What was Osborne's budget goal?

Simon Read examines the small print hidden in George Osborne's 2012 Budget announcements.

Can it be a coincidence that the unsettled Manchester City striker Carlos Tevez made his first appearance for the club in months just hours after George Osborne unveiled his 2012 Budget on Wednesday? The wantaway Argentinian has been angling for a move abroad for ages, yet he made a killer pass that night to help clinch victory in a crucial match against Chelsea.

What had changed? There was one key announcement in this year's Budget that will have pleased Tevez. The cut in the top rate of tax from 50 per cent to 45 per cent will, at a stroke, increase his take home pay by roughly £10,000 a week.

Other millionaires will have been equally pleased. But what about the rest of us? Was there any good news in the Budget? Are there any financial changes we need to act upon now?

Savings

There was no announcement about allowances in tax-free individual savings accounts (ISAs) on Wednesday as the increase in limits for next tax year had already been announced.

In fact, until further notice, the annual ISA limit will increase each year in line with inflation, taking the previous year's CPI figure for September as the inflation snapshot to base the increase upon. The change in the process has actually benefited savers. With inflation then hitting 5.2 per cent – last month it fell to 3.4 per cent, in comparison – the ISA limit will consequently climb to £11,280 from 6 April. Its current level is £10,680. For cash ISAs, the allowance is half that, meaning it climbs from £5,340 to £5,640 from next month.

Child benefit

Child benefit will be withdrawn from households containing people who earn more than £50,000 on a sliding scale from 7 January 2013.

But you could keep the allowance by reducing your income back to £50,000, said James Sumpter of Bestinvest. "Depending on the clarification of the rules, you could do this by making a pension contribution through salary sacrifice."

Long-term planning

Retirement savings schemes – or pensions, as they are generally called – suffered from what Mr Osborne claimed was "simplification" in his Budget on Wednesday.

Despite widespread concerns, he didn't attack pension tax relief, which makes contributions to a pensions scheme so attractive. Instead he announced an automatic review of the state pension age, linking it to future life expectancy. While on the face of it that sounds sensible, critics warn it will create uncertainty about retirement planning. In short, depending on your age, you won't know when you will be eligible to receive your state pension.

The Government has already increased the age when people can get the pension and the latest review could mean those currently aged 20 to 30 could be forced to wait until they reach 70 or older. Indeed one estimate this week suggested that a child born in 2012 will have to wait until they reach 80!

Adrian Walker, pension expert at Skandia, said: "It will now be more difficult to plan how much people need to save privately to achieve their desired level of retirement income at the age they want to enjoy it.

"The age is likely to increase over the years, and younger people, if they want to enjoy a meaningful retirement, should build up their savings as early as possible through tax wrappers such as ISAs and pensions."

Pensioners

The Chancellor's "simplification" of pensions will hit existing pensioners the most. Specifically the move to freeze age-related tax allowances will hit some 4.4 million less wealthy retired people, which quickly led to it becoming known as a "granny tax".

Over the next five years, those pensioners with an income of between £10,000 and £24,000 will end up paying an extra £3bn in tax as a result of the change, reckons Ros Altmann, director general of Saga.

"The Government says this is a measure to 'simplify' the tax system – and it is true that the age allowance is very complicated – but the reality is that this is really just a revenue-raising exercise," she said.

Figures published by Treasury show that, come next April, some 4.41 million pensioners will be worse off in real terms, with an average loss of £83, as a result of the freezing of the age-related income tax personal allowance.

Within that figure, some 360,000 people aged 65 will lose an average £285 each, while 230,000 people will be brought into income tax.

The age-related tax allowance is currently set at £9,940 a year for everyone aged 65 or more, rising to £10,090 for people aged 75 and over. The allowance will be scrapped altogether for future pensioners, in other words anyone reaching 65 after April 2013. "People reaching age 65 in the next couple of years will be £4 a week worse off as a result of this," said Ms Altmann.

