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.
Huffpost UK has gathered some industry experts and those directly affected by the changes for their views on the 2012 Budget
FULL BUDGET COVERAGE
Justine Roberts, Founder and CEO, Mumsnet.com
Of all the budget preamble, not surprisingly perhaps, what was to become of child benefit was most discussed on the Mumsnet forums. The Chancellor’s 2010 announcement to remove it from households where a single earner paid higher rate tax had been strongly criticised on two counts:
First, the cliff edge effect – the loss of child benefit for higher rate tax payers that meant for some people there was a disincentive to take a promotion and a pay rise because the loss in child benefit was considerably more than the gain in salary. The Chancellor responded to that criticism and today announced that he would introducing a taper so there is an incremental loss as earnings rise from £50k to £60k as opposed to a one off forfeit. And although some may suspect that this taper will be complicated and expensive to administer, broadly it will be welcomed.
The bigger issue for Mumsnet users, though, was fairness and specifically that a single income household earning higher rate tax (£42,750) would lose child benefit whilst a next door household where there were two £40 000 earners would keep theirs.
The Chancellor’s response has been to raise the threshold at which you start to lose benefit to £50 000 but sadly, he has rather missed the point by failing to address single earners’ penalty. Under the new system a single earning household of 61k will lose all their child benefit but a household with two £50 000 earners (100k in total) will keep all of it. That penalises both lone and stay at home parents and, whatever you think of child benefit and who should get it, that kind of anomaly can't be fair.
On the wider budget there wasn’t too much to suggest it was the family-friendly version that George O promised us. Most squeezed middlers, I suspect, will approve of the rise in personal allowances but will want to know what effect that will have on tax credits and whether they’ll be drawn into higher rate tax by the new threshold changes. They’ll also, no doubt, be slightly nervous that the announcement of a rolling review of the state pension age will have us all working till we’re eighty. And they might take at look at the cut in the 50p tax rate and conclude that George Osborne in reality had other priorities than them.
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Tony Dolphin, Chief Economist, Institute for Public Policy Research
Today’s Budget was a missed opportunity. The UK economy has a growth problem caused by a lack of demand. The government is cutting public spending, households have been squeezed by high oil prices (and these are still going up) and businesses are sitting on massive cash piles because of the uncertain outlook for demand.
The OBR revised up its forecasts for growth in 2012 fractionally, from 0.7% to 0.8%, but it revised down growth in 2013 from 2.1% to 2.0%. These are hugely disappointing numbers and mean real GDP will not return to its previous peak until the final quarter of 2013.
If the Chancellor had been willing to relax his deficit reduction plan, he could have boosted demand directly by increasing government spending or by introducing net tax cuts. But this was never likely to happen because of his past commitment to austerity. Any hint of a slower pace of deficit reduction would have been fatal for the government’s political credibility.
He did though have other alternatives. The measures announced to restrict tax reliefs for high earners are welcome but taxes on the wealthiest could have gone up more – for example through a 1% mansion tax on the value of homes above £2 million. This would have a small effect on aggregate consumer spending. But the proceeds could have been used in ways designed specifically to boost the economy: an increase in spending on infrastructure, a jobs guarantee for young, long-term unemployed people or a temporary cut in employees’ national insurance contributions.
Instead, the budget is the result of horse-trading between the two parties of the coalition - largely conducted in public over the last few weeks. For the Liberal Democrats, a bigger than previously announced increase in the personal tax allowance; for Conservative backbenchers, a cut in the top rate of tax from 50p to 45p in the £. For Liberal Democrats, restrictions on the tax reliefs of the wealthy; for Conservative backbenchers, an accelerated cut in corporation tax. For Liberal Democrats, increases in stamp duty on houses valued at over £2 million; for Conservative backbenchers, relaxations in planning rules and employment law.
But overall, as the Chancellor admitted, this was a fiscally neutral budget. It will do very little to address the problem of weak demand in the economy and as a result, the OBR expects growth to remain disappointing in 2012 and 2013.
