Website of the UK government

Growth, inflation and government borrowing

The 2009 Pre-Budget Report reaffirmed the government's expectation that the economy will return to growth by the end of the year. The Report also announced further targeted measures to support families and businesses as the economy recovers.

Borrowing has been allowed to rise as the government has supported the economy. Pre-Budget Report 2009 set out further details about the government's plans to halve the level of public borrowing over four years, whilst continuing to invest in frontline public services.

Public finances

Along with other major economies, public borrowing in the UK has risen in the short term due to the impact of the downturn on tax receipts and to finance the government's support for households and businesses. The government will continue to provide support during the early stages of recovery. However, the Chancellor has said that the government - like any individual, family or business - must live within its means in the medium term.

In an updated assessment of the public finances, the Report set out plans to halve the level of public borrowing as a share of the economy over four years - a commitment that will be enshrined in law in the Fiscal Responsibility Bill. This plan includes:

• returning the rate of VAT to 17.5 per cent and ending the stamp duty holiday for houses costing up to £175,000 - both from midnight on 31 December 2009
• tax increases for the highest earners
• savings on public spending
• measures to support sustainable growth in the economy

Banking and the financial markets

In rebuilding a healthy financial sector, the government is focused on ensuring the taxpayer is paid back in full for the support it has provided. The government is reforming the regulation of financial services in the UK and internationally, and implementing new rules on pay and bonuses. Building on this, PBR 2009 announced:

• a new 50 per cent tax on discretionary bonuses that will apply to the excess above £25,000 for bonuses paid between 9 December 2009 and 5 April 2010
• a Code of Practice on taxation for all banks operating in the UK, to be introduced following consultation
• a new industry-government group that will focus on the strategic direction of the UK financial and professional services industry
• protection for consumers, including new regulation of banks' money transfer systems
• extra funding to enable Citizens Advice to support 300,000 additional consumers in need of financial and other advice in 2010-11

The cost to the taxpayer of financial sector interventions has now been reduced to around £10 billion, from the £20-50 billion range provided at Budget 2009.

The Financial Services Bill, currently being taken through Parliament, will include further action to reform financial regulation, better support corporate governance and empower consumers.