The 2012 Budget. Bad news if you are not rich and not poor or over 65
It’s been a funny old Budget. What with the Granny Tax, the Wallace and Gromit Tax Relief for computer games and the Hot Sausage Roll Levy, you would be forgiven for wondering if there was something stronger in George’s drink of choice* .
But although it could be considered an unusual Budget, there were very few surprises in George’s box yesterday. The past week’s leaks have been gaining in gravitas to the point that, even before Prime Minister’s Questions ended, the BBC was reporting that the 50% rate was going to be reduced by 5% and that the 2013/14 personal allowance would go up to £9,205. Both changes were duly confirmed.
But is that all there is to it? Many suggested that reducing the tax rate for the highest earners could only be achieved politically by also introducing wealth tax measures, and the increase in Stamp Duty Land Tax by 2% on properties worth over £2million together with the limit on tax reliefs other than pension relief and EIS relief are a fair enough approximation of the Liberal Democrats’ Mansion and Tycoon tax respectively. George claims that these changes will bring in more tax than the extra 5% in income tax, and why would he lie about a thing like that?
There’s good news at the bottom of the pile too. The personal allowance increase from next April will save basic rate taxpayers an extra £220 in tax, which will go some way towards paying for the scheduled 3% increase in fuel duty due in August, which the Chancellor confirmed would go ahead.
But what George didn’t mention was how many more people will become higher rat taxpayers in 2013/14. Next month the personal allowance goes up by £630 to £8,105, but the basic rate band limit will drop by the same amount so that individuals will still start paying 40% tax once they are earning £42,475 or more. In 2013, however, the basic rate band is being cut by £1,025 more than the increase in personal allowance, meaning those earning £41,450 or more will now be higher rate taxpayers, and paying an extra £205 each in tax. Another barely-mentioned-in-the-speech change that is also likely to affect this group of taxpayers is the changes to company car benefits. The costs of a fuel benefit will increase by 2% above inflation, and the rate of charge on car benefit will increase by 2% in both 2015/16 and 2016/17, with the overall maximum of 35% also being increased by 2%. The only good news is that the diesel supplement, currently 3%, will be scrapped in 2016. Let’s just hope HMRC can get all these details right in Notice of Coding, eh?
Presumably George is hoping that the changes to the Child Benefit cull will take the squeezed middle’s minds off their situation. Now, instead of a complete cut of benefit at £42,475, claimants can earn up to £50,000 with impunity, losing 1% of their entitlement for every £100 earned over that limit, up to £60,000 where all benefit is exhausted. Again, the issue of having two earners has not been addressed, and a household where one earner brings in £55,000 will be worse off than one where both adults earn £49,000, but it is probably an improvement. The changes will become effective on 7 January 2013, and will not actually stop payment of the benefit, but will require an additional tax charge on a Self Assessment tax return.
But it is the poor old fag-smoking, Greggs-frequenting pensioners who are worst off. Not only are their additional allowances being frozen and then scrapped for new entrants to the land of over 65, with 37p on every packet of fags and a 20% VAT increase in the cost of a hot** sausage roll it is no wonder the Granny tax has made George a little unpopular in certain greyer regions.
George doesn’t understand the outcry- suggesting that people are only picking up on the pensioner bashing as it was one of the few remaining surprises in his Budget box. Clearly that is a much more acceptable reason than people being miffed at the very wealthy getting a 5% income tax cut while the elderly get an effective tax increase.
But in case you are wondering, George told BBC Radio 4 this morning, in answer to Ed Miliband’s question directed at the cabinet yesterday, that he will not personally benefit from the cut in the top rate of tax. Must be hard managing on a salary of £134,565. Although, the Guardian is currently investigating his Statement of Member’s interests, which discloses a London rental property and family company shares, to see where on earth the rest of his income could be? Surely it’s not tied up in a company/trust/offshore structure? After all, tax avoidance is “morally repugnant”…
** yes. Only hot sausage rolls (and other non-bread baked goods) will become subject to VAT. If you get there and they’ve just come out of the oven, you will have to wait until they cool down or pay an extra 20p. Seriously.