Budget 2012: As it happened
- 21 March 2012
It looks as if George Osborne's decision to freeze allowance for pensioners will dominate the headlines tomorrow, says the Guardian. It is going to raise more than £1bn a year by 2015-16 – but you would not have guessed from the way Osborne talked about it in his speech:
"We should also simplify the age related allowances – which the Office of Tax Simplification have recently highlighted as a particularly complicated feature of the tax system.
"The NAO points out that many pensioners don't understand them.
"These allowances require around 150,000 pensioners to fill in self-assessment forms, and as we have real increases in the personal allowances, their value is already being eroded away.
"So over time we will simplify the tax system for pensioners by doing away with the complexity of the additional age-related allowances for anyone reaching the age of 65 on or after 6th April 2013 and I will freeze the cash value of the allowance for existing pensioners until it aligns with the personal allowance."
However, Michael Izza, chief executive of the Institute of Chartered Accountants, says the Budget "will have little immediate impact in accelerating the UK's slow economic recovery. It is a Budget for tomorrow, not for today."
The "granny tax" as it's been dubbed is generating much coverage, and #grannytax is trending on Twitter. The Guardian's piece can be found here .
"The chancellor, George Osborne, smuggled away a £5bn raid on pensioners and foreshadowed another £10bn of welfare cuts as he announced a controversial cut in the top rate of income tax to 45p and took a further 1 million people out of income tax altogether."
UnderdogLife comments: "But sneaking in the Granny Tax to thump pensioners again is just despicable. I was under the impression that enough pensioners struggle financially. Is my experience of the elderly wrong, and they are all actually loaded?"
On the Spectator's Coffeehouse blog, they say there's much to applaud in this budget, but they are focusing on things jumping out from the small print. Here's a few things they've noticed, including 'don't mention QE'.
For example, it discusses how pensioners have been hit. "The giveaway to the low paid has been partly financed by freezing their tax-free allowance at £10,500 – it'll stay there until the tax-free allowance for earners catches up. The Treasury justify this by saying that the poorest half of pensioners don't pay income tax anyway, so this will hit the wealthier ones. It's worth remembering that pensioners have also been the main victims of QE – both by the inflation it stokes, and by its effect of lowering interest rates."
Meanwhile, the Greenpeace blog of course focuses on climate change, and comments here on the budget being a polluters' charter that puts fossil fuels in the tank of the British Economy.
Callum Jones says on the Huffington Post : "With such a headline-grabbing feature of this year's budget assisting the rich, the government has been incredibly careful to be seen helping families and the poor. Last year the income tax threshold was raised to £7,475. The coalition pledged to gradually raise it to £10,000 by 2015, but with Liberal Democrats keen to speed up the process, so it was today promised that it would be elevated to £9,205 next year. This will leave the average tax-payer with around an extra £200 in their pocket."
A review on Moneyweek says: "The main highlight for investors is the cut announced in the UK corporation tax rate. The rate, which was expected to be cut to 25% in April, will now be cut to 24%. By April 2014, the rate will be 22%.
"This is great news for investors. Lower tax rates mean more profits for shareholders, which may in turn allow for higher share prices and higher dividends. However, this will not apply to banks. The chancellor is increasing the bank levy so that they do not benefit from corporation tax cuts. Yet another reason to avoid the sector."
Ed Balls, the shadow chancellor, told the BBC on the HMRC report on the 50p tax rate (quotes taken from PoliticsHom)
"It's really important to be absolutely clear what the government is doing here – what they are doing, and the document confirms – they are cutting the taxes for 300,000 top-rate taxpayers. And it confirms the cost of that next year will be £3bn – they're giving £10,000 to every top-rate taxpayer.
"They are gambling that if they give £10,000 to the richest people who currently pay tax, they'll somehow be able to recoup £2.9bn from people who currently aren't paying tax because they're offshore or avoiding tax.
"The problem is there's no certainty they'll get that money. The actual tax cut to existing taxpayers is six times what they're raising on stamp duty and tax avoidance. Will they get this money in? Well the IFS [Institute for Fiscal Studies] said just a few weeks ago that this Budget is too soon to form a robust judgement. Even the OBR [Office for Budget Responsibility] says this is highly uncertain."
