Budget 2013: What it means for families



George Osborne

Budget 2013: What it means for you

Nothing is going to make life easy for families at the moment. However, George Osborne's Budget offered a few rays of sunlight - for those he called 'hard working families'.

He promised a lower income tax bill, help with childcare, a huge boost for homebuyers and help with some every-day costs. So will it make a big difference?

Income tax

For many families the major difference will be as a result of the raising of the personal tax allowance - which is the amount of money you are allowed to earn before you have to start paying tax.

This is due to go up in a couple of weeks to £9,440, and was then due to increase again to £10,000 at some point before 2015. Osborne announced this would rise a full year earlier than planned, in April next year.

He said this would put an extra £700 in the pocket of a typical family every year - and would lift 3 million people out of income tax entirely. Mark Pearson, founder of MyVoucherCodes.co.uk, says this is: "great news for those struggling to make ends meet. Having lived in less-than privileged circumstances as a child, I know just how much even the smallest increase in personal allowance helps. Mike Freer MP mentioned on Twitter that the change would mean those on minimum wage will see a tax cut of 50%."

Housing

The big bonus of the Budget was news of a new initiative to help people who are trying to get onto the property ladder - and those families who have outgrown their home and are struggling to trade up. The scheme will be called Help to Buy - and Osborne said it constituted a 'dramatic intervention' to help would-be home-buyers.

The first part is £3.5 billion for shared equity loans for people buying new-builds. Anyone who puts down a 5% deposit can get a loan from the government for 20% of the value of the property - which is interest-free for the first five years and repayable when the property is sold. There is no cap on income on those who qualify, although the home cannot be worth more than £600,000.

The second is for people who want to buy new or old properties, who are struggling to raise a deposit. It's a new mortgage guarantee. This will use the government's balance sheet to guarantee loans for those who pass the credit tests, but who have small deposits. The idea is to encourage lenders to lend to those who cannot save large deposits. Osborne said it will free up £130 billion more in mortgage lending.

The commentators are on the fence about whether any of this will work. Jeremy Trent, tax partner, HW Fisher & Company chartered accountants said that these initiatives have a habit of fizzling out - so he's going to wait and see.

Childcare

For those with children, a major Budget benefit had already been announced by David Cameron and Nick Clegg. This is a new tax-free childcare scheme, to replace the current vouchers scheme.

It will be worth up to £1,200 for each child under 12 and it will be phased in from Autumn 2015 (at which point the under-fives will come into the scheme). It will apply to those working parents where each earns less than £150,000, and where they are not in receipt of any tax credits.

In addition there will be an increase in childcare support for low income families through the new Universal Benefit scheme

Care costs

Something else trailed by Osborne, the costs of care will be capped, so that no-one will ever have to pay more than £72,000 for care in their old age. This was down from £75,000 previously announced in the Houses of Parliament.

However, he also announced a massive change to the means test, which establishes the assets someone is allowed to hold before they qualify for help from the outset. This has been raised to £118,000.

Child Trust Funds

Buried away in the small print of this Budget is good news for parents whose children qualified for a Child Trust Fund. They have been increasingly confined to accounts offering little in the way of interest, and increasing fees. Now the government has said it will consult on allowing these to be switched into Junior ISAs.

Danny Cox, Head of Financial Planning, at Hargreaves Lansdown points out: "Common sense has broken out at last. Child trust funds have been in terminal decline since 2011, seeing millions trapped in expensive products or suffering lower interest rates than their Junior ISA counterparts. This consultation will pave the way for a significant improvement in choice and outcomes for over 6 million children and ultimately lead to a full merger"

Jam tomorrow

It's worth pointing out that at this stage every single one of these new schemes will not be introduced immediately, so families will not wake up tomorrow better-off. In many cases it will take a couple of years to come to fruition (spookily in time for the general election).

However, there some small changes which will offer an immediate improvement:

Fuel Duty

Osborne scrapped the fuel duty hike due in September 2013. He announced that his repeated scrapping of this duty has saved 13p a litre in the last two years - saving the average Ford Focus owner £7 on every tank of petrol.

Miranda Schunke, spokesperson for Green Flag, said: "While the cost of motoring is a constant concern, it will be a relief to millions of motorists that there is some respite against the escalating financial burden of owning and running a car."


Alcohol and Tobacco

These duties have been on an escalator of inflation plus at least 2%. For most alcohol and tobacco, this will continue to be the case this time round.

However, beer has earned a reprieve. It has been taken off the escalator, and in fact duty has been cut by 1p. Osborne says this is a move designed to help Britain's struggling pubs. It's a nice bonus for Britain's struggling families too. Pearson added: "I'm a huge fan of the fact we can go and have a cheaper beer on George!"

Not enough

However, while some are pleased with the changes, others argue that more needs to be done. Clare Francis, editor-in-chief at MoneySupermarket, said:"George Osborne has attempted to give something back. This may, however, be little comfort to UK households who are facing unprecedented pressures on their wallets."

"Giving with one hand may be a positive, but taking away with the other through other tax increases and benefit cuts means that people are no better off. In fact, the cumulative effect of this and previous budget changes, combined with wage stagnation and rising living costs means millions are worse off and an increasing number of families are on the breadline, struggling to make ends meet every month."

