The big financial changes planned for 2012
- Rail fares rises will be capped at 1% plus inflation retail prices index (RPI), which currently stands at 5.2%. This is lower than the initial plans to cap fare rises at 3% plus RPI, which Chancellor George Osborne called “too much” in his Autumn Statement, at the end of last year. However, commuters are still likely to feel the effects.
- The 3p fuel duty increase, originally scheduled for January 2012, has been postponed until August.
- The state pension will increase by £5.30 to £107.45 a week from the new tax year, beginning on 6 April. The full couple’s allowance will also go up, increasing by £8.50 to £171.85. Pension credit will increase by £5.35 a week.
- In its draft Finance Bill, the government announced that savers over the age of 60 will be able to take any pension pots under £2,000 as a lump sum from the start of the new tax year too.
- The government’s auto-enrol pension programme, called National Employment Savings Trust (NEST), also comes into effect from October 2012. Initially, only large companies will use the opt-out pension scheme, with smaller companies and their employees not having to address NEST until 2014.
- Stamp-duty relief for first-time buyers ends on 24 March. Thereafter, new homeowners will have to pay stamp duty on properties above £125,000 instead of the current £250,000 threshold.
- A new mortgage indemnity scheme, running from spring this year, aims to help 100,000 homebuyers purchase homes with just 5% deposits. The scheme only applies to new builds. By underwriting part of the risk itself, the government hopes to encourage more house purchase activity in 2012. Although the scheme doesn’t specifi cally apply to first-time buyers, it’s likely to be most popular with this section of the market.
- The government has committed nearly £1 billion towards addressing the youth unemployment issue through work placements, financial subsidies for employers and apprenticeships.
- After a two-year pay freeze, public sector workers will see their pay increase by 1% – but for many this won’t kick in until 2013. This increase is capped and has been criticised for being so low compared with the current rate of inflation – as well as falling behind the national average salary increase of 1.7%.
- Most working-age and disability benefits will be uprated by 5.2% – in line with RPI in April. Despite this sounding generous, other less-broadcasted changes include the scrapping of the planned extra £110 on top of inflation increases to the child tax credit.
- The government has also pledged to double the number of childcare places for the most deprived two-year-olds to 260,000 by 2014/15.
A hugely unpopular tax paid on property and share purchases. Stamp duty on property is levied at 1% for purchases over £125,000 (£250,000 for first-time buyers) which then moves up at a tiered rate. For property between £125k and £250k you pay 1%, then 3% from £250k up to £500k and then 4% from £500k to £1m and then 5% for properties over £1m. But unlike income tax, which is “tiered” and different rates kick in at different levels, stamp duty is a “slab” tax where you pay the rate on the whole purchase price of the property. On shares, stamp duty is charged at a flat rate of 0.5% on all share purchases. Figures correct as of May 2011.
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).
Child tax credit
A scheme started in 2003 that sought to replace a raft of other tax credits and benefits, the payout depends on the number of dependant children in a family, and its level of income. The amount of credit is reduced as income increases. It is payable to the main carer of a child, usually the mother, and is available whether or not the recipient is working.