Here’s our in-depth look at what the Pre-Budget Report means for you.
National Insurance contributions
Of course, the big news was the rise in National Insurance contributions. Darling announced a 0.5% increase in the amount paid by anyone earning more than £20,000 a year. That’s on top of an existing 0.5% rise announced last year.
Because businesses also contribute towards their employees’ NI payments, there’s been some concern that this is a “tax on jobs” that will hardly help already struggling businesses.
When will it increase?
The Chancellor seems understandably wary about hitting voters with tax hikes ahead of the general election and so payments won’t actually rise until April 2011.
How much more will I have to pay?
As mentioned, people earning less than £20,000 a year can relax – their payments will not be increasing and those on the lowest salaries will actually pay less, as the threshold rises from £110 a week to £135.
Meanwhile, a typical employee earning £25,000 will end up paying around £200 more a year, while someone earning £55,000 annually will pay more than £4,600 in National Insurance contributions – a rise of over £300.
Booze and cigs
The Chancellor does not lay out his tax plans for cigarettes and alcohol in his Pre-Budget Report but that doesn’t mean prices haven’t been affected by his announcements.
When the government cut VAT last year, it raised the duty paid on these guilty pleasures so that their prices didn’t fall.
But it hasn't cut that duty now. That means that when VAT goes back up at the start of the year, prices for cigarettes and alcohol will actually increase beyond what they cost before the VAT cut.
The boiler scrappage scheme
Many householders are tired of being stung by high heating costs and will be hoping this new initiative, planned for early 2010, will support them to upgrade their boilers.
Following the success of the scrappage scheme for cars, the news that people could receive a £400 subsidy for replacing their old, inefficient boilers is being welcomed – but who will actually qualify?
The bad news is that just 125,000 homes are to receive this help and, when it begins, it will be a case of first come, first served.
The money for this will come out of a further £200million the government is going to commit to extend the Warm Front scheme – which helps vulnerable houses with heating and insulation.
Only the most inefficient working models – those with a ‘G’ rating – will qualify for the subsidy. As a general rule, only boilers that are more than 15 years old will have that rating. You can see a complete list of these on the Ofgem website.
The full details of how the boiler scrappage scheme will work have yet to be finalised but it is likely to be available via the major energy suppliers. Energy giant npower has already said it will take part in the scheme and has pledged to match the government’s £400 subsidy, so anyone who qualifies and wants to update their boiler could get £800 towards the cost.
According to the Energy Saving Trust, replacing a G-rated boiler with an A-rated model will save the average home £235 a year, so it may be worth investing in one even if you don’t receive the government help.
In 2007, personal transport was responsible for 24% of the UK’s domestic emissions – and the government wants to bring that down.
To help, Darling has pledged tax relief for electric company cars and vans. From April, firms won’t have to pay Company Car Tax or Van Benefit Charge on electric vehicles for five years.
At the moment, there’s no national infrastructure set up to make electric cars a viable option for most domestic users – they’re no good for long journeys because people simply run out of juice.
However, there are plans afoot to boost consumer uptake of the low carbon vehicles. In fact, the government is planning an incentive scheme in 2010/11 to help people decide on an electric car.
The government already cuts taxes for vehicles that emit less carbon, like the Toyota Prius, which is a hybrid car running on both diesel and electricity.
It’s not all good news for company car drivers, though, as the government will increase green taxes on non-electric company cars from April next year, netting an extra £120million for the country’s coffers.
There will be a decrease in the emissions allowed for a car to qualify for the lowest tax band. Currently, vehicles emitting 120g of CO2 per kilometre qualify but next year that will fall to 99g.
Even people driving efficient company cars like the Prius will pay hundreds of pounds more in tax each year.
With stringent caps on carbon emissions, the government needs to increase the use of low-carbon energy sources like wind turbines.
That’s why it’s offering tax breaks to people who fit wind turbines and solar panels to their homes to generate their own power. It will guarantee tax-free premium prices for any power they sell back to the grid – worth as much as £900.
Of course, with a solar panel system costing between £8,000 and £14,000, you won’t be making money for a good few years – but this new system could help more of us afford to do our bit.
Darling decided to freeze the thresholds at which you pay different levels of income tax, the basic rate of which is 20%, while higher earners pay 40%.
That means that thousands of people whose salaries have risen could find they are being hit with the higher band of tax as their annual income reaches the £43,875 threshold – this is known as fiscal drag.
Accountancy firm Grant Thornton estimates that 70,000 will be affected by this when the next tax-year begins in April. And it’s not only next year that the thresholds will be frozen – the higher rate threshold will be frozen for three years which is likely to net the Revenue an extra £400m.
This was never going to be easy for the Chancellor. At the moment, inheritance tax (IHT) of 40% is charged on all assets worth more than £325,000, although there’s a joint allowance for married couples and civil partners of £650,000.
Darling had pledged to increase this to £350,000 each next year, but his Pre-Budget Report revealed that this is no longer possible because of the financial crisis.
Not only will the inheritance tax level stay where it is, the government intends to clamp down on tactics used to avoid IHT.
There are legitimate ways of reducing the value of your estate such as annual gift allowances and potentially exempt transfers (any assets you give away are exempt from IHT after seven years – if you die within that time they would still be classed as being part of your estate for IHT purposes).
Essentially the wealthier you are, the harder mitigating IHT becomes. However, there are ways of shielding your wealth from the taxman – they’re complex and most people won’t need to make use of them, but IHT planning is worthwhile for those with large estates.
The government is getting tough though. Trusts were used widely by accountants for IHT planning purposes but in 2006 the government implemented changes that clamped down on the use of trusts. The Chancellor announced a further clampdown in the Pre-Budget Report.
Naomi Smith at Grant Thornton said: “Many IHT planning schemes aren’t going to work any more. It’s getting harder and harder to get money into trusts. There are still other options available for IHT planning but the Revenue is shutting a lot of the doors.”
Many people had wanted a Pre-Budget Report that took action against bankers’ bonuses and Darling’s speech certainly delivered that.
Banks wanting to pay a discretionary bonus of more than £25,000 to any single employee will have to pay a 50% one-off tax.
This comes into immediate effect and covers bonuses paid from now until April. The super-tax will be levied at banks and anyone who receives a bonus will still pay the normal tax on it.
How much will this raise?
Unfortunately for the government’s coffers, this tax does not aim to generate a huge revenue. It is expected to net the Revenue about £500m – a drop in the ocean given the billions that have been spent bailing the banks out.
However, Darling hopes the move will deter banks from making high payments, to encourage them to rebuild their own money pots and increase lending.