23 March 2012
“Principled and consistent” or “cynical, deluded and regressive”. Two opposing views on chancellor's George Osborne's third budget by two of the UK's biggest-selling broadsheets: the Times and the Guardian. With the dust barely settling on Wednesday's announcements, let’s pick through the most important points and look at the possible implications for Gateway readers.
The biggest headline-grabbing item in the budget was undoubtedly news of the coalition government's scrapping of the 50 per cent tax rate, which was introduced on incomes of over £150,000 by the Labour Party in 2010 with the aim of increasing contributions from the UK's highest earners. Osborne said his decision to reverse the policy, taking the top rate of income tax back to 45 per cent, was based on data that suggested the initiative had failed to raise the targeted £3 billion a year contribution to government revenues. To compensate – and reportedly to please Lib Dem members within the coalition – Osborne announced more earners would be lifted into the 40 per cent tax bracket, while a series of rules aimed at cracking down on tax avoidance would also be introduced.
There was good news too for those at the opposite end of the earnings spectrum. Osborne also announced that the income tax threshold (the level of income after which earners begin paying tax) is set to be raised from £8,105 to £9,205 from April 2013, bringing it ever closer to the £10,000 benchmark sought by the Lib Dems.
Osborne's review of the UK's economic performance was cautiously optimistic, with the chancellor announcing a 0.1 per cent increase in the country's GDP growth forecast for 2012 to 0.8 per cent. According to the Independent Office for Budget Responsibility (OBR), growth will rise to 2 per cent next year and 2.7 per cent in 2014. Meanwhile, inflation will fall from an estimated 2.8 per cent to 1.9 per cent in 2013. Note, though, that a series of growth predictions made in last year’s budget were subsequently revised in the autumn statement.
The chancellor described his budget as one that “unashamedly backs business”, giving support to the government's belief that the private sector will take the lead in driving the UK's economic recovery. With this view in mind, they have decided that the main rate of corporation tax in the UK will fall from 26 per cent to 24 per cent in April 2013, before dropping a further 2 per cent by 2014. It is hoped these measures will allow existing UK businesses to grow and attract new corporates from overseas, thus compensating for job losses resulting from cuts to public spending over the next two years.
Osborne’s budget has been most harshly criticised for the changes made in relation to the over-65s, with critics labelling the coalition's revision to the UK's existing pensioner allowances scheme a “granny tax”. Osborne revealed that the additional tax-free allowances previously made available to over-65s will be frozen from April 2013, rather than increasing in line with inflation, which is effectively a cut. The measures are expected to save the government £1 billion before 2015. The decision has caused considerable controversy, with opponents to the scheme claiming its introduction – which will cost pensioners an average of £83 a year in income – is designed to recoup tax revenues lost through the cut in the 50 per cent tax rate.
As has been the trend in recent years, duty on tobacco products increased, this time rising by 5 per cent above inflation with immediate effect. The coalition's existing plans for increases to tax on alcohol remain in place, with duty set to rise by 2 per cent above the rate of inflation.
With the UK's student population already bearing the brunt of the coalition's economic reform strategy – let's not forget the rise in university tuition fees to £9,000 next academic year – this year's budget appears to have been relatively kind to those in higher education. The most important change for students is the rise in tax free allowances for the general population. This step means that those at the lower end of the wage scale – where most graduates find themselves at the beginning of their careers – will pay less in tax than last year. More specifically, those on a graduate salary of £25,000 a year will find themselves a whopping £171 better off in 2013/2014.
The promise of extra cash once your studies draw to a close should go some way to easing the pain inflicted by the increase cost associated with a favourite student hobby – drinking. A student consuming an average of six pints a week – a somewhat conservative estimate, you might say – will find themselves forking out an extra £6.64 of their student loan each year on their trips to the union. Those with a predilection for Jaeger Bombs will find themselves £6.70 worse off. The potential enforcement of a 40p minimum price for a unit of alcohol, announced shortly after budget day, may also have an impact on university partying.
It's not all doom and gloom, however. The government has introduced tax relief for the video-game production industry, meaning students the UK over can look forward to spending plenty more precious study hours playing future inceptions of Call of Duty in the coming months and years.
23 March 2012