Budget 2012: expert analysis

But there was a sting in the tail for middle and high earners. To ensure that they do not benefit disproportionately the threshold for higher rate tax will also be adjusted. This is currently £35,000 and will fall to £34,370 in two weeks’ time before dropping to £32,245 in April 2013.

The coalition Government is committed to raising the personal allowance to £10,000 by the end of this Parliament. It is currently £7,475 and will rise to £8,105 on April 6.

PENSIONS - Rosemary Bennett

Millions of pensioners who have saved for their old age will lose the extra tax free allowance they enjoy on modest savings and occupational pensions from next year.

Campaigners called the change “outrageous” and an attack on pensioners who had scrimped and saved for their retirement.

Under the current system, those aged between 65 and 74 with incomes of between £10,500 and £20,500 a year have a tax free personal allowance of £9,940. For those aged 75 it is even higher at £10,500. Both are considerably more generous than the £7,475 personal allowance for working age taxpayers.

But under a move described by the Chancellor as a “simplification”, the age-related tax free allowance will be frozen until it comes into line with the lower personal tax allowance for everyone else, earning the Treasury £3.32 billion by 2016.

George Osborne tried to justify the move in his Budget by criticising the complexity of the current scheme, saying that too many pensioners did not understand it and that 150,000 of them ended up filling out self-assessment forms as a result.

But campaigners immediately branded the chance a “granny tax” and said it was a blow for up to five million older people, many of them on modest incomes of just over £10,000.

Ros Altman, director general of Saga, said she was “hopping mad”.

“This is an outrageous attack on decent, middle class pensioners who put something by for future. Those with incomes between £10,500 and £20,500 are bearing the brunt of this stealth tax,” she said,

“I don’t understand how this can be classed as fair. Older people are just sitting ducks to have money taken away from them time and time again. The message is clear – you are a mug for saving for your old age.”

CHILD BENEFIT - Rosemary Bennett

Higher earning families receiving child benefit were offered some comfort by George Osborne, who announced that the final cut-off point for losing the allowance will be £60,000 rather than £42,475.

The concession came after a vociferous lobbying campaign from charities and family groups who said that many families earning just above £42,475 needed the cash.

David Cameron was also unhappy about the original plan, fearing that it would lose the Conservative support among natural Tory voters.

Under the revised plans, the benefit will be gradually withdrawn when someone in the household has an income of more than £50,000, losing 1 per cent of the allowance for every £100 earned above that level until it tails off at £60,000.

It means that 750,000 families will keep some or all of their child benefit.

However, the anomaly will remain which penalises families in which one parent earns over £60,000 and the other stays at home to care for the children.

Under the revised plans, two parents earning up to £50,000 each will still qualify for the entire benefit, while one in which the husband earns £50,100 will start to lose out.

Child benefit is currently worth £20.30 a week for the first child and £13.40 each for any more, regardless of the parents’ income.

For a family in which one person brings in £60,000 and the other looks after their three children, the loss of income will be £2,449.20 a year.

“I can today confirm that instead of withdrawing child benefit all at once when people earn more than the higher rate threshold, the benefit will only be withdrawn when someone in the household has an income of more than £50,000,” Mr Osborne told MPs.

“We can afford to implement the child benefit policy in this way because instead of extending the full benefit of this Budget’s increase in the personal allowance to all higher rate taxpayers, as we did last year, we will pass on a quarter of the benefit to higher rate taxpayers, and spend the rest on helping families with children towards the bottom of the higher rate band.”

WELFARE - Jill Sherman

The Chancellor’s plan to save another £10 billion on welfare spending will infuriate charities representing the most vulnerable groups.

Mr Osborne made clear that unless there is a further assault on the £200 billion plus welfare bill, departments will face much deeper cuts than those they are now experiencing.

Over £18 billion is already to be cut from benefit payments by the end of this Parliament, which has hit the long term sick, the disabled and those in social housing. But the Chancellor is now seeking another £10 billion on top of that by 2016-17.

Most reforms of disability, sickness and housing benefits have already been announced, releasing substantial savings. Iain Duncan Smith, the Work and Pensions Secretary, will have either to hit the same groups twice or hunt for another set of claimants to penalise.

Whitehall sources said that no definite plans had been made on whether to protect NHS spending or overseas aid in the next spending review which starts in 2015-16.

But the higher than expected rise in welfare spending over the next few years - due to an increasing number of sick and elderly people - would have to be curbed.

The Budget book figures show that departments had their budgets cut on average by 2.3 per cent between 2011-12 and 2014-15 when £83 billion is being cut from public spending. But unless benefit payments are cut substantially they will face cuts nearly double that size in the two years to 2016-17.

Last autumn the Chancellor announced £15 billion of spending cuts but did not spell out where these would fall. Today Mr Osborne has shown the stark choice between harsher cuts to hospitals, schools and police and taking more from the poor.

