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Budget 2012

The 50p top rate of tax, personal tax-free allowance thresholds and child benefit entitlement were high on the agenda of this week's 2012 Budget.

The budget – Mr. Osborne's third – which promised to be a budget for "working people" in which to help "low and middle income earners", has been one of the most controversial and "politically explosive" since 2008, according to BBC's Economic Editor, Stephanie Flanders.

Prior to the budget, Osborne was warned not to treat pensions "like an ATM" by industry experts who feared that the huge changes already taking place to pension schemes this Autumn - such as auto enrolment and the Retail Distribution Review - would unsettle businesses and organisations still further. Many called for the so-called 'pensions raid' to be stopped in its tracks.

Although Mr. Osborne's budget appeared to focus primarily on top rate tax and corporation tax, with a nod towards the continued reform of state pensions, some have seen the budget proposals as a 'granny tax' and have voiced fears over the implications to pensioners.

Sean Gilfeather, Head of Corporate Pensions within Actuarial and Risk Management at Lorica Employee Benefits, expressed concern over the so-called 'granny tax' which he says, will be seen as another raid on pensioners 'hard-earned retirement earnings'.

He said: "A considerable amount of wealth within the UK resides with pensioners, but perhaps the government may have been more focused and just targeted the more well-off and not those on reasonable incomes."

James Biggs, Head of Corporate Pensions within Workplace Savings at Lorica, felt that the 'flat-lining' aspect of the state pension was a positive move: "I congratulate Mr. Osborne's budget for its bold moves relating to the top rate tax and flat lining the state pension," he said. "However, I would have liked Mr. Osborne to be somewhat braver over the top rate tax compromise."

So what does the 2012 budget mean for organisations and their staff?

·         50p tax rate:  Under the budget, anyone earning over £150,000 will have their top rate of tax reduced from 50p to 45p. A menial 5p saving superficially, but it's been partly done to pacify Osborne's "tycoon tax" measures, which clamps down on wealthy tax avoiders by fixing loopholes in the system and introducing stricter rules and regulations.

·         Higher rate tax: Under the budget, the higher rate tax threshold has been reduced from £42,475 to £41,450, meaning that some 300,000 additional people will pay the 40% higher rate of tax.

·         Corporation Tax: In an effort to make Britain more 'competitive' for business, tax paid by organisations will be reduced to 24% (from 25%) to encourage more overseas businesses to locate to Britain, as well as encouraging new entrepreneurs to set up their own business in the UK. By 2014, it will be reduced to 22%.

·         Personal Allowance: Every taxpayer's personal allowance will be increased to £9,205 from April 2013, which will make around 24 million people £220 a year better off. Ultimately, the Liberal Democrats hope to raise the personal allowance to £10,000 which will take lower rate tax payers out of tax altogether, but it's expected to cost more than £9bn. 

·         State pensions: As part of the government's on-going state pension reforms, Osborne's budget has 'simplified' state pensions by implementing a single-tier state pension of £140 a week, based on pension contributions.

·         State pension age: Due to our ageing population, Osborne's budget has proposed an automatic review of the state pension age to reflect increasing lifespans.

·         Personal allowance for pensioners: Currently, pensioners over 65 are entitled to a tax free allowance of £10,500 whereas for over 75s this increases to £10,660. From 2013, age-related tax free allowances will now be abolished.

Some are saying that Mr Osborne's budget is a gamble: The Institute of Fiscal Studies have warned of many uncertainties and have said that the sums are wrong. Where this was alluded to being a fiscally neutral budget, in fact might just turn out to be one to create losses.

 

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