David Prosser: A great day to be a pensioner

(But the rest should read the small print)
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The Independent Online

We are all winners from this pre-Budget report but most of us will soon be losers too. That is the dilemma with which the grateful citizens of the UK must wrestle as they wonder whether to do the Chancellor's bidding and spend the £20bn of tax cuts thrown their way in a collective effort to get us out of recession hell.

The political bombshell leaked to the media yesterday morning that there will be a new 45p top rate of tax for those earning £150,000 or more might have given the impression that the rich would be meeting the cost of Mr Darling's recession-busting budget. The reality unveiled in the PBR itself is that everyone who earns enough money to pay National Insurance contributions – about £5,000 a year in today's money – will contribute towards paying off today's tax cuts. That's the effect of the 0.5 percentage point increase in all National Insurance rates from April 2011. Yes, there will also be that new tax on the wealthiest earners – though actually £100,000 is the starting point for tax rises, taking into account personal allowance changes – but their pain will be shared by everyone.

We should not be churlish. The cut in VAT from 17.5 to 15 per cent will make Christmas marginally cheaper for everyone, and then reduce shopping bills for the whole of 2009 (though note that non-luxury foods are already zero-rated for VAT purposes, so there's no saving there).

There have also been some genuine goodies handed out – extra child benefit, for example, and sooner than expected. Drivers will also be relieved by the reining back of the Chancellor's previous plans to increase the cost of a tax disc for cars judged to be more polluting.

Moreover, there are some groups who won't directly shoulder the burden of "sustainability". Pensioners, for example, don't pay National Insurance, so they won't be affected by the 2011 rise. Precious few earn £150,000 plus, so they're pretty much excluded from the list of losers to come in two-and-a-half years' time.

There may even be some consistent winners to be found in the housing market, where additional help for those on the verge of repossession, particularly those claiming income support to cover the cost of mortgage interest, a move that is very welcome.

Still, there is no avoiding the stark reality of this PBR. One year of VAT savings will very quickly be wiped out by the tax rises that are heading our way once National Insurance rises. The rest of yesterday's tax cuts were awarded in more piecemeal fashion but they too will be repaid sooner rather than later by the recipients themselves.

Even the most alluring of the gains seemingly on offer are transient. The cheap booze you read about in yesterday's papers is not available – the VAT cut on drink has been wiped out by higher excise duties. A similar trick means drivers are not the winners you might imagine either. We'd expected frequently postponed fuel duty increases to be deferred once more. They weren't, which will cancel out the VAT savings each time you fill up your car.

What about small business owners, then. Surely there are some unmitigated winners here? Again, they're tough to find. The smaller companies corporation tax increase is deferred not abandoned, while the empty business premises U-turn only extends to buildings withsmaller rateable values.

The income shifting concession, however, is a rare but noteworthy success. The Independent has campaigned on behalf of small business owners who won the right in court to set up their companies in order to make the best use of certain tax advantages for married couples. They had been threatened with a change in the law by the Government but that legislation has now been abandoned.

For other big wins, we must wait on two government initiatives aimed at the persistent bêtes noires of consumers. The banks are to come under further pressure to ensure interest rate cuts from the Bank of England are passed on to mortgage borrowers, while energy companies have been told they might face "statutory powers" if they don't hand over big falls in the wholesale price of oil and gas to consumers in the form of lower energy bills.

A success from either initiative has the potential to deliver really big savings for very large numbers of people, but we're not there yet.

In the meantime, this is what we know. There will be big winners from this PBR over the next 12 months – everyone who spends money in shops, families, pensioners, drivers and some small business owners. For all but a small minority, however, the gains will be temporary, very rapidly wiped out by higher National Insurance bills and other tax rises.

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