Autumn Budget 2012
Here's a round up of the winners and losers.
The one area that the Liberal Democrats are claiming success in and that they have lived up to their manifesto promises is in taking the amount that can be earned before income tax applies closer to their manifesto pledge of £10,000.
From April 2013, most employees will take home an extra £50 a year after the personal allowance was raised by £235 to £9,440. However, very high earners will not benefit from this change.
Corporation tax is to be cut by a further one per cent from 2014 as Mr Osborne tries to ease conditions for companies operating in the UK and tries to create a competitive tax system for the UK.
This means that the corporation tax rate will fall from 24 per cent to 23 per cent in April 2013 and then down to 21 per cent from April 2014.
Drivers, hauliers and businesses will all benefit from the cancellation of the planned 3p-a-litre fuel duty rise scheduled for January. This will affect all strata’s of society and Mr Osborne said that all motorists are already paying 10p-a-litre less than they would be under Labour after the Conservatives cancelled the fuel duty escalator.
In a bid to increase investment the chancellor has increased the annual investment allowance by ten times to £250,000 for two years from 2013. The aim is to encourage businesses to invest in plant and machinery in a tax efficient way.
Higher rate taxpayers
The threshold at which the higher rate of income tax is payable will rise by one per cent in both 2014-15 and 2015-16, rather than by the rate of inflation which is likely to be higher than one per cent. This is likely to create 400,000 extra higher rate taxpayers by the end of the two-year period.
Most types of benefit are only due to increase by one per cent each year for three years from April 2013. The benefits that will be affected include jobseekers’ allowance, working tax credit and income support. This means that benefits will fall in comparison to inflation which is expected to remain at an average of about three per cent for at least the next year.
George Osborne justified this by saying: “We have to acknowledge that over the last five years those on out of work benefits have seen their incomes rise twice as fast as those in work. With pay restraint in businesses and government, average earnings have risen by around 10% since 2007. Out of work benefits have gone up by around 20%.”
However, pensioners will be protected by the triple-lock that will ensure that the basic state pension will increase by 2.5 per cent from next year. Disabled and carers benefits will also be index-linked and rise with the rate of inflation.
Wealthy pension savers
In a widely anticipated measure, the Chancellor has cut the annual allowance for pension contributions that attract tax relief from £50,000 to £40,000. This will apply from 2014-15 and the Treasury estimates it will bring in an extra £600 million. It will also mean the lifetime allowance for pension contributions will be cut from £1.5 million to £1.25 million. This means any pension saving higher than the new limits will be taxable.
Mr Osborne has justified this by saying that it will only impact upon a very small proportion of pension savers. The government says 98 per cent of people approaching retirement have pension pots worth less than £1.25 million and 99 per cent of pension savers make an annual contribution of less than £40,000.
However, many people in the industry disagree. Nigel Green, the chief executive of the deVere Group said: “Lowering the maximum annual tax-exempt pension contribution to £40,000 from 2014/15 could discourage higher earners from spending, which would be detrimental to economic growth.
“It will hit middle income earners who increase contributions to their pension pot later in life, as well as owners of enterprises, which are vital for the UK’s economic growth.
“In short, pillaging pensions, as Mr Osborne has done in today’s Autumn Statement is, in many ways, taxing the future to pay for the present.”
The Chancellor has made announcements to increase the resources available to HMRC through an investment of around £150 million for new tax investigators to target rich tax evaders and multi-national companies.
He has also shut some loopholes and said that for the first time money from Swiss bank accounts will flow in to the Treasury as tax receipts. He says this will bring in an extra £5 billion over the next six years.
6 December 2012