The Robin Hood budget
Are you a budget winner or loser? That all depends on personal circumstances.
Saturday 13 March 1999
How accurate is this picture? Well, it partly depends on where you are in the tax and spend firmament. But it is generally true to say that the biggest gainers out of this Budget will be pensioners, particularly the less well-off, and couples with children.
Although the better-off will not gain so much and, in a few cases, they might even lose out, most of the money will come via tax receipts from falling unemployment and smaller debt interest payments. This means that, while some of Mr Brown's tax measures will impact negatively on the pockets of the middle and upper classes, these will be offset by a combination of tax cuts, including the 10 pence starting rate from 6 April, and the 1p cut in 12 months' time.
But it was the combination both of his delivery and the fact that more vulnerable groups in society were marginally more significant gainers (for a change) that led John Whiting, a tax partner at PricewaterhouseCoopers, the accountancy firm, to say: "He is being quite clever in the way he disposes of his tax resources. They are clearly being concentrated to help lower-paid people, but without hitting higher income-earners too hard. I suppose he is keen to live up to his Robin Hood Chancellor image."
What are the major points of Mr Brown's Budget and how will they affect us? Well, tax and National Insurance are the obvious starting points.
According to calculations by pay and employment benefits firm Arthur Andersen, taking both NI and tax into account, a single person earning pounds 5,000 a year will be pounds 14.29 a month better off from April. The net gain remains at roughly that level until pounds 25,000, rising to pounds 22.83 for salaries of around pounds 35,000 and beyond.
A married person earning pounds 10,000 a year and whose married couple's tax allowance is being abolished, will see a net monthly increase in salary of pounds 7.26, rising to pounds 15.50 on earnings above pounds 35,000.
The problem for anyone trying to calculate whether they are net gainers or losers is that it depends on a multiplicity of factors. Because the Chancellor has decided to alter a wide variety of tax measures, each case must be taken individually, such as whether you drive a company car (ouch), how many children you have and of what age (good news), whether your income is over pounds 38,500 (bad news, you don't get any children's tax credit). Moreover, the new tax credit won't apply until April 2001, while the married couple's allowance is abolished from next year.
Scrapping mortgage interest relief will cost anyone with an interest- only home loan of pounds 30,000 or more pounds 17.47 a month. Mortgage brokers and lenders agree that the result will be to accelerate the current move towards early repayment of home loans.
Roddy Kohn, an independent financial adviser, says: "By removing the last, admittedly small, argument in favour of slower loan repayments, Mr Brown has made it more worthwhile to pay off a mortgage early than ever before."
One move that will prove popular with employees in many firms, though mostly in successful ones, is a proposal by the Chancellor to offer incentives to people who buy shares in their own company. The new scheme will allow staff to buy up to pounds 1,500 of shares from their pre-tax salary. Therefore, a 22 per cent taxpayer will be able to buy pounds 100 worth of shares for pounds 78. In a move that will satisfy higher-rate taxpayers, this privilege is extended to them at the top rate, meaning that the same shares will only cost them pounds 60. The companies will be allowed to give free shares up to twice the amount of those bought.
When they are cashed in, gains on the shares will be tax-free, if they are kept for 10 years. They will be subject to tax on the salary used to buy them, but this tapers off the longer a share is held, falling to zero after 10 years.
Two other measures may have an even greater financial impact on the lives of millions of savers and borrowers. The first was the announcement by the Chancellor this week that mortgage lenders will face far tougher rules on the way they set out the true cost of their loans. In recent years, lending rates have become all but impossible to understand.
APR, as a mechanism for standardising headline mortgage costs, became virtually useless. From now, lenders will be required to show the APR as a reflection of the true cost of a loan, including initial charges and any other application fees over the full period of the loan. That means any discount or fixed period is seen in the context of the variable rate for the remaining period. Where a variable rate is cited, it will be possible to tell the true difference between annual and daily interest calculations.
Just as important is the fact that the Financial Services Authority, the City watchdog, will now be publishing "best-buy" league tables for pension funds, mortgages and other investments. This will increase the pressure on companies to cut the charges they levy on their products, forcing them to deliver decent value to their clients - in many cases for the first time ever.
Who knows, one day Robin "Gordon" Hood's legacy may be to have delivered something that appeared to cost nothing - while benefiting millions of us at the same time.
Nic Cicutti Comment, page 2
Internet Investor, page 3
Brian Tora, page 4
The Budget in Your Pocket,
pages 6 & 7
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