Income tax

There was some good news in the announcement that the standard personal allowance will be increased to £9,105 next year. From 6 April 2012 it climbs to £8,105. The further increase will put an extra £220 a year into the pockets of 24 million taxpayers, according to Mr Osborne.

However that has to be tempered by the fact that an estimated 678,000 people will become higher-rate taxpayers next year for the first time when the starting point for the 40 per cent rate tax falls to £41,450 from its current level of £42,475.

Struggling folk also won't benefit so much from the hike in the personal allowance, as already-announced benefit cuts will leave the average person only £33 better off, according to the charity Citizens Advice. Gillian Guy, chief executive at Citizens Advice, said: "Raising the personal tax allowance is an empty gesture to struggling families on low wages. Poorer working families who get housing and council tax benefits will not get all of the money in their pocket – because as their income goes up, their benefits will go down."

Looking at how an average family will benefit from the rise in personal allowance next year, Patrick Foley, chief economist at Lloyds TSB, said: "Combined with the child benefit measures, the improvement in working family incomes is likely to be around just 0.5 per cent of average incomes."

Mansion tax

The new 7 per cent stamp duty band on properties sold for £2m or more may appear to be just a tax on wealthy homeowners, but it could have a knockdown effect – but only on people planning to move home within London and the South-east. Estate agents in the capital have reported the collapse of some sales of high-value properties because of the increase in tax which came into effect on Wednesday night. But there were also suggestions that it would hitpeople further down in the property chain.

If true, the effect is likely only to be an annoying delay as homeowners have to start hunting again for their next move. Other than that, the higher rate of stamp duty should make little difference to most home movers.

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Suggested Topics
Voices
voices
News
general electionThis quiz matches undecided voters with the best party for them
Life and Style
Men with beards rejoice: Your beard probably doesn't harbour faeces-like bacteria
health
Arts and Entertainment
Keira Knightley and Matthew Macfadyen starred in the big screen adaptation of Austen's novel in 2005
tvStar says studios are forcing actors to get buff for period roles
Finacial products from our partners
Property search
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Ashdown Group: Trainee Consultant - Surrey/ South West London

    £22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

    Ashdown Group: Trainee Consultant - Surrey / South West London

    £22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

    Recruitment Genius: Claims Administrator

    £16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...

    Recruitment Genius: Senior SEO Executive

    £24000 - £28000 per annum: Recruitment Genius: A Senior SEO Executive is requi...

    Day In a Page

    Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

    Fishing is on Nigel Farage's mind

    Ukip leader casts a line to the disaffected
    Who is bombing whom in the Middle East? It's amazing they don't all hit each other

    Who is bombing whom in the Middle East?

    Robert Fisk untangles the countries and factions
    China's influence on fashion: At the top of the game both creatively and commercially

    China's influence on fashion

    At the top of the game both creatively and commercially
    Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

    The man known as GOD has a reputation for getting the job done

    Lord O'Donnell's three principles of rule
    Rainbow shades: It's all bright on the night

    Rainbow shades

    It's all bright on the night
    'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

    Bread from heaven

    Dutch survivors thank RAF for World War II drop that saved millions
    Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

    How 'the Axe' helped Labour

    UK will be 'run for the wealthy and powerful' if Tories retain power
    Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

    The price to be paid for challenging the rule of extremists

    A revolution now 'consuming its own children'
    Welcome to the world of Megagames

    Welcome to the world of Megagames

    300 players take part in Watch the Skies! board game in London
    'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

    Charlotte Gainsbourg on 'Nymphomaniac'

    Starring in one of the most explicit films ever
    Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

    Robert Fisk in Abu Dhabi

    The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
    Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

    Vince Cable exclusive interview

    Charging fees for employment tribunals was 'a very bad move'
    Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

    Iwan Rheon is returning to his Welsh roots

    Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
    Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

    It's time for my close-up

    Meet the man who films great whites for a living
    Increasing numbers of homeless people in America keep their mobile phones on the streets

    Homeless people keep mobile phones

    A homeless person with a smartphone is a common sight in the US. And that's creating a network where the 'hobo' community can share information - and fight stigma - like never before