Sara Benwell 10.53am
Another year, another Budget. Another abortive attempt to find a pub with a garden and a telly with the Budget on it, so that I can enjoy the sunshine and a glass of wine (but perhaps not, thank you very much George, many more cigarettes).
This year’s Budget has been called ‘radical’ by members of the press. It contains many positive elements, including tax measures to help the lowest earners and stamp duty increases for the most expensive properties.
On the negative side, pensions have taken a pounding and there is scant help for the nation’s savers. Let’s look at the headline measures and see what they actually mean in practice.
Income Tax personal allowance to be increased to £9,205 in April 2013
This is the big good news story, which will mean a real cash gain for British workers. George Osborne said this Budget would reward work and this will do so, while also keeping the Lib Dems happy (it is, in essence, a policy they mostly instigated). It means that the Government is hopefully going to reach the £10,000 level desired by Nick Clegg sooner rather than later.
It is worth noting, however, that hidden in the Budget, the Chancellor has lowered the threshold for the 40p higher tax rate from £42,475 to £41,450.
50p top tax rate to fall to 45p
This could be interpreted as a political gamble, rather than financial decision. A nod to the well-heeled and a sop to the right-wing, it could sit well with ‘traditional’ Tory voters.
But it isn’t. While the move will only (directly) assist the highest earners, Mr Osborne said the 50p rate had distorted the economy by encouraging tax avoidance and the cut to 45p will only cost the Exchequer £100 million.
He also claimed the richest would be paying five times more than before, due to other measures such as the increase in stamp duty on properties worth more than £2 million.
Age related additional personal allowance to be phased out
This is already turning out to be the biggest headline of the Budget, with #GrannyTax being the highest trending topic on Twitter yesterday afternoon. Commentators circled in their droves to criticise the changes, for instance Iain Martin on Telegraph blogs, who said it would “spark a war between the generations”.
The Chancellor announced a phasing out of the higher income tax allowance, meaning that from next year, people turning 65 will no longer qualify for the higher rate allowance of £10,500 and instead only receive the standard allowance, which was raised to £9,205. This change, reported to be worth an additional £3.3 billion over the next five years for the Treasury, represents one of the biggest money-makers of yesterday’s Budget.
It is a strange move from Mr Osborne, given that retirees are, statistically speaking, more likely to vote - and vote in great numbers. (While the top rate reduction, conversely, will affect very few voters.)
What we have to remember is that pensioners have also borne the brunt of quantitative easing as annuity rates have been hit hard (see Fraser Nelson’s figures of an ‘annuities rate massacre’ on the Spectator's Coffee House), and whose savings are already hit by with record-low interest rates.
Nevertheless, we ought also remember that most pensioners don’t pay any tax at all and this change will only affect those who earn more than the average working wage.
Child benefit gradually withdrawn from those earning over £50,000
Mr Osborne has bowed to considerable pressure from his own MPs and diluted plans to remove Child Benefit from all families containing at least one higher-rate taxpayer.
Under this new scheme, anyone earning up to £50,000 will be able to keep their Child Benefit, worth £1,055.
Child Benefit will still disappear but now only gradually for parents earning between £50,000 and £60,000. Earn above £60,000 and you will lose the lot.
One of the biggest concerns with the original plan was that it didn’t take into account single income families with that single income falling into the higher bracket - and this problem still exists. Mr Osborne will continue to face criticism as the cuts hit families with a sole high earner on more than £60,000 but not families with two parents earning up to £49,000 each.
New Stamp Duty of 7% on properties worth more than £2m (and rate on company-bought properties rising to 15%)
It is a policy designed to show that the biggest burden should fall on the wealthiest.
It will mean that anyone purchasing a property above the £2 million threshold will be looking at a Stamp Duty bill of at least £140,000.
Property investors will also be a casualty of the new charges on high-value homes.
The Chancellor emphasised a crackdown on tax avoidance and unveiled three extra levies on people buying homes via companies. In future, people who purchase properties for £2 million or more via a company will have to pay Stamp Duty at 15 per cent.
There will also be a consultation on whether people who have already bought homes worth more than £2 million through companies should have to pay an annual levy.
These Stamp Duty changes will have a disproportionately high impact on the London property market. Take just one borough, the Royal Borough of Kensington & Chelsea, for instance, whose average property price is more than £2 million. Some are concerned it could have negative repercussions for London as an international business centre as it will discourage corporate executives from basing businesses in the capital.
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