The Budget has been announced. A summary of key points can be found in any of the links below.
The VAT rise is clearly going to affect everyone. Everyone buys goods and services which have VAT; but, for millions of people who work in the public sector, this rise in tax will now coincide with a freeze in our pay. The personal income allowance increasing by £1,000 is supposed to lead to some people being up to £170 per year better off. Let’s break that down to a public sector worker earning £21,100, just over the threshold. My theory may be very fuzzy but indulge me.
For every £100 on VAT rated goods we will now pay £2.50 more. Let’s say the average person buys £100 worth of VAT rated goods a month. That’s an extra £30 a year. Take that away from the £170 and you’re down to just £150.
Now, take the public sector worker earning £21,100. Where he/she might expect to add up to £500 per year in salary increase, he/she is stuck on £21,100 as prices go up over the next two years. He/she may be £300 better off in total tax over the next two years but may potentially miss out on as much as £1,000 in salary increases. That means he/she could be £700 worse off after the two year freeze.
And what if this public sector worker has children and his/her partner (private or public sector) earns only £20,000. Their grand total is £41,100, which is just over the new limit for child tax credits. That cut will also be quite biting. Overall, it is these people, the lower-middle to middle income earners who will be most affected by this budget.
Mothers are being hit hard with this budget. Not only are they freezing the child benefits and increasing the threshold for child tax credits but they are taking away the one-off tax-free £190 grant to mothers-to-be. The Health In Pregnancy Grant will be abolished from January. That’s not being reported as much as the VAT rise but I think it’s just as important.
Additionally, the Maternity Sure Start Grant is being restricted to just the first child. This grant was £500 for mothers already receiving income support. I have more trouble arguing against this as, potentially, it could lead to fewer ‘career mothers’ (i.e. those that continue to have children just for the benefits). But on the flip side, and to play devil’s advocate, it could just as easily disadvantage lower income parents who are not out to get make money by repeat pregnancies.
Overall, I cannot find anything dramatically unfair about this budget. In fact, I don’t think anyone has so far. The detail of the huge public spending cuts won’t be announced until October so, until then, we cannot know how badly this will hurt.
Fair for all? We’ll see how we go.
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