The new government has revealed measures designed to reduce the national deficit and assist economic recovery. It promises an emergency Budget within 50 days. Further details will be announced in the Queen’s speech on 25 May.
The measures announced so far combine revenue raising measures with redistributive moves, designed to ‘help lower and middle earners’.
Universal benefits cut
Child Trust Fund and tax credits have been targeted for reductions. At the moment, all children get a £250 Child Trust Fund voucher at birth and a further £250 from the state on their seventh birthday. The new government has pledged to reduce CTF spending and the amount spent on tax credits.
Tax-free allowance increased
Personal allowance, which was frozen at £6,475 for 2010-11 by the last government, will be increased substantially from April 2011, ‘in order to help lower and middle income earners’. The government’s longer term policy objective is to further increase the personal allowance to £10,000. It intends to make ‘further real terms steps each year’ towards this.
Capital gains tax to rise
Capital gains tax (CGT) is currently levied at a flat rate of 18%. This is in marked contrast to income tax, which is banded at 20%, 40% and 50%. The new government intends to raise the tax on non-business capital gains to ‘rates similar or close to those applied to income’. There will be ‘generous exemptions’ for entrepreneurial business activities.
Guaranteed State Pension increases
The earnings link for the basic state pension will be restored from April 2011. There will be a ‘triple guarantee’ that pensions will be raised by the higher of earnings, prices or 2.5% each year.
State retirement age to rise
State pension age for men and women was due to rise to 66 in 2026. The new government intends to review this date, although it has said that it will not be sooner than 2016 for men and 2020 for women.
Compulsory annuitisation to end
Those with a defined contribution (DC) pension are currently required to purchase an annuity by the time they are 75. The new government intends to end this obligation, allowing savers to leave their pension funds invested beyond 75.
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