DEFENCE - Tom Coghlan

The Chancellor has found considerable slack in the money set aside to cover operations in Afghanistan. He expects that between now and the end of combat operations at the end of 2014, a total of £2.4 billion will not be required. The saving of some £800 million a year is an approximate 22 per cent reduction in the £3.8 billion for each of the next two years and £3.5 billion in 2014 budgeted under the 2010 Strategic Defence and Security Review (SDSR).

Soldiers serving in Afghanistan and on other operational postings will receive a perk worth over several hundred pounds as their council tax relief is doubled so that they will receive 100 per cent relief on the average council tax bill.

The Chancellor has also promised that £100 million will be spent on improving the much maligned state of military housing, though on its own that is unlikely solve a chronic problem.

“The drop in spending in Afghanistan reflects a more moderate tempo of operations and not spending money on capital items,” said Professor Malcolm Chalmers at the Royal United Services Institute.

“It is not buying so many new bits of kit if they are only to be used for a year or two. The estimates were very cautious at the time of the Strategic Defence and Security Review (in 2010). Partly, I think, the Chancellor likes to have these pockets of money here and there he can use elsewhere if he needs. He’s put some slack in there, now he’s using it.”

TRANSPORT - Philip Pank

Motorists face pain at the pumps after the Chancellor rebuffed intense lobbying to delay a fuel duty increase from August.

Duty will rise by 3 pence per litre from August 1 as previously planned. Once VAT is added, the increase will be 3.6ppl and if the inexorable rise in crude oil prices continues the summer holidays will begin with an increase of at least 4ppl on the forecourt.

Motoring organisations are furious, given record pump prices. The AA predicted a “summer of discontent”. The RAC predicted “more pain” for drivers.

Even green groups were left unimpressed as the Chancellor offered little to boost public transport.

If airlines and airport operators will welcome the Chancellor’s statement that there is a lack of airport capacity in the South East, they are just as furious as the motoring lobby that he has decided to proceed with an above-inflation increase in air passenger duty from next month.

Whether you fly or drive away on holiday this summer, you will be paying more tax.

As The Times predicted yesterday, Mr Osborne announced that the Government has delayed publication of its embryonic aviation policy. Justine Greening, Transport Seretary, will set out her thinking “later in the summer”, he said.

Aides see this as a way of offering political cover to the Mayor of London, Boris Johnson, who has championed construction of a new hub airport in the Thames Estuary but is wary of its impact on voters ahead of mayoral elections on May 3.

ALCOHOL, TOBACCO AND GAMBLING - Dominic Walsh

Britons who seek solace from the economic gloom in a pint and a cigarette may be forced to think twice after the Chancellor upped the ante on the sin taxes.

George Osborne said he would be making no changes to the so-called “duty escalator” on alcohol, under which duty rises annually at 2 per cent above inflation.

Smokers were hit even harder, as he announced that duty on all tobacco products would rise by 5 per cent above inflation — or 37p on a packet of cigarettes — from 6pm tonight.

“Smoking remains the biggest cause of preventable illness and premature death in the UK,” he said. “There is clear evidence that increasing the cost of tobacco encourages smokers to quit and discourages young people from taking it up.”

The Government has recently indicated that it will adopt a minimum pricing strategy to curb alcohol abuse and the Chancellor said it would shortly be publishing its proposals.

Changes were also announced on the taxation of gambling, with the introduction of a new VAT regime for gaming machines. While the standard rate will be 20 per cent, there will be a lower rate for low stakes and prizes machines equivalent to 5 per cent of net takings.

Mr Osborne said that the changes were a response to the recent swath of appeals by operators, including Rank Group, that have forced the Treasury to repay hundreds of millions of pounds in overpaid VAT.

He also confirmed plans to impose a new tax regime on internet gambling operators to draw in the 90 per cent of bets placed with operators based overseas.

He said that the current regime, which levies taxes only on operators based in Britain, was encouraging companies to move offshore, which was “clearly not fair and not a sensible way to support jobs in Britain”.

A new regime would be introduced based on “place of consumption: where the customer is based, not the company”.

PROPERTY - Deirdre Hipwell

The Chancellor has cracked down on the super-rich who avoid paying stamp duty land tax when buying luxury houses.

From midnight, any buyer of a £2 million home anywhere in the UK will have to pay 7 per cent stamp duty, up from 5 per cent. This means that a buyer of a £2 million home will pay £140,000 stamp duty compared to £100,000 while the purchaser of a £50 million home will pay £3.5 million, up from £2.5 million.

More controversially, George Osborne has also introduced an enormous increase in stamp duty to 15 per cent on any home of £2 million or more that is bought in a corporate company structure.

He said that this would stop abuses by people who have avoided or greatly reduced their stamp duty obligation by buying shares in the company that owns the property, rather than the physical property directly. Buying a home in such a manner in the past has allowed purchasers to pay either no stamp duty if the company was registered offshore or just 0.5 per cent if a UK registered company.

Under the new regime a purchase of a £2 million home, bought in a “corporate envelope”, will pay £300,000 at the higher 15 per cent rate instead of £140,000 at the 7 per cent rate.

