Simon Read: We're not all in it together, some will suffer much more

The tough times look set to get worse for Britain's hard-up families following the Chancellor's Budget statement on Wednesday. His commitment – sorry, the Lib Dem's commitment – to raising the personal tax threshold to £10,000 within this Parliament is laudable. But let's not forget that next month's £1,000 increase in the threshold – announced in last June's emergency Budget – wasn't matched by a similar rise in the 40 per cent taxpayer level.

That narrowing of the tax band leaves higher rate taxpayers £80 worse off. "This is a significant cut in the basic rate tax band and is the main reason for the substantial increase in the number of higher rate taxpayers," points out Stephen Herring, of accountants BDO. "Those earning £42,475 will face from next month 40 per cent income tax rate although they earn less than twice median earnings."

But they're not the only ones hit. The move to switch the default measurement for increasing tax thresholds from the Retail Prices Index (RPI) to the lower Consumer Prices Index (CPI) will mean we will all, effectively, pay more tax in the future.

Experts have calculated the change – which will affect National Insurance and capital gains tax from next year – could cost families around £27bn in the next five years. "Switching to CPI is a clandestine way to raise tax," according to Nicola Roberts, tax director of accountants Deloitte. "Most people won't understand what this change in the inflation rate means or the corrosive effect it will have on their earnings and benefits."

Switching the starting level for paying National Insurance from RPI to CPI, for instance, will mean the level won't rise so quickly, drawing more workers into paying the tax. It's calculated that an extra 40,000 low-paid workers will be paying NI next year alone because of the use of the lower inflation measure.

Savers will be hit too as the annual tax-free ISA allowance will be hit. At present it's linked to RPI but the switch to CPI will mean the allowance will climb much less. For comparison the current rate of RPI is 5.5 per cent while CPI – which excludes property prices – is only running at 4.4 per cent.

Pensioners have also been hit by the move as state pension increases – formerly linked to the rate of RPI – have already been switched to CPI. The cutting of the winter fuel allowance could prove even more catastrophic for some elderly people: the number of winter deaths every year is already rising alarmingly.

Of course some people will benefit from the Budget changes, but the news is bleak for most. But what else did you expect?

There was a consumer victory last week for a car crash victim who had been hounded by an insurer for the partial return of a £3.4m payout he'd had. Dorset man Mark Noble was accused of lying about the extent of his disabilities at a trial to determine compensation. But after he was awarded the cash, his insurer Direct Line was tipped off that he was not as seriously disabled as he had claimed in court.

The insurer rightly investigated the claims and its undercover surveillance suggested that it had a case. But the judge disagreed and accepted Mr Noble's argument that the fact he had done better than expected following the conclusion of the first trial did not mean he had lied.

I'm pleased for him, but worry about the implications of the trial. Insurance fraud is a big problem that needs dealing with properly.

Savings: The wrong kind of inflation?

in a week when inflation (CPI) was reported to have hit 4.4 per cent in February, the Chancellor started talking about the "wrong sort of inflation". But inflation has simply been too high for too long, says Andrew Hagger of Moneynet.co.uk. "Savers have suffered a double blow of low interest rates and high inflation for two years now," he says.

Basic-rate taxpayers need to earn a gross return of 5.5 per cent on savings just to retain their spending power, while higher-rate taxpayers need a massive 7.3 per cent. So there's been some interest in Birmingham Midshires' new inflation-linked savings products offering the choice of a five-year or three-year inflation bond with the rate based on RPI plus 1.5 per cent or 0.75 per cent.

The bonds look appealing as they are paying 2 per cent above the best traditional fixed-rate bonds once the bonus is taken into account. But the interest rate is based on April's RPI rate, so interest will depend on the RPI figure in April 2012, not the 5.5 per cent as it stands now.

Comments