David Blanchflower says on the New Statesman : "The Chancellor should have left the 50p tax rate in place on grounds of fairness and instead incentivised firms to hire more staff through substantial National Insurance cuts.
"To reduce the youth unemployment rate from 23 per cent, I would go further and give a two-year National Insurance holiday for every employed youngster under the age of 25. This idea could easily be extended to jobs created in deprived regions and to small firms and would likely gain broad support from employers' associations, the Trades Union Congress and voters."
Commenting on the 50p tax rate change, Shaun Richards, Mindful Money's economist blogger , says: "The problem with lowering the 50p income tax rate to 45p next April is that it is far from the highest effective income tax rate in the UK system. I discussed this matter in a Mindful Money article when I explained that there are effective income tax rates in the UK economy of up to 90%.
"So we have made a mistake in not helping those on the highest rates of effective income tax.If you genuinely believe in increasing economic efficiency then you should start with the highest rates
of tax. The increase in personal allowances will help a little but they fall a long way short of a full solution."
Tim Leunig on the London School of Economics blog analyses today's budget and argues that this was a case of the Tories looking after their own, particularly with regards to the 50p tax rate. The budget also saw an end to claims to be a tax reforming government, although there were positive moves on pensions and income taxes for those on minimum wage.
"This was very much a Tory budget, from a Tory Chancellor. George Osborne cut the top rate of income tax, and did so on the grounds it wasn't raising much money. The reason it didn't raise much money is because people were able to avoid it, mainly by taking income before it was introduced, or delaying taking it until after it was abolished."
Personal Finance editor Ian Cowie writes that pensioners will pay £3.3bn more tax for the Chancellor's "simplicity" : Pensioners will pay £3.3bn more tax by 2016 to fund the fiscal "simplicity" promised by Chancellor George Osborne in Budget 2012.
That's the Treasury estimate of how freezing age-related allowances will increase receipts at HM Revenue & Customs (HMRC). At present, everyone aged 65 or more is allowed to receive £9,940 a year and everyone aged 75 or more can receive £10,090 before they have to pay any income tax.
@ConHome's Paul Montgomerie tweets: My tmrw's frontage predictions: Mail will be unhappy at granny tax. Sun will moan about fuel duty. Mirror will focus on 50p.
George Irvin is Professorial Fellow at the University of London, SOAS, and author of Super Rich: the growth of inequality in Britain and the United States: London, Polit, says on Left Foot Forward: "Super expensive houses draw higher stamp duty, middle-income earners will benefit from raising the tax threshold and there is a watered-down anti-avoidance principle; but corporate tax will fall to 20% by next year and new loopholes will appear."
wryape on the Guardian blog: "You can encourage new business and enterprise all you like but they wont last long if there is no consumer demand. A supply led recovery is a strange concept. I dont see much yet that will stimulate demand."
Brendan Barber, the TUC general secretary, says on the Guardian: "We needed a budget that looked to the future and made jobs – particularly for young people – the national priority. Instead we have got a budget for the rich by the rich.
"One minute the chancellor said he found tax avoidance morally repugnant, the next he rewarded it by cutting income tax for the richest one per cent – with precious little relief for hard-pressed families on ordinary incomes. Treasury figures show that those on low and middle incomes will do worse than those higher up the income scale.
- The UK economy combines both house price inflation and goods price disinflationary pressure
- With the strong UK employment market is it time for Forward Guidance mark three?
- Why is Janet Yellen talking the US Dollar down?
- The Bank of England finds that its own Quantitative Easing worked superbly!
- Are the oil majors having to come to terms with the dawning of solar power and what should investors do?
- Challenger banks Shawbrook and Close Brothers launch market leading fixed-rate bonds
- Are you an Expat with investment property in the UK? - You could be liable for UK Capital Gains Tax
- Where to find an inflation beating savings account
- Budget pension revolution: Just 5% of pension investors planning to blow all the money and rely on state pension
- Cost of living eases as inflation drops to 1.6% in March - its lowest level since October 2009