Boost for pensioners
Pensioners are set to receive a financial boost as early as January 2009 after chancellor Alistair Darling pledged to pump up benefits and the state pension.
The basic state pension for single pensioners will rise from £90.70 a week to £95.25 next April, but all pensioners will be given a one-off payment of £60 in the new year. This is equivalent to bringing forward the increase to January. Couples will receive a £120 payment.
It is thought around 12.5 million pensioners will benefit from the payments, which are in addition to the £10 Christmas bonus that pensioners already receive.
For women whose entitlement is based on their husbands’ pension, the full couples’ rate will increase to £152.30.
“These are exceptional times and these are exceptional measures,” Darling said as he unveiled the pre-Budget report. “I don’t want people to have to wait for this extra money. I want them to get it as quickly as possible. This will benefit them and benefit the economy.”
Darling added that he was making the increase in line with the highest rate of rising inflation this year, but as inflation has now started to fall, pensioners will be even better off.
Indeed, the government’s projection for RPI (retail prices index) inflation is actually negative for September 2009. But as the basic state pension is indexed to RPI inflation or 2.5% (whichever is greater), pensioners will still receive a 2.5% enhancement to their pension packet even if inflation falls below that level or goes negative.
People on the pension credit also received some good news in the pre-Budget report. This will rise from £124 to £130 a week for single people, and from £189 to £198.45 for couples.
However, the National Pensioners Convention (NPC) described the measures as “peanuts” to pensioners and said the measures did not go “far enough, fast enough” to prevent a recession in retirement.
Joe Harris, general secretary of the NPC, says: “Darling’s proposed rise in the state pension means that millions of people will get an increase next year of just £4.55 a week, and no real extra help with their growing fuel bills. While VAT has been reduced on other goods – it won’t come off of fuel bills – which is where pensioners are feeling real pressure most.”
Invented by a Frenchman in 1954 and ironically introduced in the UK on 1 April 1973, VAT is an indirect tax levied on the value added in the production of goods and services, from primary production to final consumption and is paid by the buyer. Its levying is complex, with a number of exemptions and exclusions. For example, in the UK, VAT is payable on chocolate-covered biscuits, but not on chocolate-covered cakes and the non-VAT status of McVitie’s Jaffa Cakes was challenged in a UK court case to determine whether Jaffa Cake was a cake or a biscuit. The judge ruled that the Jaffa Cake is a cake, McVitie’s won the case and VAT is not paid on Jaffa Cakes in the UK.
Replaced as the official measure of inflation by the consumer prices index (CPI) in December 2003. Both the Retail Price Index and CPI are attempts to estimate inflation in the UK, but they come up with different values because there are slight differences in what goods and services they cover, and how they are calculated. Unlike the CPI, the RPI includes a measure of housing costs, such as mortgage interest payments, council tax, house depreciation and buildings insurance, so changes in the interest rates affect the RPI. If interest rates are cut, it will reduce mortgage interest payments, so the RPI will fall but not the CPI. The RPI is sometimes referred to as the “headline” rate of inflation and the CPI as the “underlying” rate.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).