"More needs to be done to help families - the Government needs work harder to tackle rising everyday costs, such as heating, food and fuel."

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Budget 2013: What it means for families

The Chancellor has cut the price of beer. He said a planned 3p rise in beer duty tax was being scrapped and replaced by a 1p cut on a pint of beer.

While lower interest rates are intended to boost borrowing for business and keep costs down for mortgage customers, the Chancellor brings another Budget devoid of encouragement for savers. Faced with near 0% interest rates and 3% inflation, there is no help for those who need to save for the future, or those that already live on their savings in retirement.

"Low interest rates are making life ever harder for people reliant on their savings. Their spending power is being reduced and their standard of living eroded on a daily basis," said Simon Rose of Save Our Savers. "The attack on savers is short-sighted and undermines the country's prospects for investment, growth and retirement."

A major headline-grabbing measure to help struggling first-time buyers is the new Help-to-Buy scheme. Made up of two parts, the first commits £1.3bn to shared equity loans that enable first-time buyers to borrow up to 20% of the value of a new build home towards a deposit, providing they can contribute 5% themselves. The loans will be interest free for five years and be repayable on house sale. The scheme will cover all new properties up to £600,000 in value – around 90% of all new homes in the UK.

The second is a Mortgage Guarantee for lenders, intended to help all families who are struggling with deposits. The scheme will make £130bn worth of mortgages available from 2014 and enable lenders to offer loans at higher-to-loan value, which will Mr Osborne said will "dramatically increase" the availability of mortgages. The guarantee will run for three years and apply to bold old and new property. Stephen Noakes, Mortgage Director at Lloyds Banking Group, commented: "We are very supportive of innovation in the housing market and believe that the mortgage guarantee scheme, will give a much needed boost to the housing market and most importantly address the issue of accessibility. "Crucially, this scheme will not only help first time buyers but also second steppers, a key segment of the housing market that is also in need of more support and attention. Whilst the property market is likely to continue to be challenging, the fresh support announced today will have a real knock on effect across the whole of the housing market and we expect it could help around 50,000 people a year."

Payment of taxes is the "glue that holds the economy together" the Chancellor said as he reaffirmed his commitment to crackdown on evasion and the professional services that advise on it. "With more measures to rein in Corporate Tax avoiders, the Chancellor has sent a clear message that aggressive avoidance is no longer acceptable," said Martin Hook, Managing Director of research and development tax specialists, Alma Consulting Group. "This will have a significant impact on the Big 4 and other firms who market tax avoidance schemes and will need to consider the morality of the schemes that they sell and the spirit of the tax legislation."

As was widely predicted, Osborne froze the fuel duty hike due in September 2013. He announced that his repeated scrapping of this duty has saved the average Ford Focus owner £7 on every tank of petrol.

Stating his commitment to helping entrepreneurs get ahead and recognising that the cost of employing people is a huge burden to small firms, the Chancellor announced a surprise move with National Insurance relief of £2,000. Called the Employment Allowance, he said the new measure means than 450,000 small businesses – which account for one third of all companies in the UK - can employ one person earning £22,000 or four people earning the minimum wage, without paying National Insurance.

"The Employment Allowance will certainly be a massive boon for small businesses. Not least because most weren't really expecting it," said Jonathan Elliott, managing director of MakeItCheaper.com. "Put it another way, a £2,000 saving for a typical small business is the equivalent of cutting their annual energy bill in half or putting 1,250 litres of free fuel in its fleet of vehicles." Yet the Government fell short on support for new enterprises, explains John Williams from Kuber: "Noticeably absent from the Chancellor's speech was any news of extending or enhancing the Enterprise Investment Scheme (EIS). Many were hoping to see the Government offer more help to start-up companies looking for second round finances, but nothing materialised."

There was bad news for public sector workers, who will see pay increases limited to 1% in 2015/2016. The government will also revisit 'progressive pay' which sees pay increase automatically each year which he said was 'difficult to justify' given that private sector pay has been frozen or cut. The armed forces, however, will be exempt from this.

Feeling the pressure on help working families, the Chancellor made a welcome announcement that working parents will receive a contribution from the Government towards the cost of childcare. Working parents will receive 20% - equivalent to the basic rate of tax - of their yearly childcare costs, up to a total of £6,000 per child. He said the move will save a typical working family with two children under 12 up to £2,400 a year.

Also, leaked this morning was the news that the Chancellor will raise the income tax threshold to £10,000 from April 2014 – a move he said will give 2.4million people at tax cut of over £200 each a year, as well as lifting two million people out of income tax altogether.
Yet while both moves are widely welcomed, they do little to counter the austere measures of previous Budgets, explains Clare Francis, editor-in-chief at MoneySupermarket.com:"Giving with one hand may be a positive, but taking away with the other through other tax increases and benefit cuts means that people are no better off. "In fact, the cumulative effect of this and previous budget changes, combined with wage stagnation and rising living costs means millions are worse off and an increasing number of families are on the breadline, struggling to make ends meet every month."
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