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The Low Incomes Tax Reform Group summarises the emergency Budget announcements with a particular focus on low-income taxpayers and tax credits claimants.

The second Budget of the year

On 22 June the new Chancellor unveiled his Emergency Budget and tried to make the pain of cuts and tax rises as small as possible for those on low incomes. But if you are swinging a big axe, you are inevitably going to damage some unintended victims.

A range of changes were announced which will directly impact upon those on the lowest incomes, and we summarise below when these will happen.

The key dates

Midnight 22 June 2010

• Capital gains tax rate rises from 18% to 28% for higher rate taxpayers.

July 2010

• The saving gateway was supposed to be launched, but has now been axed.

August 2010

• Child trust fund payments reduce for children born from 1 August 2010.

September 2010

• For new businesses employing staff in certain areas around the country, a new scheme will be introduced to give a substantial reduction in their employer National Insurance Contributions (NICs).     

October 2010

• National minimum wage rates increase and a new apprentice rate will be introduced.    
• Support within a range of means-tested benefits for mortgage interest will reduce to an average mortgage rate.

January 2011

• Child trust fund payments stop. 
• VAT increases to 20% (no change to current zero/exempt rates) from 4 January 2011.
• Rates of Insurance Premium Tax (IPT) increase on 4 January 2011. 
• A levy on banks is to be introduced.
• The health in pregnancy grant ceases.

April 2011

• The income tax personal allowance increases to £7,475. 
• State pension increases are realigned with earnings, prices or 2.5% - whichever is the highest. 
• Family element of tax credit to be cut for families with income in excess of £40,000. 
• Rate at which tax credits are progressively withdrawn above certain income levels to increase from 39% or 6.67% to 41%. 
• Threshold at which employers start to pay NI will rise by £21 per week. 
• Lone parents whose youngest child is over the age of five will be moved onto Jobseeker's Allowance rather than Income Support. 
• Housing benefit reforms will come in.
• Main rate of corporation tax starts to reduce as does small profits rate, and capital allowances changes will come into effect.  
• Consumer prices index to be used as the basis for calculating benefits and tax credits. 
• Default retirement age to be phased out. 
• Sure Start maternity grant will only be available for the first child.

April 2012

• Further changes to tax credits come into effect.

2013  

• Medical assessment for disability living allowance to be introduced.
• Further changes to tax credits.

And finally… tightening HMRC's budget

We already knew that government departments would be under pressure to cut costs and last week’s Budget confirms that HMRC, as with other government departments, will need to find significant further savings. Whilst the aim is to make savings yet still protect frontline services, everyone could feel the effects of this squeeze.

LITRG is therefore trying to identify ways in which HMRC can achieve more for less. As outlined, for example, in our recent response to HMRC’s proposals to reduce face to face services, much can be achieved by re-routing funds to voluntary sector organisations which help to plug the gaps, but such organisations need adequate additional funding.

Useful links

Read LITRG’s full summary of the Budget announcements on the group’s website

LITRG’s Budget forerunner: Income Tax Changes in a Coalition