MILLIONS of families face substantial tax rises after last week's Budget, so don't be distracted by the smokescreen of eye-catching tax hikes for the highest earners.
Motorists were handed a bombshell with an increase in fuel duty from September and a promise that petrol prices will rise faster than inflation for years to come. The AA calculates this will add £200 to a typical family's motoring costs, raising £3.6
bn for the Treasury over the next three years.
Many middle earners will already be wincing as they open this month's payslip to see they have been hit by higher National Insurance deductions. However, if Labour is re-elected, these will increase again by 0.5% in April 2011, sucking a further £5bn from individuals and their employers.
Higher taxes on booze and fags will see smokers and drinkers handing over another £3bn.
These measures alone will see ordinary families paying an additional £10bn to the Government over the next three years, at a time when they are having to cope with pay freezes, wage cuts or cataclysmic falls in the value of their pensions.
These were the shock figures which the Government hoped to hide behind the 50% increase in taxes for those earning more than £150,000. By its own reckoning, the tax on higher earners will raise less than £2bn over the next three years. Even these figures are disputed by the reputable Institute for Fiscal Studies, which questions whether any new revenue will be raised at all, as the well-off employ armies of accountants to circumvent the rules or, failing that, leave the country.
To be fair, there was some good news, such as the increase in statutory redundancy pay to £380 per week and the introduction of a car scrappage scheme. But this may do little to help most hard-pressed families, who should start planning now to beat the Budget. We show you how.
Homeowners As we predicted last week, Chancellor Alistair Darling is extending the stamp duty concession, whereby homes below £175,000 are exempt, until the end of the year. This could save a buyer £1,700.
The Government is to guarantee mortgage-backed securities, which should make mortgages more easily available. Finally, those relying on the Government to pay their mortgage will continue to receive interest payments at 6.08%, which will help those on fixed or sub-prime rates.
Action: If you are planning a big purchase or work to the house, at least get orders in and invoices raised before the end of the year. First-time buyers could save on stamp duty by moving soon, but remember prices could fall further. If you are stuck on a penal mortgage rate, look for a better deal.
Families Next year's increase to help families through the Child Tax Credit will give struggling parents 38p extra a week, less than the cost of a pint of milk.
The Government also said it would contribute £100 a year to the child trust funds of disabled children and £200 for severely disabled children.
From July, the VAT on car seat bases will be 5%, in line with the concession with child seats.
Action: Make sure you are getting all the money due, via tax credits and child benefit, which currently pays £20 weekly for the first child and £13.20 for the second child. The child tax credit is £2,235.
Pensioners Pensions will be up-rated by 2.5% irrespective of the fall in the Retail Prices Index.
From November, retirees will also be able to enjoy savings of £10,000 and still qualify for pension credit, housing and council benefit, rather than the maximum £6,000 at present.
The winter fuel allowance will be continued this year, giving all 60-year-olds £250 and £400 for the over-80s.
From November 2011 grandparents and other family members will be able to earn credits to the state pension while looking after grandchildren or other offspring under 12 for at least 20 hours a week.
Action: You may qualify for extra support under the pension credit or benefit system. Contact the Department for Work and Pensions helpline on 0800 991234 for advice on eligibility.
Savers From October the Isa limits are rising for the over-50s to £10,200 for equity Isas and £5,100 for cash holdings. Other savers must wait until next year for a boost to their tax shelter.
Action: Older savers should watch out for top-paying Isa accounts and boost their deposits. Other savers can despair.
Motorists Drivers have been hit hard by the effective re-introduction of a new fuel escalator. From September fuel duty will increase by 2p per litre. Then, on April 1, 2010, and every year to 2013 the duty will increase 1p per litre above indexation.
Help to exchange an old banger for a new car through a scrappage scheme will be welcomed by some drivers. Support of £1,000 will be paid by the Government, with manufacturers chipping in another £1,000.
However, there are tight restrictions: the car must still have an MOT certificate, you must have owned it for a year and it must have been registered before December 31, 1999. There are concerns that manufacturers may cut existing discounts to take the new scrappage scheme into account.
Action: Buy a smaller car to cut fuel costs.
Higher earners Those earning over £150,000 will be hit by 50% tax, and see the amount they can invest annually and qualify for higher rate tax relief pegged at £20,000.
They also, like anyone earning over £100,000, lose the benefit of a personal allowance.
But the tax can be circumvented by swapping income for additional benefits or for capital gains, which are taxed at 18%.
Action: Convert income into capital gains.
