Page last updated at 14:52 GMT, Tuesday, 25 November 2008

Q&A: The PBR and you

Chancellor Alistair Darling has announced the government's pre-Budget report for 2008.

This year it is, in effect, an emergency mini-budget to help the government's finances cope with the impending recession and the effects of the year-long international financial crisis.

Below we look at how some of the key measures will affect your personal finances.

WINNERS AND LOSERS:
Net effect on earnings of income tax and national insurance changes compared with 2008/9 tax year


Annual income

09/10

10/11

11/12
10,000 +118.80 +118.80 +184.78
25,000 +118.80 +118.80 +109.78
50,000 +343.30 +343.30 +209.28
75,000 +343.30 +343.30 +84.28
100,000 +343.30 +343.30 -40.73
125,000 +343.30 -951.70 -1460.73
150,000 +343.30 -2246.70 -2880.73
175,000 +343.30 -2246.70 -4255.73
200,000 +343.30 -2246.70 -5630.73

Will income tax change?

From April 2011 a new top rate of income tax, at 45%, will be introduced for people earning 150,000 or more. This will affect the top 1% of earners.

There is a very significant change to a long standing part of the tax system, which is that everyone can earn the first slice of their incomes tax-free, currently up to 6,035.

From April 2010, people with incomes between 100,000 and 140,000 will have a cut in the value of their tax allowance.

For people with incomes above 140,000 the chancellor will remove the personal allowance altogether.

For basic rate taxpayers, this year's increase in the personal allowance will be made permanent, and will increase further next April, making these people 145 better off in the next tax year.

This should benefit 22 million basic rate taxpayers, the government said, half a million more than first benefited from the tax changes earlier this year to offset the abolition of the 10 pence tax rate.

Any information on the specific impact on my pay packet?

Initial calculations by KPMG suggest that while almost everyone will be a winner next year, high earners will see more of their wages go to the tax man from 2010.

KEY POINTS
VAT cut by 2.5 percentage points
45% tax rate on earnings over 150,000 from 2011
All National Insurance to go up by 0.5% from 2011
Economy to shrink by up to 1.25% next year
Borrowing to hit record 118bn
Public spending growth cut to 1.2%
Phased increase in vehicle excise duty
60 Christmas gift for pensioners

Changes to income tax and national insurance mean that somebody working and earning 10,000 will be 118.80 better off in 2009/10 and 2010/11, rising to 215.58 the following year.

A person on a salary of 50,000 will be ahead by 343.30 in the next two tax years, and 240.08 better off in 2011/12.

Meanwhile someone earning 150,000 stands to gain 343.30 next year, but be 2,246.70 worse off in 2010/11 and 2,849.93 down the following year.

The KPMG calculations do not take into account any pensions or other benefits.

What about value added tax?

VAT will be cut from 17.5% to 15% for 13 months, from 1 December.

But the VAT cut on tobacco, alcohol and petrol will be offset by increasing the duties on these products.

Is national insurance changing too?

All rates of national insurance rate will be increased by 0.5% from 2011.

HOW VAT CUT AFFECTS PRICES

Mars bar - down 1p
JVC LCD television - down 12.77
Levi's jeans - down 1.49
Next suit jacket - down 3
Ford Focus - down 322

But the starting point for national insurance will be brought into line with that of income tax, so no one earning under 20,000 will in fact pay any more national insurance contributions.

The Tories argue that the net effect of all these tax and national insurance changes will be to make people worse off once they are earning just 20,000.

The government says in fact no one earning less than 40,000 will be worse off.

Will people be protected from repossessions?

Major mortgage lenders have agreed to wait at least three months after a borrower falls behind with their repayments before seeking repossession.

The Council of Mortgage Lenders says this is standard practice for most lenders anyway.

It will be intriguing to see if it affects the speed with which the nationalised Northern Rock takes back the homes of borrowers in default.

The bank has been accused of being particularly aggressive and is likely to account for about 10% of all repossessions in the UK this year.

However the chancellor said he would take until at last the next budget to decide if he will adopt Sir James Crosby's proposal that the government should commit 100bn to revive the UK mortgage market.

Are savers being encouraged?

A new state supported saving scheme - known as the Savings Gateway - will be launched, in which the government will contribute 50 pence for every pound saved.

The government has been pondering this since 2001 and it will now start in 2010, targeted at 8 million people on low incomes.

The idea is that people on benefits or tax credits will be able to open Gateway accounts at the Post Office as well as banks and building societies.

What about benefits?

Increases to pensions and child benefits will start three months early in January.

There will be a one-off payment of 60 from January for single pensioners and 120 for couples.

Pension credit will rise in April from 124 to 130 a week for individuals and from 189 to 198 for couples.

The state pension will rise in line with the highest rate of inflation this year, producing a rise of 4.55 a week for a single person.

Is there some help for small businesses?

The planned increase in the small companies rate of corporation tax has been deferred, so the 2009 tax rate will be unchanged.

Credit worth 1bn to small firms will be offered by the government via a temporary Small Business Finance Scheme.

HM Revenue and Customs (HMRC) will allow firms facing difficulties to spread the payment of all their business taxes over a timetable they can afford, for as long as they need.

The Treasury confirmed to the BBC that this includes the self-employed.

What about energy bills?

The energy regulator Ofgem will monitor changes in energy price and publish quarterly reports on the link between wholesale and retail prices.

The government hopes this will make it clear when energy companies are - or are not - passing on a drop in wholesale prices to their customers.

Is financial compensation going to be improved further?

There will be a review of the financial compensation arrangements that currently exclude UK residents who save money in banks based in the Channel Islands and the Isle of Man.

However, the chancellor warned that the UK taxpayer could not be expected to become the guarantor of last resort.

TAX AND NI GAINS BY INCOME FOR TAX YEAR 2009/10

INCOME
Status 10,000 45,000 100,000
Single person, no children 246.60 339.60 339.60
self-employed single 233.60 442.10 442.10
Working couple, two children 592.28 305.48 751.48
Couple, non-working spouse, two children 708.88 411.88 411.88
Married couple, 65-72 315.97 884.52 884.52



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