Budget Special

High earners were hammered in this year’s Budget. Income tax for those earning more than £150,000 was raised to 50% from 45% from April 2010. The same group of earners will also have tax relief on pensions tapered to the basic rate (20%) from April 2011. Critics warned that this would only make jurisdictions outside the UK, particularly Europe and America, more attractive for high earners.

“We have already lost a lot of non-domiciled high earners as a result of last year’s tax changes, and I worry that London’s pre-eminence as a financial centre is at serious risk,” said Louise Somerset, tax director of RBC Wealth Management.

The government announced that it would borrow £175bn over the next year, 12% of GDP. It also forecast that the economy would shrink by 3.5% this year. Reports said the UK was in danger of losing its top AAA rating as ratings agencies displayed concern over the scale of its public debt. The Chancellor, Alistair Darling, said debt would reach 79% of GDP by 2013.

Regulation for banks and the rest of the financial services industry will increase. The Chancellor said he would publish wide-ranging regulatory reform measures before the summer, increase transparency in banking and implement a single set of accounting rules.

Firms specialising in car insurance will benefit from the new vehicle scrap scheme. The government is offering a £2,000 incentive to motorists buying new cars and light vans to replace vehicles tmore than 10 years old. The government will set aside £300m for the scheme with funding matched by manufacturers. If motorists take it up, it could increase the number of higher cover motor policies.

The government pledged to encourage green energy. Tom Sexton, team leader at Aon Renewable Energy, said the measure would help to increase the profitability of projects that sought to ensure that more of the UK’s energy requirements were met by wind, wave, tidal and solar power.

But Fraser McLachlan, chief executive of GCube, said it did not go far enough. “The German model, for example, supports an offshore grid infrastructure – a move that would be much more beneficial to the offshore wind energy sector.”