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Ros Altmann, Director General, SAGA
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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Geraldine Bedell, Editor, Gransnet
After the most heavily trailed budget in history, the rabbit in the hat moment we were all waiting for came not in the form of a mansion or tycoon tax but instead in a tax whammy for pensioners.
With the stroke of his pen (or at least a couple of lines of prosaic text in the red book) 4.5m pensioners, nearly half of all pensioners, will be worse off in real terms.
Over £1billion of the £3 billion the chancellor is seeking to raise following today’s budget is coming straight from pensioners. This is the biggest tax rise on pensioners in recent memory and stretches the definition of all families ‘fairly sharing the burden of the deficit’ to breaking point.
I wrote earlier this week that one response to the recession had been to try and pit generation against generation, but now it seems that the chancellor, has expanded his sights so pensioners too are set to feel the squeeze get much, much tighter.
Already affected by low rates of return on savings, higher VAT and ever-rising fuel costs, today’s announcement, - already dubbed by some as the Granny poll tax will hit Gransnetters hard. It’s estimated to amount to anywhere between £63 cut next year to a £291 cut in potential income for older pensioners.
Given the other big headline from this budget is tax cuts for millionaires, the chancellor is in danger of setting himself against a new era of grey activism keen to ensure changes to all families’ incomes are fair.
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Mark Daniels, landlord of The Tharp Arms in Chippenham, Cambridgeshire
“Mr Speaker, there will be no change to the current rate of alcohol duty.” As alcohol was not one
of the topics conveniently leaked in advance of Mr Osbourne’s budget this really didn’t come as a surprise to those of us in the pub trade, but it is a huge disappointment.
This was a quick, simple and lazy dismissal of the alcohol industry that took just five seconds to announce.
Unfortunately, one of the first comments I saw on Twitter following this statement was a cheerful one from the writer because they could still afford their booze. Well, as an industry, we’ll do our best to make sure they still can but it’s a misconception made by many who will not be aware that this off-the-cuff announcement means that duty on alcohol increases automatically by 2% above inflation – a rise, therefore, of around seven percent.
Today’s increase, along with a new tax on games machines of 20%, will put many more small businesses in this trade in jeopardy, along with the many people they employ.
Despite the pleas for some leniency in this year’s budget, none has been offered and it shows gobsmacking indifference towards an industry that raises so much passion and debate amongst members of the public and media.
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Fiona Cuthbertson, Managing Director, Keystone Consulting
I started off my previous piece stating that this budget has to be about new businesses and private sector jobs, and Osborne started with the phrase that the budget “unashamedly backs business”. So the question is, does it?
On the face of it – the answer is yes. Corporation tax is going to be reduced to 22% by 2014, the Government helping new start up businesses retains talent, the National Loan Guarantee Scheme will provide £20 billion of guarantees to small businesses and there is the promise of a simpler tax system.
However, the devil is always in the detail. As a small business, I am concerned about getting the information I need – within the relevant timescales – regarding accessing these guarantees, and what transparency there will be on terms and conditions and availability.
I definitely support easing the rules so that academics in our universities can turn great ideas into great companies, but felt the more interesting statement was that Osborne wants to help young people “get a loan to start their own business”.
A great idea but not one that was backed up by substance at all. Osborne immediately moved on – even before stating whether or not these loans would be connected to the National Loan Guarantee Scheme or that another scheme will be devised. I do hope this idea doesn’t therefore get lost beneath the “headlines” but is fully explored and exploited.
This also applies to the “simpler tax system” where the Government has promised to “radically change the administration of tax for our smallest firms”. The idea that the Government taxes small firms on the basis of the cash that passes through their businesses, seems simple. However, I do worry about the unseen implications. When small organisations have to fill out a tax return there is often help provided, along with established support networks of accountants and HMRC.
An entirely new level of personal responsibility and vigilance would be required for these new rules. I currently move the VAT I need to pay into a specified VAT account.
Will organisations have to do this not only for VAT but every cash transaction?
On a more personal level, I am naturally pleased that the “cliff edge” removal of child benefit has been removed and that the Government is increasing the personal tax allowance to £9205 before they have to pay any tax. I think this is an important step that will mean a lot to small business owners and working mothers.
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