How the Budget will affect your finances
High and middle income earners can expect to gain and lose, but pensioners, smokers, drinkers and drivers will all be penalised by the chancellor’s announcements last week
THE chancellor made an abundance of announcements in this week’s Budget, invoking a variety of strong responses, both in support and against.
The Budget contained both positives and negatives for high and middle income earners, but what seems to have captured the popular imagination is the effect on pensioners.
The announcement that higher age-related allowances for people over sixty-five have been frozen, and will eventually disappear, has stirred up some strong feelings among people of all ages and income levels.
The middle earner we asked also felt that he has missed out personally – especially in an economy where prices are rising. Our high earner sees the benefit of cutting the 50p tax, but remember that inflation, as well as higher taxes on cigarettes, fuel and alcohol and the Budget’s new rules on VAT, stamp duty and reliefs will all eat into extra disposable income.
MIDDLE INCOME EARNERS
The chancellor announced that the tax-free personal allowance for under 65s will increase to £8,105 on 6 April this year, and then rise to £9,205 on 6 April 2013. This is set to give as many as 24m low and middle income earners an effective tax cut. It’s also set to rise again to £10,000 in April 2014 – one year earlier than originally planned.
However, don’t get too excited. At the same time, the threshold for 40 per cent tax has been lowered, meaning you’ll start to pay 40 per cent tax on any earnings over £42,475 in 2012-2013 and £41,450 in 2013-2014.
There’s more bad news if you’re a single parent, middle income earner. You’ll lose the full amount of child benefit, from January 2013, if you earn £60,000. That’s £1,000 a year for one child, £1,700 for two and £2,500 for three. You start to lose the benefit if you start earning £50,000 a year.
CASE STUDY: NICK, 46
Nick is an internet company owner, earning about £50,000 per year, who won’t gain from the increase in the personal allowance because of the lowering of the higher rate tax band.
Married without children, he said of the Budget: “It doesn’t make much difference. At first I thought a lot of people were going to benefit from raising the income tax threshold, but when you work it out, it’s nothing compared to the rise in gas bills and council tax. It seems that the very rich and the poor have done very well out of the Budget, but not those in the middle or retired people.”
Whatever you earn, as usual there are some changes which will affect the majority of people in one way or another.
Smokers and drinkers will now have to dig deeper into their pockets. There has been an immediate tax increase on tobacco of 5 per cent. This typically means forking out an extra 37p for a packet of twenty cigarettes. Drinkers are also affected as, while no new alcohol taxes were announced, the 2 per cent above inflation rise in the cost of a pint of beer will go ahead. This will increase the price of a pint by around 5p.
Similarly, despite no new fuel duty measures being announced, the 3.02p per litre rise in unleaded petrol from 1 August will go ahead.
HIGH INCOME EARNERS
If you are a high earner on £150,000 or more, you will benefit from having your income tax rate cut from 50 per cent to 45 per cent. This won’t happen immediately, but kicks in from April 2013.
CASE STUDY: KAY, 43
Kay, 43, is a high earner and owner of a West End media agency.
“I am happy with the cut in the 50p tax rate,” she says. “We need businesses and entrepreneurs to come here and, as a country, we don’t benefit in any way from the 50p rate.”
“But I do feel strongly that, of all the people in this country, those who suffer most are older people. I realise that we have a burgeoning elderly population, but to freeze their benefits is wrong.”
Trevor Lloyd-Jones is consumer finance expert at MoneyVista.