economy personal finance: budget 2010 child tax credits osborne
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Gideon’s just announced his budget, and I’ve reflected upon it. This one was dreaded by lots of people, and having digested it, I am surprised. Although I am a higher tax payer, I can avoid that part of it quite easily, by continuing to save AVCs to my pension, such that I get a tax-free lump sum from that. Having paid off my mortgage and living simply, I don’t need anywhere near half my salary, but I do need early retirement. Match made in heaven. So while Gideon thinks I am on the right hand side of this chart,
I can swing myself to slot 4-5 without breaking a sweat, and indeed without changing anything. So thanks, buddy, for the extra £1k personal allowance, much appreciated!
Note that the higher tax threshold is being brought down by £1500 when the personal allowance rises next year, so people who are currently just below it need to think about how to use salary sacrifice or other wheezes from April if they don’t want to suck it up. I’ve never liked working nearly half for the Government, I think that’s downright rude, and have used all the HMRC approved scams to dodge that. I’m writing this on a laptop purchased under the now deceased Home Computing Initiative, taken extra holiday paid with salary sacrifice, and bought employee shares tax-free.
Of course, to take advantage of these you have to live below your means… If you can’t do that on an income that is in the top 10% of UK incomes and there isn’t an unusual essential cost in your life then you really ought to take a long hard look at your personal finances. Don’t be suckered by the hype in the Torygraph and the right-wing press – under no reasonable definition of the term can higher-rate taxpayers be defined as middle class by income.
One subtle stiffing that I may take from the budget is outlined in this document, is that the government is well aware of my sort, those at the end of their careers. We tend to have a large disposable income due to paid off mortgages, and often empty nests. We have a healthy interest in getting the taxman’s sweaty mitts off it, pumping money into our pensions with the hope of getting 25% of our total pension pot out tax-free in a few years, which obviously beats 42% tax & NI. The headline is that there would be a lowered annual limit for pension contributions of 30-45k which could be an issue for me at the lower end.
Simple living means I won’t be hit too hard by the 2.5% VAT hike. I won’t be buying items of male jewellery like an iPad, though I will get hit on fuel, insurance tax and the like. I will ask Quicken to tell me how much I spent on stuff last year, and take 2.5% to see if it is more than £6800, which would be the breakeven point for the tax break. I don’t think it was that much last year. Benefit cuts? I don’t get no stinkin’ benefits, so no worries on that score. Half of nowt is still nothing!
However, seeing how little this affects me makes me absolutely furious. Not with Gideon, but with Gordon Brown! Why? Because of this:
Observe the fact that we were running a loss ever since 2002, even while the economy was steaming ahead in the years running up to 2007. What’s was he on? Just as I am saving now, when I am in the peak of my earning power, for leaner times in future when I will be earning less, so should a Government be putting money aside in booms, so that it has some to counter recessions with. At least it shouldn’t be ramping up the national debt!
Not only that, let’s hear which are the constituencies of the disadvantaged. Oh dear, child tax credits dropped for households > 40k? FFS, why was I subsidising my colleagues’ children?
Housing benefit for people with a four bedroomed house? I’ve never lived in a four bedroomed house, why am I paying tax so others can? (that’s 1.102 of this)
and restricting Housing Benefit for working age claimants in the social rented sector who are occupying a larger property than their household size warrants.
Now I know that it is in the ConDem’s interest to stitch Labour’s record up as much as possible, so not all may be as it seems. And Gideon’s instincts in the teeth of the credit crunch scare me. Here is not a guy who can hold his head in a crisis, like Alistair Darling was.
If Gideon were the pilot of an airliner that loses all four engines in a bird strike, there’s no Chesley Sullenberger calm in the face of adversity. Osborne’s first instinct was to shove the stick forward and enter a nosedive. But now he has the benefit of a little bit of time to assimilate things, and it appears he has the cojones to carry it through.
So if these moves really can make as much saving as he claims, then Britain was carrying an awful lot of passengers.
One area where I feel Osborne failed dismally is in not tackling or even acknowledging the spectre of youth unemployment. According to the Daily Mail, 1 in 10 18 year olds are neither in work nor in employment. The problem, fundamentally, is that there are too many people in the world, and too many of those are prepared to work for less than the UK minimum wage. This means work that can be relocated will be – to outside the UK. This unfortunately also includes a lot of white collar knowledge work too, which is often eminently relocatable using the Internet.
I grew up in a world were many things were made in the UK – things like TVs and cars used to be made here. They were unreliable as hell, some of this was the technology of the time, some of it was due to poor industrial practices from management and unions alike. But there was unskilled work. Read something like Colin Wilson’s The Outsider which is set in the 1950s and his description of the ease at which jobs could be got and turned over sounds amazing to me and would be positively alien to an 18-year old today. Many of these “NEETS” aren’t unemployed because they are feckless, they are unemployed because capitalism has failed to create useful roles for them in society in a globalised economy.
Somewhere we need to make a call – do we concentrate our resources on the people with greatest potential, or do we seek equality that we can’t afford. Tony Blair’s idea of sending 50% of 18 year olds to university sounded great, until we realise that to do so means we have to cripple them with debt at the worst point, right at the outset of their careers.
We need to find an answer to this, I don’t know if it is in Osborne’s power, but we need to have started yesterday, because unemployment early in one’s career hampers those early stages where much of the direction and confidence is gained. Conversely, the blight of youth unemployment leads to stories like this, as people with delicate and growing self-images at the beginning of their adult careers get shattered by the tragedy of rejections because of too many people chasing too few places.
I don’t know the answers, but this will be a shocking waste of human potential and a source of misery for more than the next five years if it is ignored.