e-mail Paul Lewis on paul@deadline.demon.co.uk
CHANCELLOR'S PLANS FOR PENSIONERS
The Government produced its first Draft Budget on November 25. And it was a bit of a damp squib. When the Government was elected on May 1 it decided to have a quick budget in July and postpone the full Budget from November to March 1998. But Chancellor Gordon Brown promised a 'Green' or draft Budget in November. It was widely expected that it would contain early warning of tax changes which would start next year. But in fact the Pre-Budget Report - as it was finally called when it was released on 25 November - was a fairly general statement setting out the Government's long-term plans for the economy and making very few definite announcements.
HEATING
However, one welcome change that was announced was a special payment to pensioners to help with heating bills. The money will be tax-free and paid at two rates. Most pensioner households will get £20 - whether they live alone or as a couple. But where someone claims income support the payment will be more than double at £50. At the time of writing all the details of when and how the payments will be made was still undecided. But the Chancellor promised the money "in time to meet winter fuel bills". The extra money - called Winter Fuel Payment - will be paid this winter and next. It is separate from the £10 Christmas bonus which will be paid as usual, and cold weather payments which are £8.50 a week to pensioners on income support where the temperature in their area averages below freezing for seven consecutive days - or is forecast to do so. The Winter Fuel Payment will cost £180 million this year.
CLAIMING
That amount is still far less than the £1bn or more which around one million poorer pensioners lose by failing to claim help from a benefit called income support. In its Election Manifesto the Labour party promised to "examine means of delivering more automatic help to the poorest pensioners". The problem is that no-one really knows why many older people do not claim the money they are entitled to. So it is hard to know how to get it to them. The Secretary of State for Social Security Harriet Harman announced that she would launch a pilot scheme to try to find out how best to fulfil the Manifesto promise. The pilot will cost £15 million But the results will not be known until April 1999 and any changes will not happen until some time after that.
INSULATING
One important way to keep warmer in winter is to make sure your home is insulated. The Government already runs a Home Energy Efficiency Scheme which provides up to £315 for loft and water tank insulation and draught-proofing for people aged 60 or more. Some get all the cost paid, others just a proportion. The Government also likes to remind us that it has cut VAT on fuel bills from 8pc to 5pc - the lowest rate allowed by the European Union - and that it has cut the Government levy which used to be charged on the price of gas. The Chancellor says these two changes will save £80 on the average pensioner's fuel bill. In addition, competition in the gas industry means that people in the South East, South West, and North-east of England and in Scotland can save money by choosing a different gas supplier. By next winter both gas and electricity will be deregulated throughout Britain and everyone will be able to make savings by changing to an alternative fuel supplier.
The Chancellor is also going to reduce the rate of VAT on products such as loft insulation from 17.5pc to 5pc thus taxing insulation products at the same rate as fuel. Unfortunately, it is not possible under European Union law to do that for insulation products sold in the shops. So it will only be done on products provided through the Government's own Home Energy Efficiency Scheme. As the materials are provided free anyway, the only advantage will be that more people will be helped from the same grant - the Government says another 40,000 a year - but the Treasury will get less tax. A spokesman for Customs & Excise told Saga Magazine "The Government will be lobbying for the European Union to change its rules so that VAT can be brought down on insulation products generally." But no-one knows when - or if - that will happen.
SICK AND DISABLED
One of the Government's clear objectives is to reduce the amount of money spent on social security. It believes that it can only do that by helping people who currently depend on benefits to get back to work and keep themselves. It wants to extend this self-help message to sick and disabled people, many of whom, it says, want to work but currently feel trapped on benefit. In the July Budget the Chancellor announced he would spend £200 on trying to help sick and disabled people get back to work by offering them training, work trials and giving money to employers who took them on. However, the programme will not now start until later in 1998 and it is not clear how it will help or what it will entail. If you are disabled, under pension age, and want to try to improve your income by working then you should contact your local Benefits Agency office and ask whether any help is available in your area.
INCOME TAX
One change the Government was expected to announce was a plan to reduce the starting rate of income tax from its present rate of 20p in the pound to 10p. However, that change has been deferred and may come with a heavy price. The Chancellor said he still wanted to make the change but only when "it was prudent to do so". And it would be done as part of a package of measures which would include introducing what is called a 'tax credit' for low paid families. A tax credit is a payment from the tax-man to people with very low incomes. Instead of paying tax they would get money back. It would replace some benefits, most likely family credit which is paid to low income working parents. It is a revolutionary idea that many people have been promoting for some years. But it has the unfortunate consequence that some women may end up paying more tax. The tax credit would be paid on the basis of the income of the whole family, not just the taxpayer. And that could mean an end to independent taxation of husbands and wives. That was introduced in 1990 and led to many women paying less tax. But if tax credits are paid to the family, then independent taxation could be abolished and many women would end up worse off. The Treasury has denied that it intends to tax couples in this way, but many experts think it is an inevitable consequence of the changes the Chancellor is considering. The Chancellor also told Parliament that when he did introduce a 10p starting rate of tax, it would "maximise the rewards from work". So it may not apply to the tax due on pensions or savings. That could be another blow for older people.
However, there is some comfort for older people in the Government's general economic policies. It wants to have low inflation. And that means holding interest rates relatively high. Low inflation and higher interest rates help people who rely on savings for some of their income. So that policy will benefit many pensioners. But it is still not clear how the Government is going to fulfil its key Election pledge to Britain's older citizens. It said in its Manifesto
"We believe that all pensioners should share fairly in the increasing prosperity of the nation".
There was not much in the Pre-Budget Report to show how that promise would be kept.
HAVE YOUR SAY
The Chancellor has asked for comments on his Budget plans. You can write to him at
The Chancellor of the Exchequer
Pre-Budget 1998
HM Treasury
Parliament Street
LONDON SW1P 3AG
or e-mail him on
budget@hm-treasury.gov.uk
More details of home energy efficiency grants on 0800 072 0150
January 1998
e-mail Paul Lewis on paul@deadline.demon.co.uk