How the budget affects you
London
12.07.10
With the new Coalition Government comes an emergency budget, and this is perhaps the most important set of policies for consumers. The way in which the Government taxes and rewards its population is the basis of every other policy. With this budget, the Conservative-
Tax
The number one policy on everyone’s minds is tax, and in particular, VAT. New chancellor George Osborne has hit hard with a rise in VAT from 17.5% to 20%, which will take effect on 4th January 2011. This means that all purchases, apart from those on food and children’s clothing, will cost more, generating an estimated £13 billion more from the tax payer. On the upside, the Liberal Democrat’s ethos of reducing tax on the lowest earners, in an effort to make work more worthwhile than claiming state benefits, has been upheld. The tax free allowance on annual income has been raised to £7,475, saving basic rate tax payers £170 per year on income tax. Additionally, higher earners will pay more tax, with their capital gains tax rising to 28%. This could particularly affect people with more than one home and buy-to-let landlords. Those earning £40,000 or more will also pay higher National Insurance contributions.
Benefits
Many UK consumers have received some sort of state benefit during the Labour years, but that is about to change. Families with incomes of more than £40,000 per year will no longer receive child tax credit, and child benefit will be frozen until 2013. For new or expecting parents, there will no longer be the Sure Start one-off tax credit payment, and the Health in Pregnancy grant of £150 for expectant mothers will end in April 2011. Housing benefit will be cut by £1.8 billion by 2015; this will be achieved through various cuts including a cap on housing benefit of £400 per week for a four-bedroom or larger house. Anyone claiming disability allowance will be subjected to a new medical assessment to determine whether or not they should receive state assistance.
Public Sector Pay
The public sector employs thousands of people in the UK, but that is about to change; there are predictions that 600,000 public sector workers will be made redundant over the next six years. Additionally, those that retain their jobs are likely to face tough times, with a two-year pay freeze for public sector workers earning over £21,000 per year, and a cap on the salaries of the highest paid. Having said this, the 1.7 million lowest-paid public sector workers will receive a flat £250 pay rise every year.
Business
As to be expected from a strongly Conservative budget, the emphasis of the new economic policies has been to roll back the state and encourage business. So, for those looking to start a new business outside London, the South East and the East of England, there is a new exemption from £5,000 of National Insurance contributions for each of their first 10 employees.
Banking
In the wake of the credit crunch, the pressure was on whatever Government that came to power to attack bonus culture in the banking sector, and make banks contribute to the economic recovery. The Coalition Government has brought in a bank levy, which is essentially a tax on banks’ business, rather than on bonuses. This, the Treasury predicts, will raise £8.3 billion in public money in four years, but there are fears that the additional costs to banks will simply be passed on to consumers, making banking more expensive. Additionally, the British Bankers Association has warned that the tax may drive banking away from the UK, creating redundancies for workers in the financial sector.
Employment
Whether or not you believe that the Government’s new budget is right and accurate is a matter of personal preference, but the predictions on employment are all there are to go on at the moment. Mr Osborne has predicted that unemployment will peak at 8.1% of the population over the next year. Unemployment was at 7.9% in June this year, meaning that there are many redundancies to come over the next 12 months.
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