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Emergency Budget 2010: Winners and losers

Jane Baker
by Lovemoney Staff Jane Baker on 22 June 2010  |  Comments 59 comments

As Chancellor George Osborne unveils a string of spending cuts and tax rises, how will the changes affect you?

Emergency Budget 2010: Winners and losers

The government today unveiled its emergency plan of action to tackle the nation’s enormous record deficit. We have all been anticipating tough measures with a string of tax rises and cuts in public sector spending. But how far has the Chancellor George Osborne gone? And will it be as painful as we expect?

It’s the government’s target to eliminate the current structural deficit by 2015/2016. But how will they achieve it, and how will it affect you? Let’s find out the winners and losers from today’s budget.

The winners

  • Basic and lower rate taxpayers

The personal allowance for anyone under 65 will rise by £1,000 from April 2011. This means you can earn £7,475 before you’ll start paying income tax, and will generate an extra £170 per year. This measure will benefit 23 million basic rate taxpayers and around 880,000 people will be taken out of income tax altogether. However, the personal allowance for higher rate taxpayers will be frozen until 2013/2014. The longer-term aim to increase the personal allowance to £10,000 remains a key objective.

  • Council tax payers

Council tax will be frozen for one year next year, which means the average family will be around £35 better off.

  • Businesses

Businesses will be relieved to hear the Chancellor will not be making further cuts in capital spending in this budget. Corporation tax rates will be cut from 28% to 24% over the next four years. This will alleviate some burden on businesses, but the tax reduction isn’t as far reaching as originally hoped. Meanwhile, the corporation tax rate for small companies will be cut by 1% to 20% this year. There will also be a 1% rise in the national insurance threshold for employers, while an NI holiday will be available to employers creating jobs outside the south of England.

  • Smokers, drinkers and drivers

There will be no new tax increases on alcohol, tobacco and fuel as these rises were dealt with in the last budget in March. But there’s good news for cider drinkers who will see the 10% rise in duty reversed.

  • Landline users

The Labour proposal to put a duty on landline phones to fund broadband internet across the whole of the country will be scrapped.

  • The Queen

The monarchy escapes cuts to its budget with the Queen’s £7.9 million annual allowance staying put.

Budget losers

  • Spenders

VAT will rise from 17.5% to 20% from 4 January. This is expected to generate an extra £13 billion in extra revenue per year. The Chancellor said this controversial measure was ‘unavoidable’, despite warnings that fueling inflation by increasing VAT could trigger a double dip recession. The VAT rise is also bad news for lower earners who will feel the increase more keenly than those with higher incomes.

  • Capital gains taxpayers

Osborne has adjusted the capital gains tax system so that the greater liability falls in the hands of those who are better off. From midnight tonight CGT will rise from 18% to 28% for higher rate and additional rate taxpayers only. On a more positive note, the 10% CGT rate for entrepreneurs will be extended to the first £5 million of qualifying gains, up from £2 million.

  • Parents

There’s not a lot of joy for parents in this budget as the Chancellor announces Child Benefit will be frozen for the next three years. Tax credits for families earning over £40,000 will be reduced which includes withdrawing the family element of Child Tax Credit. This was expected to apply only to families earning £50,000 or more. The baby element of Child Tax Credit will also be scrapped in 2011/2012, but the child element of child tax credit will increase by £150 above inflation next year. Meanwhile, the Health in Pregnancy grant will also be abolished in April 2011, and the Sure Start maternity grant will be restricted to the first child only. Lone parents will be expected to look for work once their youngest child has started school.

  • Benefit claimants

Disability living allowance won’t be reduced, but a medical assessment will be put in place for new and existing claimants and introduced in 2013. Benefits, tax credits and public service pensions will only rise in line with the consumer prices index (CPI), rather than the Retail Prices Index (RPI), but this won’t apply to the state pension and pension credit. This measure is expected to save £6 billion. Meanwhile, the total cost of housing benefit is to be reduced by £1.8 billion by the end of parliament. Housing benefit will be limited to a maximum of £400 per week for a four bedroom house.

  • Public sector workers

Public sector workers have also lost out in this budget. The anticipated 12-month pay freeze has been doubled to two years for those earning over £21,000 a year. This will protect the 1.7 million lowest paid workers, with those earning less than £21,000 benefitting from a flat pay rise of £250 in both of those years.

  • Banks

And finally the banks - a levy on banks will be introduced from January 2011. This will be imposed on UK banks and the UK operations of foreign banks. The levy will generate an extra £2 billion in revenue per year.

More: 7 ways for the over 50s to pay less tax | Avoid the capital gains tax hike

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Comments (59)

  • SiGl26
    Love rating 26
    SiGl26 said

    "The VAT rise is also bad news for lower earners who will feel the increase more keenly than those with higher incomes."

    Can someone please explain why VAT is seen as a regressive tax when most essentials (shelter & staple foods in particular) are zero-rate. I agree domestic heating should also be zero-rate, and other anomalies (books, newspapers, etc) should be brought within scope, but surely the poorest households spend a greater proportion of their income on zero-rate or reduced rate items than those on higher incomes, making it a progressive tax? Also, taxes on consumption are voluntary; if you want to avoid the tax, don't buy the goods...

    Report on 28 June 2010  |  Love thisLove  0 loves
  • Norm
    Love rating 0
    Norm said

    Jasper,

    I wasn't suggesting that they all got run down, in fact if you read my post properly, I had suggested that making disabled clear the debris from our motorways was a step too far, UNLESS that was martinthorpcross's intention

    I hope that is clear

    Sheranna,

    Not knowing your own personal circumstances, I can only say that deciding to have a family out of wedlock (which may or may not apply to you, so please don't take this personally, it is a general point I am trying to make) should not be a 'career' choice, with all that that entails (mainly living off benefits that others have contributed to) - what is to stop someone who is unskilled going to apply to someone like Asda, Tesco, Sainsburys (you get my drift) to go and stack shelves? - just because a mother has her youngest at school does not make her either disabled or unemployable, so please let's not get into this 'the government is destroying families' argument - there is work out there, it might not be to your choice (how many people can honestly say that they are in their perfect job?) but it is there nonetheless - how else do you think all these hard-working (mostly) Eastern Europeans etc find jobs? (although I also acknowledge that there are several loopholes within the system that these Eastern Europeans are able to take advantage of, when really they shouldn't - for example, claiming WFTC when their wives/husbands/partners are still, and intend to remain, in their mother country, similarly for CTC for children of those families who have never been to UK, nor intend to - those loopholes should be amongst the first to be clamped down on, likewise where Mohammed Ali getting benefits in his name, and also that of Ali Mohammed - we all know of cases where this happens)

    Tin hat on.................

    Report on 29 June 2010  |  Love thisLove  0 loves

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