How the Budget affects your wallet

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Brits could face lower income tax bills and cheaper fuel costs following today’s Budget. We take a closer look at what Chancellor George Osborne’s speech will mean for your bank balance.

Today Chancellor George Osborne delivered the coalition’s first official Budget since coming to power having presented an emergency Budget last June.

He said: ‘We have had to undertake difficult measures. But we have already asked the British people for what is needed, and today we do not need to ask for more. So this is not a tax-raising Budget. But nor can we afford a giveaway.’

The speech began on a downbeat note with news that the Office for Budget Responsibility had lowered the UK’s growth forecast for 2011 to 1.7% from 2.1%. Likewise, he forecast that inflation is likely to remain between 4 and 5% this year before falling to 2% in 2013.

Income tax

As had been anticipated, Mr Osborne continued with the government’s plan to increase the income tax threshold. From April 2012, people will be able to earn just over £8,000 before they start paying income tax.

The move will be the next phase in the government’s plan to increase the income tax threshold to £10,000 by the end of the current parliament. From next month the tax threshold will increase to £7,045.

As a result of these measures, the Chancellor said 1.1 million low-paid people would be taken out of tax entirely and the average tax bill will be reduced by £200 a year.

Further, the government will launch a consultation over merging the National Insurance and Income tax systems but said this process could take years.

He also said the 50% tax rate should be a temporary measure that will be subject to review

Fuel duty

In welcome news for hard-pressed motorists, Mr Osborne made a concession on fuel price increases by postponing the 1p rise in fuel duty that had been due in April.

And in a surprise move, he announced fuel duty will be reduced by 1p per litre as of 6pm tonight.

In addition, the fuel duty escalator has been scrapped and plans for a fuel stabiliser will be introduced to end future increases.

Soaring prices at the pump has led to drivers paying a record high of £6 per gallon. According to data from the AA, the average cost of diesel now stands at £1.40 a litre with the cost of petrol at £1.33.

First-time buyers

Potential first-time buyers were thrown a lifeline when Mr Osborne delivered his Budget.

To help 10,000 people get onto the property ladder, the government will offer £250 million in tax-free loans. This loan is interest free for five years and repayable when the property is sold.

To qualify, you will need to be a first-time buyer in a household earning less than £60,000 with a 5% deposit and purchasing a newly built property.

Qualifiers will be able to borrow up to 20% of the property’s value.

Pensions

Prior to the Budget, pensions had been one of the most hotly debated issues with predictions that there would be a £140 flat rate per week.

Although Mr Osborne did not outline a timeframe, he did make reference to a single tier pension but said this move would not affect current pensioners.

Sin taxes

Despite no further increases to alcohol duty, Mr Osborne announced tobacco duty will rise by 2% above inflation.

Mr Osborne said these reforms would narrow the difference between low cost tobacco products and other items on the market.

Inheritance tax

In a bid to increase charitable giving, Mr Osborne said people would receive a 10% discount on inheritance tax when donating 10% of their estate to charity.

In addition, he also announced a reform of the Gift Aid system which will reduce the administration involved when making a donation.

Other key points

Council tax to be frozen in every English county for one year

Government to help families in the South East with water bills

Extra £100 million to help councils fill in potholes

£50,000 charge for non-doms in the UK for more than 12 years

Clampdown on tax avoidance to save estimates £1 billion a year

**This material is for information purposes only and should not be considered financial advice. We strongly encourage our readers not to rely solely on this content, but to seek independent advice when making financial decisions.**

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