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UK economy 'on road to recovery' UK recession 'worse than thought'
(21 minutes later)
The UK economy will start to grow again at the start of 2010, Chancellor Alistair Darling has told MPs. Chancellor Alistair Darling has said the UK recession was worse than he predicted but will start to grow again at the start of 2010.
He began his final pre-Budget report before an election with a defence of Labour's economic stimulus, saying it had eased the impact of the recession. He told MPs the economy would shrink by 4.75% in 2009 compared with his Budget estimate in April of 3.5%.
And the public finances were also deeper in the red with a deficit of £178bn this year compared with the £175bn he had predicted.
He has also unveiled a bank bonus tax and changes to National Insurance.
He said the government wanted to promote growth without "putting the recovery at risk".He said the government wanted to promote growth without "putting the recovery at risk".
The chancellor is expected to unveil a one-off 50% tax on bank bonuses and changes to inheritance tax. KEY POINTS SO FAR Economy to shrink by worse than expected 4.75% this yearNew 50% tax on banker bonusesHousehold boiler scrappage scheme1p rise in corporation tax for small firms scrappedTax rebates for electric cars and wind turbinesBingo duty falls from 22% to 20%State pension to rise by 2.5% next yearMore help for young unemployed class="" href="/2/hi/business/8395966.stm">Economic challenges for the parties class="" href="/2/hi/uk_news/politics/8403127.stm">LIVE: In text and video
He will also announce a boiler scrappage scheme and possible changes to National Insurance. Mr Darling has been under pressure to show how Labour would halve the UK's budget deficit in four years.
Mr Darling is under pressure to show how Labour would halve the UK's budget deficit in four years. He 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 1 as planned, with no other changes in VAT, the chancellor confirmed.
EXPECTED MEASURES 50% tax on bankers bonusesMore help for young unemployedHousehold boiler scrappage scheme1p rise in corporation tax for small firms scrappedTax rebates for electric cars and wind turbinesTalk of possible VAT or Nat Insurance increaseDelay increase in inheritance tax thresholds class="" href="/2/hi/business/8395966.stm">Economic challenges for the parties class="" href="/2/hi/uk_news/politics/8403127.stm">LIVE: In text and video He said unemployment in the UK would keep rising for some time but said promoting employment remained a top priority for the government.
Economists expect Mr Darling to revise upwards his forecast for borrowing this year from the £175bn predicted in April's Budget. 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.
That would make it even more difficult for him to fulfil his pledge to halve the deficit - the gap between the amount of money the government gets from things like tax and the amount it spends - by 2013.
The Conservatives say borrowing levels need to be reduced much more quickly, as the spiralling deficit is sapping economic confidence.
The chancellor is expected to say the economy will shrink 4.75% this year - a more severe contraction than the 3.5% drop predicted in April - but stand by forecasts for growth in 2010 of between 1% and 1.5%.
'Ring fenced' spending
BBC Business Editor Robert Peston said the chancellor will say that if banks pay bonuses to individual bankers over a specified level - which could be as low as £10,000 - it will trigger a special one-year-only tax for those banks.
He added: "The tax payable will be calculated by adding together all those big bonuses and then levying a charge on the aggregated sum of those big bonuses.
GUIDE TO PRE-BUDGET REPORT Each year the chancellor delivers two reports to MPs, updating them on the state of the economy and planned fiscal changes.GUIDE TO PRE-BUDGET REPORT Each year the chancellor delivers two reports to MPs, updating them on the state of the economy and planned fiscal changes.
The pre-Budget report (PBR) takes place in the autumn with the Budget each spring.The pre-Budget report (PBR) takes place in the autumn with the Budget each spring.
This year's PBR will be Mr Darling's third since he became chancellor in June 2007 and, with an election imminent, his most important.This year's PBR will be Mr Darling's third since he became chancellor in June 2007 and, with an election imminent, his most important.
You can watch BBC TWO's pre-Budget report special - together with text commentary and expert analysis and reaction on the BBC website from 1130 to 1430 GMTYou can watch BBC TWO's pre-Budget report special - together with text commentary and expert analysis and reaction on the BBC website from 1130 to 1430 GMT
Nick Robinson's view Send us your commentsNick Robinson's view Send us your comments
"The tax rate for the bank on that pool of bonuses would be more than 50%." Mr Darling 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.
He said the effect of the new tax, which is expected to apply to all banks operating in the UK including branches of foreign banks, would be to make it "very expensive" for banks to pay bonuses. He also announced that a 1p 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 to be cut from 22% to 20%.
Mr Darling is not expected to set out detailed spending plans for the years after 2010-11 but he may single out areas in England, such as schools, hospitals and police to be "ring-fenced" from future cuts as the battlelines are drawn for next year's general election.Mr Darling is not expected to set out detailed spending plans for the years after 2010-11 but he may single out areas in England, such as schools, hospitals and police to be "ring-fenced" from future cuts as the battlelines are drawn for next year's general election.
A number of new green initiatives are expected in the report, with tax rebates for electric cars and wind turbines.
A scheduled increase in the inheritance tax threshold is also likely to be postponed.
Boiler scrappage scheme
Support for youth unemployment and environmental measures are also likely. There is also speculation about possible increases in National Insurance, or a change in the timing of the rise already in the pipeline.
The BBC also understands the government will announce a household boiler scrappage scheme along the lines of the car scrappage scheme.
The tax rate for the bank on that pool of bonuses would be more than 50% Robert Peston, BBC Business Editor Peston: How tax will workThe tax rate for the bank on that pool of bonuses would be more than 50% Robert Peston, BBC Business Editor Peston: How tax will work
It is believed a 1p rise in corporation tax due to hit nearly a million small businesses this year will also be called off. A number of new green initiatives are expected in the report, with tax rebates for electric cars and wind turbines.
Mr Darling announceda boiler scrappage scheme along the lines of the car scrappage scheme.
The chancellor's statement sets the tone for the economic debate in the run-up to the election - which must be held by next June.The chancellor's statement sets the tone for the economic debate in the run-up to the election - which must be held by next June.
The Lib Dems argue neither of the main parties are being honest about the spending challenges facing the next government and the extent of cuts that will be needed.The Lib Dems argue neither of the main parties are being honest about the spending challenges facing the next government and the extent of cuts that will be needed.