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Budget: Defra and DECC could face further 20-25% cuts

The Department for Environment, Food and Rural Affairs (Defra)and the Department for Energy and Climate Change (DECC) could face 20-25% cuts in addition to already announced spending cuts, said Chancellor George Osborne today in the Government’s emergency Budget.

It was announced in May that £240m of cuts would be enforced across Defra and DECC. According to Osborne, the deficit was worse than the new coalition Government expected and therefore, is seeking to cut a further £17bn by 2014/15 from Government departments. He said spending for the NHS and those dedicated to world funds will first be achieved. But some departments may have to cut up to 25% however, not all will receive the same settlement with education and defence named as the more important areas not to cut from. He said this would be announced further in the spending review, which is to take place on 20 October.

There were no changes to landfill tax in the Budget.

Good news for infrastructure projects was that the Chancellor has decided there will be no further cuts to capital spending in order to provide new infrastructure and “facilities we need to provide quality public services”. The Budget document states: “As the Government acts to reduce the fiscal deficit, it will continue to encourage increased funding for infrastructure projects from the private sector. It will target public sector investment in infrastructure on those projects with the greatest economic benefit for which private sector capital is not available.

The document also disclosed that the Government will publish a national infrastructure plan in Autumn to set goals for UK infrastructure.  The plan will include private and public sector proposals for delivering investment. Infrastructure UK, to be chaired by Arup chair of transport market Terry Hill, will work with the Treasury to produce the plan.

It was also revealed that the Government will put forward detailed proposals concerning the Green Investment Bank (GIB) in Autumn. This was announced in the Queen’s Speech as part of the Green Economy Bill. The GIB will help the UK invest in low carbon projects. According to the Budget document the Government is “considering a wide range of options for the scope and structure of the Green Investment Bank. The options will be evaluated for effectiveness, fiscal affordability and transparency.” It is not yet known what level of funding the GIB will have.

Furthermore, from April 2012, the rate of capital allowance tax relief on the general pool of plant and machinery will drop from 20% to 18%, while the special rate pool of plant and machinery will also fall by 2% down to 8%.

The Chancellor announced that the Government wants to incentivise councils to keep costs low with the promise of freezing council tax from April 2011 if they succeed. He said this would “drive value for money throughout all levels of Government”. The way in which this will be carried out is to be decided by Government going forward.

Additionally, public sector workers earning over £21,000 will be hit with a pay freeze over the next two years.

The announcement of a rise in VAT from 17.5% up to 20% from 4 January next year was met by uproar in the house. Osborne said: “Years of debt and spending made this unavoidable”. But new businesses set up outside London will benefit from an exemption that will mean they do not have to pay national insurance for their first ten employees.  The 10% capital gains tax for “entrepreneurial business activities” is to be raised from the first £2m to the first £5 of qualifying gains made over a lifetime. Meanwhile, the annual exemption amount for CGT will continue to rise in-line with inflation.

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