Darling forced to revise economy contraction

Wednesday 9th December 2009

Rumours of a windfall tax, VAT rises and a worsening deficit are swirling round Westminster as Alistair Darling prepares to deliver his pre-Budget report.

The chancellor's statement, which follows prime minister's questions at 12:30 GMT, is expected to include major concessions that he was wrong about the speed of the UK economic recovery.

Britain alone out of the G20 nations remains in recession, with Mr Darling predicting a 3.5 per cent contraction in April in his Budget statement.

Because of the slower-than-expected growth and a budget deficit estimated at £175 billion eight months ago, the chancellor is not expected to have many tax incentives sweeteners in his arsenal.

Sin taxes are all expected to rise, while the popular car scrappage scheme could be extended beyond its current expiry date of February.

VAT rates are due to return to 17.5 per cent in January having been cut in the Budget by 2.5 points, but there are reports they could now be raised to 20 per cent.

The higher rate of tax relief is also said to be under threat, in turn threatening UK pensions, while election battle-lines could be drawn by a tightening down on inheritance tax.

The Treasury said the chancellor would "set out further details about action to support jobs and growth and invest in frontline public services".

Treasury minister Stephen Timms admitted that Mr Darling faced "tough choices" in tomorrow's announcement.

In the days leading up to the pre-Budget report Gordon Brown unveiled plans to cut public spending by £12 billion over four years.

Rumours of a windfall tax on bankers' bonuses have also drawn considerable ire from the industry.

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