Families to be better off – but is it enough?

Nov 25 2008 The Journal

MANY North families will be slightly better off today as a result of the Chancellor’s mini- Budget – but experts have warned it may not be enough to help them through a painful recession.

The Pre-Budget Report brought the promise of help for pensioners and families, alongside a VAT reduction and a delay in introducing new car taxes.

The impact of the Chancellor’s changes on family wage slips will not be seen immediately.

The £120-a-year tax rebate to compensate basic rate taxpayers for scrapping of the 10p rate has been made permanent and will increase to £140 in April.

And child benefit will rise from £18.80 to £20 a week from January.

All rates of National Insurance contributions will rise by 0.5% from April 2011, except for those earning less than £20,000 a year.

There will also be a new 45% tax rate for the top 1% of earners – earning more than £150,000 – from April 2010.

Financial experts last night warned the changes may not go far enough to convince families it is safe to spend again.

Sue Stirling, director of research group ippr North, said the region would feel a greater benefit from the VAT cut because of the higher number of low earners.

But she added: “On its own it won’t solve the financial squeeze for North East families.

“If more was done to encourage families to claim the tax credits they are entitled to, families could boost their households budgets even further.”

The Government also promised extra help for workers made redundant, including increasing the limit for help with mortgage interest repayments from £100,000 to £200,000.

Stephen Hall, a partner at accountants Deloitte, said that once the initial reaction had settled down, the Treasury might not see much improvement to the economy.

He added: “I think there is some limited success here, and if you have children or earn say £25,000, you may see some changes, but if you are worrying about your job security these measures may not be enough to convince you things are going to be OK. We saw the FTSE 100 go up after this announcement and saw there the impact of this level of optimism.

“But I’m not sure that the cost savings themselves will be enough to convince people they are now better off overall.”

For the elderly there is an increase in the state pension for a single person from £90.70 to £95.25, starting in January.

Every pensioner will get a £60 one-off payment, rising to £120 for a couple.

But experts at Age Concern have accused the Chancellor of overlooking the poorest pensioners.

Director-general Gordon Lishman said: “Extra help for pensioners is extremely welcome but the Chancellor’s Pre-Budget package will still leave many of the oldest and poorest – who have been hit hardest by rising living costs – paying the price for the economic downturn. A reduction in VAT will help, but the very poorest pensioners will see little or no reprieve in their basic food and energy bills.”

Motorists will at least welcome changes to planned Vehicle Excise Duty which Blyth MP Ronnie Campbell has been campaigning against.

The new tax would have penalised motorists who own older cars, forcing around 100,000 North drivers to pay more in tax.

This will now be phased in after 2010, and duty rates for all cars will only increase by a maximum of £5.

Mr Campbell said: “I said from day one that this idea was catastrophic for ordinary people and should be scrapped. Many people cannot afford new cars and therefore have to look for older second- hand models which were built at a time when the environmental controls were not as stringent. This is a victory for common sense.”

Motoring groups, however, accused Chancellor Alistair Darling of giving with one hand and taking away with the other after he announced a 2p rise in fuel duty from December 1 – a rise which effectively wipes out any reduction that would have taken place following the 2.5% VAT reduction.

Page 2: Darling's buy now, pay later stance is prompting town hall concerns