Winner or loser? What the budget means for you ...

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The Independent Online

Low income families

There is some good news for low-income families from the Chancellor's speech. From 2010, eight million of the lowest-earning households will benefit from the Savings Gateway scheme which matches every pound they save with 50p from the Government.

Child benefit will increase from £18.80 to £20 a week from April. And child tax credits will begin in January, three months earlier than planned.

But once again, the cut to VAT will not have a significant impact on the pockets of lower-income families, because items that take up most of their disposable income, such as food, children's clothes and public transport, are already exempt from VAT.

Families with stretched budgets may be struggling with mortgage payments and have concerns about arrears. But at least the Chancellor has now guaranteed that homeowners falling into arrears will have a three-month window to get back on track before lenders start repossession proceedings.

Couple without children

Mr Darling seemed to miss out this section of society altogether, focusing instead on pensioners and families. But the biggest giveaway, the reduction of VAT from 17.5 per cent to 15 per cent, could be felt by couples without children, who are more likely to have a higher disposable income to spend on luxury shopping and entertainment where VAT is charged. But again that depends on the retailers passing that on. And if you don't spend now, and choose to save your money, you won't feel the savings. For those paying basic rate income tax, the increase in the personal allowance designed to offset the effect of the removed 10p tax band will mean the allowance increases to £145, up from the original £120, from April next year. But further on, changes to national insurance will hit earners in the pocket.

High earners

One of the short-term winners, despite the new 45 per cent income tax rate. Any individual earning more than £150,000 a year is in line to be hit with the new top level tax but seeing as it breaches the Government's promise not to increase income taxes, it won't be introduced until after the next general election. If the Conservatives win, this highest rate tax is unlikely to be introduced. Meanwhile, cutting VAT will do more for those with higher levels of disposable income. A top-of-the-range car is now several thousand pounds cheaper.

But the future is not so bright. The income tax personal allowance will be withdrawn completely from April 2010 for higher rate tax payers, and those earning between either £100,000-£106,500 and £140,000-£146,500 will be hit very hard. Due to the gradual withdrawal of the personal tax allowance, earners in those income brackets will, in effect, be paying a 50 per cent rate of tax.

Pensioners

More than 2.1 million pensioners are currently living in poverty. Retirees face the highest rate of inflation of any age group, so the pre-Budget report had to give this group something extra. In January, pensioners will receive a one-off payment of £60, or £120 for couples. Most pensioners will qualify for the increase in income tax personal allowance from April but won't be liable for the higher national insurance costs that will affect those still working.

From April, the pension credit will rise from £124 to £130 a week for individuals and from £189 to £198 for retired couples. And the state pension will increase in line with the highest rate of inflation this year giving pensioners an extra £4.55 a week.

But pensioners with limited spending money buy basic commodities. Most food items, fuel, care homes and medicines for the disabled are already VAT-exempt, and so pensioners are unlikely to gain from the Government's biggest giveaway from this report.

And older generations struggling with increasing energy bills may or may not be reassured by Mr Darling's pledge that, in future, Ofgem will monitor the wholesale cost of energy against the price consumers are paying to encourage a better deal for bill payers.

A working family of four

Like most of us, the standard nuclear family will probably be slightly better off from this pre-Budget report in the short term.

Based on an average household income of about £25,000, this working family will pay around £2,450 in VAT this year, saving £85 under the new VAT charge of 15 per cent, down from 17.5 per cent from Monday. In 2009, they will pocket an extra £254 on average, paying £2,110 in VAT. This is assuming that consumers want to spend money and that retailers are prepared to pass on the cuts.

These savings are not going to come from housing, childcare or transport costs, which are already exempt from VAT, so the effect may feel very limited indeed for the average family.

The increase to the personal allowance for basic rate taxpayers (who will benefit by £145 after the temporary £120 increase announced earlier this year following the 10p tax debacle) will add a few pounds a year to the working family's pocket, as could bringing child tax credits forward by three months to January.

But doing the school run and driving to work won't be getting any cheaper thanks to Mr Darling, with the increase in fuel duty negating cuts to VAT and the recent drop in the price of petrol.

Single people

The unattached singleton with modest means has been locked out of the housing market over the past year. Just two lenders are now willing to lend to those with no deposit. And this pre-Budget report unveiled no further help. The announcement to extend the stamp duty holiday on homes worth less than £175,000 is welcome but not unexpected. And despite pleas from the Government to pass on the Bank of England's 33 per cent base rate cut earlier this month, lenders are still dragging their feet. Mortgage rates may be coming down but lending criteria is still very tight and the number of mortgage products is currently dropping by more than 100 a week.

First-time buyers and newer homeowners with limited equity in their homes will see little light at the end of the tunnel thanks to this pre-Budget report, though there is the vague promise of a fairer lending playing field in the future with the plan to introduce a "lending panel" to monitor mortgage lending levels and practices.

But, thanks to the reduction in VAT, non-essential items, such as clothes and entertainment, will be cheaper. But that depends on retailers passing on reductions.

Public sector

If both parents in a working family happen to be civil servants, things are slightly rosier. The public sector is the only sector expected to increase in 2009, so concerns about job security are likely to be far from acute. This family will feel the improvements to the child benefit and child tax credit schemes, as will other families.

And with a household income likely to be comfortable but not extortionate, the savings on the reduction in VAT from 17.5 per cent to 15 per cent could be felt by those who are about to spend a little money on Christmas.

Family business

On the surface, the Chancellor has given this group a measure designed to get people to spend money with them. By reducing VAT from 17.5 per cent to 15 per cent, small businesses passing on the drop will be hoping for a boost to customers but for businesses which have to change their rates by next Monday, implementing that cut across back office and payment systems could be costly and time-consuming.

Elsewhere, the opportunity to spread the cost of tax payments will help manage cashflow for smaller businesses during the tough economic climate. And the Government's offer of temporary loans of between £1,000 and £1m on "flexible terms" could also make a difference in the short term, particularly when small businesses are suffering from punitive treatment from banks when it comes to loans and overdraft rates. But the upcoming changes to national insurance that the Chancellor announced yesterday will hit family-run businesses doubly hard. From April 2011 employees and employers alike will have to contribute an extra 0.5 per cent in national insurance, but for family-run businesses these are often the same people.

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