In another move, which could be seen as either a mansion tax by the back door or a “secrecy charge”, Mr Osborne has said that the Government will consult on introducing a “large annual charge” on any prime homes already held in overseas and UK corporate vehicles.

It also plans to ensure that capital gains tax is also paid when any homes held in these corporate offshore vehicles are sold. Britain is one of only a few countries in the world where foreigners owning properties in offshore vehicles are not charged capital gains tax when the properties are sold.

Mr Osborne said that the changes and measures were necessary as evading tax or using aggressive tax avoidance schemes was “morally repugnant”. He said: “If you are buying a property for residential use we will expect stamp duty to be paid.”

Knight Frank said yesterday that sales of houses worth more than £5 million increased 98 per cent in the first 11 weeks of this year with transactions totalling £723m, compared with £365m during the same period in 2011.

VAT CHANGES - Marcus Leroux

The rotisserie chicken was a surprise loser from the Budget today as the Chancellor imposed VAT on sales of hot food from supermarkets.

As part of a wider move to address “loopholes and anomalies” in sales taxes, supermarkets’ hot food bars will no longer be exempt from VAT. The ruling is also expected to hit high street bakers, such as Greggs, and will include items such pies and sausage rolls.

George Osborne said that the move would level the playing field between conventional takeaways, which are charged VAT at the full rate of 20 per cent, and outlets which over time have blurred the lines.

The other steps include extending VAT to self-storage services and “chair rental” charged by salon owners to self-employed hairdressers. Static caravans are also set to attract the full rate of VAT. The alteration of listed buildings will also be taxed at the standard 20 per cent rate.

In a related move, the Government is also proposing that food sold to be eaten in “shared eating premises such as in motorway service stations” or shopping centre food courts will attract VAT.

The Treasury is also hoping to charge VAT on sports nutrition drinks, bringing them into line with energy drinks, after a spate of court cases from drinks makers.

The move on hot takeaway food will raise £50 million for the Exchequer this year, rising to £120 million by 2016, according to HM Revenue & Customs estimates.

Overall, the measures to close loopholes will add £1.35 billion to public coffers over the next five years.

The trade body for small shopkeepers said that the decision would raise prices for hard-up consumers.

James Lowman, chief executive of the Association of Convenience Stores, said: “We urge the minister to think about bringing more products out of VAT to make them cheaper for consumers, rather than taxing more goods on retailers’ shelves. We will work with Government to the detail of these proposals.”

A spokesman for the British Retail Consortium said: “As the Government considers the treatment of hot food we will be communicating the views of supermarkets and quick service restaurants to its review.”

TAX AVOIDANCE - Alex Spence

The Chancellor has made it easier for the taxman to stop abusive schemes marketed by accountants and tax advisers to help wealthy clients avoid paying tax.

George Osborne said that the Government will bring in a catch-all anti-avoidance rule aimed at stopping high-rate taxpayers using contrived schemes that exploit specific loopholes in existing tax legislation.

The Chancellor said that the Government had accepted a recommendation in a recent report by Graham Aaronson, QC, a leading tax barrister, to introduce a general anti-abuse rule (GAAR) and will begin consulting in the summer with a view to implementing the rule next year.

The prospect of introducing a general rule was floated amid concerns that some top-rate taxpayers, such as celebrities and footballers, are paying as little as 5 per cent of their income in tax by exploiting tax loopholes.

Businesses have expressed caution that GAAR may, if not defined carefully, stop companies taking legitimate steps to limit their taxes, for example when doing takeover deals.

Roopa Aitken, a tax partner at Grant Thornton, said: “The GAAR will give the Government another weapon to attack highly aggressive tax planning. The decision to consult will be welcomed by businesses.

“Evidence from other countries which have a GAAR, such as Australia and Canada, demonstrate how hard it is to have a rule which is clear and practical to implement. Of real concern however is that any uncertainty will curb genuine business transactions.”

TELECOMS AND MEDIA - Nic Fildes

The Budget failed to deliver for the broadband or mobile phone sectors, despite George Osborne’s pledge to “turn Britain into Europe’s technology centre” given the lack of new money for the infrastructure needed to underpin such a transformation.

The Chancellor pulled the old trick of comparing UK broadband speeds to those in the Far East, notably Korea and Singapore, as a sign that Britain has more to do. It is a false comparison given population density in such countries and the plan to light up ten cities with “ultrafast” broadband and better public wi-fi was met with anger by those concerned that the digital divide – the gap between speeds in urban and rural areas – is set to widen.

That £100 million plan was supplemented by £50 million of funds for smaller cities such as Brighton for the next phase of “super-connected cities”. That is a drop in the ocean in terms of telecoms investment and rural internet users could be up in arms once more.

Yet there was good news on the media side as the long-awaited tax credits that have boosted the British film sector were finally extended to the television production, animation and video games sectors. The TV Council immediately envisaged a £1 billion boost to the economy as expensive television production returns to these shores as the likes of Birdsong and Titanic, made overseas, come home.

It is welcome relief for video game makers, who believe that tax credits could return the sector to the glory days of the start of the previous decade, when Britain was one of the world’s most vibrant development communities.