Let them get taxed: UK controversial budget hits pensions, cars and lunches

The UK Treasury plans to “earn the way out” of the economic troubles with the new tax rules included in the 2012 Budget. The middle-class and pensioners are the first pay the price for economic recovery.

­With new tax regulations the UK Government plans to achieve 2% economy growth in 2013 and to cut borrowing to 126 billion from a forecast 127 billion. 

The Treasury announced, higher income tax allowances for people over-65 that were introduced in 1925 by then Chancellor Winston Churchill will be frozen or cut. It means British pensioners with an income over £10,500 a year will pay standard income tax from 2013. The so called ‘granny tax’ will cost 4.4 million pensioners about 3.5 billion pounds over the next five years with every retiree paying as much as £259 more income tax than they otherwise would have.

The new rules are introduced to simplify the tax system, according to the Government. But pensioners’ organizations opposed the decision pointing out things will get worse for 65-overs who already faced interest rates on their savings cut three years ago.

Also more than 600,000 workers will be considered higher rate taxpayers from 2013 as the threshold will be cut to £41,450 a year from current £42,475 a year.

Meanwhile the budget plans weren’t bad news for everyone as the top rate of income tax will be cut from 50 pence in the pound to 45 pence next year. It means rich people earning over 150,000 pounds a year will save about 10,000 pounds. The Chancellor explained, the move will cost only 100 million pounds and would help to get 2.9 billion pounds of taxes from people who have been avoiding tax when it was 50 pence.

Critics have already called the Budget pro-rich with top earners benefiting from lower taxes and the middle-class struggling from rising prices and taxes.

The Chancellor George Osborne announced that fixed rate fuel duty will rise by 3.02 pence a litre to 60.97 pence with VAT adding another 60 pence to a price per litre. Petrol price has already hit a record £1.55 or $2.46 per litre.

“It is a very convenient tax for government which is very difficult to avoid. One of the impacts is on labour mobility. On how easy it is for people to travel to work or to get a new one that might involve some travelling distance from their home?” says Dr Richard Wellings from Institute of Economic Affairs.

Even a take away lunch will be more costly as the Treasury announced 20% VAT for all hot take away food bought from bakeries and supermarkets. The decision will raise an extra £125 million per year.

Another controversial thing was issuing 100-year bonds that allow borrowing in order to return them in 100 years or even later. It makes further generations pay for their grandparents’ debts.

Laura Smith has talked to small businessmen and people in the street about how the new budget will affect their everyday life.