George Osborne has delivered his 2012 Budget to the Commons, and as expected the 50p top rate of tax is being cut to 45p, a measure which will come into effect a year from now.
"We are earning our way out of trouble," the Chancellor said at the conclusion to his speech, insisting that the top rate of tax - introduced by the last government - had only encouraged tax avoidance and raised less than a third of the amount previously expected.
The chancellor also performed a major U-turn on cuts to child benefits for middle-incomes - but has angered pensioners by freezing their personal tax allowances.
FULL BUDGET COVERAGE
The big shock in this Budget was the stealth tax announced for 5million of Britain’s pensioners. Any pensioner with income between around £10,000 and £24,000 a year will pay more tax in future than they would have done before. The Government says this is a measure to ‘simplify’ the tax system – and it is true that the age allowance is very complicated – but the reality is that this is a revenue-raising exercise pure and simple.
Those paying the price will be middle income groups aged over 65. The very richest and very poorest will not be affected.
There was nothing in this Budget to help savers, especially older people trying to live on the income from their savings.
The policy of ultra-low interest rates has hit savers hard and there was no help from the Chancellor. The very least he could have done would have been to relax the restrictions on ISAs that mean older savers cannot put their full annual ISA allowance into cash savings – only half can be in cash, with the rest having to be put into more risky shares or bond investments.
There was no help for those badly hit by Quantitative Easing, which has damaged annuity and income drawdown rates. And nothing to encourage people to save for later life care needs either.
There was, however, some great news for the pensions industry which will welcome the Chancellor's announcement that he is making no further changes to pensions tax relief.
This is a great chance for 50% taxpayers to pile into pensions and contribute as much as they can this year before the 50p rate is cut to 45p next year. 50 per cent relief means anyone contributing £3 to a pension will get another £3 from taxpayers. Those on 40p tax will only get another £2 to their pensions, and basic rate taxpayers get about 80p.
A long overdue and very welcome announcement was that there will be radical State Pension reform. This is great news and there will be a Consultation later 'this Spring' on a flat rate state pension, above the means-testing level of around £140pw, merging state second pension and Basic State Pension in future. The new pension will be based on contributions and could finally move us towards a system without mass means-testing for pensioners. Of course, we do need to see the details when the consultation comes out, but if introduced correctly, this measure could end the penalty suffered by those lower income pensioners who save for retirement or try to keep working in old age.
Another welcome announcement is that the Chancellor will be using pension fund assets for major national investments, with the Pension Infrastructure Platform providing investment in long-term projects to modernise our outdated infrastructure. Harnessing the power of pension fund money to help stimulate the economy is a very sensible move.
Overall, this Budget has hurt middle class pensioners, been great for the top income groups and has done nothing for long-suffering savers.
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