real danger that the property slump that has hit thousands of families hard over the past 12 months will hit thousands more, harder, in the year ahead.
“Stamp duty unfairly distorts the property market. It is prohibitive to people looking for a step up the housing market and unfairly penalises people investing in buy-to-let portfolios. As a first step the Chancellor should keep the stamp duty threshold as it is when the current holiday ends in December. More importantly, the Government should commit to a complete reform of the tax to produce something that is fairer for everyone.”
Nici Audhlam-Gardiner, Director of Mortgages at Abbey and Alliance & Leicester, agreed: "This is disappointing news not only for first-time buyers looking to take their first step onto the property ladder but also for the wider housing market. First-time buyers are the lifeline of the housing market and it's a shame to see this support come to an end at a time when the wider housing market is still in recovery.”
Abbey has also called on the Government to do more to help first-time buyers. Audhlam-Gardiner said: "A wider shake-up of the current Stamp Duty system is long overdue. We would welcome a permanent increase to the nil rate threshold or at the very least, making Stamp Duty incremental, so it works like income tax.
“The current slab taxation system is unfair as it means that if a person falls into a higher threshold, even by just a few pounds, they pay the higher rate on the whole amount. This penalises all buyers, but particularly struggling first-time buyers and those in the South East who are more likely to fall into the higher tax band."
David Whittaker, managing director of Mortgages for Business, said: “The end of the Stamp Duty holiday comes as no surprise. Alistair Darling has seen house prices rising over the course of 2009 and feels the market no-longer needs the support. The fact of the matter is that the stamp duty holiday didn’t actually do a great deal to support the market. Cash rich investors and those lucky enough to have large deposits have been propping up the market for much of the last 6 months. These buyers are fast becoming thin on the ground though and unless lenders loosen their criteria in 2010 we’re unlikely to see a huge increase in the property market’s fortunes. In fact we’ll see a reversal.”
Date: 9th, December, 2009
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