THE JUNE BUDGET
The Government is going to save more from cuts in welfare benefits
including the state pension than it will from tax rises. That is the shocking
conclusion from the detailed figures set out in the Emergency Budget on 22 June.
Top of the list is a rather obscure but very profitable change in the way
benefits are increased each year in line with inflation. Instead of using the
old Retail Prices Index (RPI), which has been around since World War II, the
increase will follow the more modern and European measure the Consumer Prices
Index (CPI). It usually shows a lower rate of inflation than the RPI. In
September 2010 when benefit rates for 2011 are fixed the Government forecasts
the RPI to be 3.7% . But the CPI will be only 2.7%. That will mean a lower rise
for almost all benefits next April. At the end of five years this change will
save an extraordinary £5.8 billion a year.
The state pension will be dealt with in a special way. The basic pension
paid on National Insurance contributions and currently £97.85 a week will be
subject to a triple guarantee rising by the highest of earnings, prices
(measured by CPI) or 2.5%. In April 2011 there will be a further guarantee that
if RPI is higher than any of these then RPI will be used. That promise does not
apply from 2012. All other bits of the state pension including SERPS will
rise just by the CPI.
Pension credit the means-tested benefit which guarantees a single
pensioner an income of at least £132.60 a week (£202.40 for a couple) will not
be raised with prices or earnings in 2011/12. Instead it will rise with the cash
increase in the state pension. So it will go up by less than inflation.
The amount of money you can have before you pay tax will be raised for
those under 65 by £1000 from its current level (though it would have gone up by
around £200 anyway with inflation). But there is no word yet on the higher age
allowances given to those over 65 and over 75. They may be frozen or may go up
with inflation. People paying higher rate tax will not gain from this change.
Free prescriptions and eye-tests will continue for the over 60s but there
will soon be an announcement to raise the qualifying age from 60 to the age at
which women can get a pension currently about 60 and a quarter. Winter fuel
payment will be paid as usual this winter to anyone born on 5 July 2010 or
earlier.
VAT will rise from 17.5% to 20% on 4 January 2011. That will put up the
price of vatable items by just over 2%. The tax on premiums for insurance will
also rise from 5% to 6% on most of them but from 17.5% to 20% on a few.
Capital Gains Tax which 99.5% of the adult population do not pay will
stay at 18% for those on basic rate of tax but rise to 28% for those who pay the
higher rate of tax in the year the gain is made. The annual exemption will stay
at £10,100 and rise by inflation next April. No other changes were announced.
The starting point for inheritance tax will remain at £325,000 or normally
£650,000 for a widow or widower until at least 2014/15.
Tax increases and cuts will raise the net amount of just over £8 billion. Changes in welfare benefits will raise £11 billion. Other cuts in spending will save £21 billion. Details of those will be announced on 20 October.
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