Rich to rule in Osborne's new tax regime
The Budget was a blizzard of policies and statistics, but what does it really mean? Pensioners, look away now...
Examining the amount of cash we'll be forced to hand over to the Government in the next two years confirms what was not revealed in George Osborne's Budget yesterday, but was blatantly obvious to all. He has simplified the tax regime to give more money to the well-off, while further penalising the so-called squeezed middle and the elderly.
By 6 April 2013, the net result of the Chancellor's tampering with the tax system will mean that those earning above £150,000 a year will be considerably better off, compared to lower earners. Meanwhile pensioner woes will be worsened by the so-called granny tax – the scrapping of the age-related allowances.
The bean counters at Blick Rothenberg have poured over the changes announced yesterday to work out exactly how you'll be affected. You'll find the full details in our Budget supplement, but some Budget figures spring out.
By next April, anyone who commands an income of £500,000 a year will be cheering an extra £1,431 a month granted to them by the Chancellor. That's almost exactly enough to buy every month a crate of Veuve Clicquot La Grande Dame 1998, which sells for £120 a bottle.
In total those paid half a million a year will be able to toast an extra £17,172 a year.
Coincidentally enough, that's almost exactly enough to pay for three terms at a typical public school, assuming the fee is £6,000 a term. Cynics could suggest that Osborne had specifically targeted the extra cash at champagne-swilling-Tories who educate their children privately.
At the other end of the scale, the Blick Rothenberg analysis reveals that, when it comes to tax take, pensioners will be worse off. The hardest hit in April 2013 will be well-heeled pensioners aged 75 or over whose annual income is between £125,000 and £150,000.
They will be worse off by £35 a month, or £390 a year. But let's face it, they can probably afford that.
Far more significantly, the Treasury's own figures reveal that, come next April some 4.41m 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.
Anyone born on 6 April 1948 or later will not qualify for the age-related allowance at all. To put that into context, at present, everyone aged 65 or more can receive £9,940 a year without paying income tax, while everyone aged 75 or more can receive £10,090.
"It's an enormous stealth tax for older people," said Ros Altmann, director-general of Saga. "Over the next five years, pensioners with an income of between £10,000 and £24,000 will be paying an extra £3bn in tax while richer pensioners are left unaffected."
The squeezed middle
But what about the widely-flagged increase in the standard personal allowance to £9,105 next year? The Chancellor boasted yesterday that the allowance increase would put an extra £220 a year into the pockets of 24 million taxpayers.
As ever, he wasn't revealing the whole picture. 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.
But what about hard-up folk, surely that £220 a year will make a crucial difference to them? Not so, according to Citizens Advice. The charity says announced benefit cuts would take all but £33 of the tax gain for most of their clients.
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."
Some of the pleasures enjoyed by low earners were targeted yesterday. Fags rose 37p a packet while Greggs pies and pasties will rise a fifth in price, once the 20 per cent VAT is added to them. Gaming machines in pubs will be also be hit by increased taxation.
At the same time struggling families face energy bills they can't afford and rising petrol costs. On top of January's VAT hike – which added almost 3p to a litre of fuel – George Osborne plans a duty increase of almost 3p a litre in five months' time.
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