Pensioners & families: Concession to basic rate taxpayers made permanent

(David Sandison)

Families on more modest incomes, particularly if they have children, will do best from the pre-Budget report – at least in terms of direct taxation changes – along with pensioners who will benefit from bigger-than-expected increases in benefits.

The £120 increase in the income tax personal allowance for basic-rate taxpayers announced by the Chancellor earlier this year following the storm over the abolition of the 10p starting rate of income tax is to be extended.

Alistair Darling had previously indicated that the concession, which in effect refunds the losses suffered by 4.2 million households following the abolition of the 10p rate, would be a temporary measure to help those affected through a short-term transition. Yesterday, however, he announced that the additional allowance was being granted permanently and that it would now be extended to £145 this year.

The gains are relatively modest but the move will at least head off further rows with Labour backbenchers who attacked last year's 10p tax rate abolition on the grounds that it unfairly penalised those on lower incomes.

This group will also benefit from a previously announced rise of £25 in the child element of the child tax credit, plus an increase in child benefit, which is paid for all children aged 16 or under, will rise from £18.80 a week to £20. However, the headline child benefit rate is only payable for the eldest child in each family – for subsequent children it will be £13.20 a week, up from £12.55 currently.

Nevertheless, the new child benefit cash will be available sooner than parents expected. In a surprise move, the Chancellor announced that the increase would take effect from January, rather than April as usual.

A similar concession has been granted to older people. Pensioners on fixed incomes have been hit hard by soaring inflation this year, but should suffer less as inflation recedes over the next 12 months.

Happily, increases in pensions are set with regard to the rate of inflation in October, the month in 2008 at which price rises peaked. As a result, the weekly benefit for single pensioners will rise from £90.70 to £95.25. Pensioners will also get an additional boost from a one-off payment alongside the £10 Christmas bonus that is payable each winter. The payment, worth £60 to single pensioners and £120 to pensioner couples, will be distributed in the new year and the full £70 will also be paid to children with disabilities. It's the equivalent of April's pension increase being introduced immediately.

More controversial is the substantial increase in the pension credit, which will come into force next April. The increases guarantee an income of at least £130 a week for single pensioners, rising to £198 for couples, and run significantly ahead of inflation. However, the credits are means-tested benefits which must be claimed, and many groups that work with the elderly complain that take-up is poor.

"A one-off payment of £60 in the new year is very welcome, as is the commitment to increase pension credit in line with inflation," said Gordon Lishman, director general of Age Concern. "But the extra benefit won't reach the millions of pensioners who are still missing out on the benefits they're entitled to. A high-profile government campaign is urgently needed to get up to £5bn in unclaimed benefits cash to all of those entitled, with a view to moving towards a system where money benefits are paid automatically."

Brown on Brown: I was hoping for a bit extra

Louise Brown, 35, is a single mother with three children living in Hayes. She was working until the recent birth of her youngest son Tre' but has now had to stop and lives on benefits.

"I had my first child when I was 18 and over the years I got further into debt. Through the charity Action for Children I've learned how to improve my finances. I get £178 a week in child tax credit, £46 a week in income support and child benefit of £176 a month. I think the Government helped me through VAT cuts and by putting up the tax for high earners but they took it away by increasing national insurance contributions. The cut in VAT is all well and good but people like me don't have the money to spend anyway. The increase in child benefits is good but, as a single mum, I was hoping for something that gave us an extra helping hand, and there wasn't anything like that."