Amid much debate the 2012 budget has been announced by the Chancellor George Osborne. The big headlines are the income tax changes including the increase in personal allowance, a decrease in the additional tax rate and changes to the tax paid by pensioners. But how will families be impacted by this budget?
Everybody’s income tax will be impacted in some way apart from those who currently don’t pay tax. There will be a reduction in the tax bill for those both at the top and bottom of the pay scale. The personal allowance which can be earned before paying tax is being increase from £7,475 to £8,105 with a further increase to £9,205 in a year’s time. The amount that additional rate tax payers (those earning above £150,000 a year) pay is coming down in a year’s time, with any earnings above the threshold being taxed at 45p in the pound rather than the current 50p. There is also a change in threshold before people begin to pay tax at 40p, with this coming down from £42,475 to £41,450. Those who pay 40p on some of their earnings will now pay this amount on just over £1,000 more of their income than previously. There will also be some who now pay this amount on some of their income who currently do not.
There had previously been changes to child benefit proposed meaning that those in the 40p tax bracket would lose all of their child benefit while those below this wouldn’t lose any. This has been revised to avoid the so-called cliff-edge. The highest earner within a family will be taken into consideration with those earning below £50,000 keeping their child benefit and those earning above £60,000 losing it all. Between these amounts parents will receive less child benefit as their income increases. It will be reduced by 1% for every £100 earned over this amount.
Driving will again become more expensive over the next year with a 3.02p increase in a litre of fuel from August. Vehicle duty will also rise, but only at the level of inflation.
There are a number of changes that will impact families, either positively or negatively, with this depending on the circumstances of an individual family. Below are some example families and how the budget will impact them in the coming year.
Circumstances: A single parent with one child
Work: Works full-time earning the national minimum wage of £6.19 an hour
Car: Has a medium emissions car and spends £10 on petrol a week
Impact: Will be £294 better off. This is mainly due to the increase in the personal tax allowance.
Circumstances: Married couple with 2 children
Work: One parent works full-time earning £30,000 with the other working 20 hours a week earning £7 an hour
Car: Have two medium emissions cars and spend £50 on petrol a week
Impact: £414 worse off. The majority of this is due to losing the entire £545 they previously received in tax credits.
Circumstances: Married couple with four children
Work: Both work full-time earning £40,000 each
Car: Two medium emissions cars and spend £60 on petrol a week
Impact: £288 better off. This is from the increase in the personal tax allowance and paying less national insurance.
Circumstances: Same as Example 3
Work: One parent works full-time earning £80,000 while the other parent doesn’t work
Car: Same as Example 3
Impact: £669 worse off. While their situation is almost identical to Example 3 with the same overall earnings, they will be £957 worse off than the family in that example. This is because they will lose all of their child benefit as one person is earning £80,000 rather than two earning £40,000 each.
Circumstances: Married couple with one child
Work: One parent earns £200,000 a year while the other doesn’t work
Car: One high emissions car and spend £60 a week on petrol
Impact: £399 worse off. This is due to losing child benefit and paying more in income tax and more for fuel.
The above calculations were made using the BBC Budget Calculator.
Andrew Marshall ©