We've all heard about the big changes announced in the emergency budget, but here's what the headlines didn't tell you.
On Tuesday we told you about the big changes set out in the George Osborne's first Budget as coalition chancellor (take a look at our article The Emergency Budget: 3 Minute Guide for full details). Now here's a summary of the hidden details that will help you figure out whether the Budget means good, or bad news for your financially.
1. Income Tax
From April 2011 the personal allowance (the amount you can earn before you’re taxed) for those under the age of 65 will increase by £1,000 to £7, 275. There's been no announcement regarding an increase (or otherwise) in personal allowance for those over 65 as of yet; this is not til expected until later in the year.
So that only lower and middle earners benefit from this increase, the limit at which the higher rate of tax kicks in is going to be reduced. The exact amount won’t be confirmed until the RPI figures for September become available; however, it’s expected to be around £1,500. This would lower the point at which the 40% rate of tax kicks in to £42, 375.
The 50% additional rate of tax will be kept in place for the foreseeable future, and the 1% rise in National Insurance contributions from April will go ahead as planned. So, while this will leave many households a little better off (or at least compensate for the increase in VAT); higher earners will feel no benefit whatsoever.
2. VAT
On 4th January next year the standard rate of VAT will rise to 20%, hiking the cost of most goods and services you pay out for. However, you won’t pay this increased rate on everything you buy.
The reduced rate of VAT - applied to domestic gas and electricity, energy saving products; nicotine replacement products; child car seats and the like - will be held at 5%. The exemption on zero rated items – such as children’s clothing and many groceries – will remain in place too.
While there’s no doubt that the hike in the standard rate will hit us all hard, if it’s any consolation the rise isn’t quite as bad as it could have been. In the weeks leading up to the Emergency Budget it was widely rumoured that the reduced rate, and even the zero rate, were going to be increased too.
3. Tax on Insurance
The Insurance Tax Premium; the levy on insurance products, is going to rise from the 4th January, 2010. The standard rate – applied to most general insurance products (like car, and home insurance) - is going to increase from 5% to 6%, and the higher rate – applied to travel insurance and extended warranties - is going to increase from 17.5% to 20%.
Unfortunately, this is likely to mean higher insurance premiums as insurers pass on, rather than foot, the cost.
4. Fuel duty
There were no shock increases in fuel duty in the budget; instead, it’s possible that a ‘fuel price stabliser’ will be introduced. This would link fuel duty to the wholesale price of crude oil (if the price of crude oil spiked, the amount of fuel duty applied would be temporarily reduced) and help to keep prices at the pump more stable.
The government are also going to consider the possibility of bringing in fuel duty discounts for those who live in remote areas which will be good news for some.
Remember though, prices will still go up be 1p/litre in October and 0.76p/litre next January as set in the last budget.
5. Landline tax
You may remember that Labour were planning to introduce a 50p landline tax to fund the roll out of high speed broadband. This has now been officially shelved in favour of using excess TV Licence funding. That’s one less thing to worry about at least!
6. Pensions
A consultation is under way to confirm exactly when the state pension age will rise to 66, but it looks like it will be scheduled to take place in 2016 for men and 2020 for women.
As of April 2011 the default retirement age of 65 is going to be phased out. The obligation to purchase an annuity at the age of 75 is also going to be scrapped from this date; transition measures will be introduced for those who turn 75 in the meantime.
Finally, winter fuel payments, free bus passes; free eye tests and free prescriptions for those over the female state pension age will still be upheld, as will free TV licenses for those over 75.
