Pre-Budget Report 09
DECEMBER 16TH, 2009 By DOMINIC
As the dust settles following last week’s greatly anticipated Pre-Budget Report, I cannot help but feel a little disappointed. The expectation was that Alistair Darling would take this Pre-Budget as an opportunity to show some real steps towards reducing our ever increasing national deficit. Unfortunately, the reality was that Messrs Darling and Brown tried to use this Pre-Budget as a political swipe rather than an economic one.
Many of the policies announced such as boiler schemes and bingo tax do not merit serious discussion, therefore I will not bother with the vast majority of the Pre-Budget Report. There were some interesting things detailed in the small print that I thought would be useful to point out:
Pensions
The Government announced in the Budget 2009 its intention, with effect from 6 April 2011, to restrict tax relief on pension contributions for individuals with incomes of £150,000 or over. The Government has since announced in the Pre-Budget Report that the income definition for the £150,000 threshold will include the value of employer pension contributions and that tax relief for those with incomes below £130,000, before the inclusion of employer contributions, will not be affected by the amendment.
To reflect this change, the anti-forestalling rules that were introduced in the Budget 2009, to prevent individuals from making large contributions to their pensions before 6 April 2011, have been extended to those with incomes of £130,000 or over from 9 December 2009. This change will increase the number of individuals caught by the anti-forestalling rules.
State Pensions
The Basic State Pension will be increased by 2.5% from April 2010. This increase will not apply to the State Earnings Related Pension Scheme (SERPS) or State Second Pension (S2P), which means that some pensioners will not experience the full benefit of the increase.
Income Tax
The personal allowance and higher rate threshold for the tax year 2010/11 will be frozen at the 2009/10 levels, which means that some non-taxpayers and basic rate taxpayers, who receive a pay rise, could find themselves paying 20% or 40% income tax for the first time.
National Insurance
With just two exceptions, all National Insurance contribution rates and thresholds will be frozen at the 2009/10 levels. National Insurance is set to rise by 0.5% from 6 April 2011 and this is on top of the 0.5% increase that was announced in the Budget 2009. In other words, National Insurance for employees, employers and the self employed will all increase by 1%. The primary threshold and lower profits limit will be increased to compensate the lowest earners.
National Insurance is a soft target for politicians seeking to raise revenue because of the popular misconception that it is not a tax. A rise in National Insurance for employers will increase the cost of employing staff, which makes the timing of the decision a little strange, given that the UK is still in recession and unemployment is rising.
Inheritance Tax
The nil rate band for the tax year 2010/11 will be frozen at the 2009/10 level. With house prices starting to rise again, this will result in more individuals having to pay inheritance tax.
Summary
With the main political parties not prepared to explain their policies for addressing the public deficit, for fear of alienating potential voters, the UK is now in economic limbo. Whoever wins the general election will face the stark economic reality, and consequently tough decisions will have to be made regarding taxation and public expenditure. It is therefore vitally important that individuals take responsibility for their own finances and seek independent financial advice.
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