The Chancellor had outlined his main spending cut plans in the Emergency Budget last year, so it was always unlikely that he’d announce any major new tax hikes or giveaways.
However, the Budget 2011 still contained a few surprises that will affect all of us, so here’s a rundown of what’s been decided and the impact the changes are likely to have.
Osborne cut fuel duty by 1p a litre – but more than 85% of you responded to our moneysupermarket.com poll to say that this won’t make a big difference to your finances.
The Chancellor did also axe a planned rise next month, which could have cost motorists an extra 5p a litre, but fuel duty will increase in the New Year in line with inflation, adding around 3p a litre to the cost of fuel.
The ‘fair fuel stabiliser’ policy announced by Osborne is simpler than it might sound. This means that while the price of oil is more than $75 dollars a barrel, fuel duty will not rise above inflation.
If the price of oil falls then the government will reintroduce the fuel duty escalator, meaning fuel costs will rise above inflation.
National Savings & Investment Index-Linked Certificates re-launched
Buried away in the Budget documents was some welcome news for savers. These inflation-beating accounts were withdrawn last summer after being swamped by savers seeking sanctuary from high inflation and low interest rates.
However, they are set to make a comeback, with NS&I confirming after the Budget announcement that they will be re-introduced in the next financial year.
In the meantime, there are inflation-linked bonds out there now. For example, the Post Office Inflation Linked Five-Year Bond pays an annual return of 1.5% above the Retail Price Index measure of inflation.
Following the scrapping of the Child Trust Fund (CTF) last year, the government plans to reveal a draft structure for tax-free Junior ISAs at the end of the month.
All children who do not already have a CTF will be eligible for the accounts and the government has ring-fenced £5million to make contributions to the accounts of children in care. Expect to see more details announced over the next week or so.
The Budget contained two fairly major pieces of news for taxpayers. One was a change to the tax bands. Next month, the tax-free personal allowance rises to £7,475 but in 2012, it’s going to reach £8,105.
According to the Chancellor, the raise in 2012 will mean a real increase in take-home pay of £48 a year for 25million people.
Furthermore, it should lift an extra 250,000 low earners out of paying any tax at all, bringing the government a step closer to its ambition of charging no income tax for anyone earning less than £10,000.
But 750,000 people will find themselves dragged into the 40% tax bracket next month when the threshold is reduced from £43,875 to £42,475.
High earners will have been relieved to hear that the Chancellor considers the 50p tax rate to be a temporary measure. However, he didn’t say exactly when he plans to end the rate, which affects those earning over £150,000 a year.
The government wants to merge income tax and National Insurance in order to simplify the tax system.
However, such a major change is several years away as there will need to be extensive consultation on how best to implement such a system.
But the Chancellor clearly stated that the purpose of such a change would not be to raise taxes but to simplify them. Pensioners who do not pay National Insurance contributions would not be charged more if the system is reformed.
That’s right, yet another scheme to help first-time buyers, 10,000 of them to be exact. Osborne unveiled a new scheme named First Buy, which will help would-be homeowners through a shared equity scheme.
Under the £250million initiative, which is partly funded by the Treasury and partly by the house-building sector, aspiring homeowners who want a new build can receive up to 20% of the deposit as a loan.
As long as you earn £60,000 a year or less, this loan is free for the first five years and charges a low rate thereafter. Meanwhile, new buyers only have to stump up a 5% deposit in order to qualify, but as they are putting down a total of 25% gain access to far better mortgage rates than they would with less to put down.
When the house is sold, both the government and the homebuilder get their money back.
Critics of the scheme have argued that it will boost house prices, which could damage the market for future new buyers.
Air Passenger Duty
Frequent flyers got a bit of a break in the 2011 Budget, as the Chancellor chose to delay an inflation-based increase in the excise duty until next year. That gives travellers this summer some relief from rocketing costs.
But Osborne revealed that he could not reform the system to charge a per-plane duty instead of a per-passenger rate, as it’s not legal under international law.
He did, however, pledge to launch a consultation into the current bands of duty that “appear to believe that the Caribbean is further away than California”.
Bob Atkinson, travel expert at moneysupermarket.com, said: “The current system is in desperate need of investigation. The anomalies between destinations are unfair and damaging to the tourism industry - we have already seen this cutting demand to places like the Caribbean.”
After the dust had settled on the Chancellor’s speech, a few analysts have pointed out that the hike in the tax-free allowance won’t benefit pensioners.
They already benefit from a slightly higher tax-free allowance of £9,490 for those aged between 65 and 74, and £9,640 for people aged 75 and above. But their allowance is not rising as rapidly as everyone else’s.
Having said that, from next month the state pension will be linked to earnings rather than prices, which will be good news for retirees.
The Chancellor also hinted that, going forward, the Government will introduce a simple flat-rate state pension of £140 per week, which would give more financial certainty to those approaching retirement.
He also said he wanted to garner cross-party support for an automatic mechanism to be put in place to link the state pension age to longevity.
Youth unemployment is currently at a record high, with 938,000 people aged between 16 and 24 not in education, employment or training.
Osborne announced an extra 40,000 apprenticeships would be funded over the next four years, as well as an additional 100,000 work experience placements over the next two years.
Anyone with more than £325,000 in savings and possessions could have been forgiven for hoping a Conservative-lead government would reform inheritance tax laws and lessen the 40% tax burden on their estate.
However, the Chancellor had already stated that this was not the time for “giveaways”. Instead, he tweaked the current system so that people can choose to leave a greater amount to charity on their death, in return for a slight tax break.
As long as you leave 10% of your estate to charity, your estate will pay less tax after your death. The discount is 10% off the current 40% inheritance tax rate, which means a reduced rate of 36% applies to the remainder of your estate.
This change will not allow anyone to leave a greater amount to their heirs but it could see charities net an additional £300million.
Cigarettes and alcohol
There were few changes to the cost of cigarettes and alcohol in the Budget, although it was a bad day if you enjoy a can of premium lager and a rolled cigarette.
In line with the government’s aim to support healthier lifestyles, the Chancellor revealed that duty on hand-rolling tobacco will rise by 10%. Furthermore, from October 1, there will be additional tax on premium strength beers, alongside cuts for less alcoholic options.
The exact numbers have yet to be released.
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