The Budget at a Glance: Will you be better off?

New measures announced On Wednesday by Chancellor Alistair Darling as part of the 2009 Budget Report will see high earners worse off as the Government attempts to redistribute wealth, but does little to stimulate the majority of consumers.

Darling admitted that the recession has been much steeper than originally forecast, and announced borrowing to the tune of £175 billion to guide the UK economy through the downturn until growth reappears at the end of 2009.  As a result, measures have been announced to make up the deficit in the budget, cutting public spending and raising taxes for higher earners.

Here we take a look at whether or not you will be better off under the new plans.

• Household finances – Largely unchanged

The budget has focused mainly on redistributing wealth, by increasing taxes for higher earners. This will leave the majority of household finances largely unchanged.

- VAT has remained unchanged, and will return to 17.5% in December.
- From 2010 there will be a £20 increase in the child tax credit
- Trust fund vouchers for new babies will increased to £350.
- State redundancy pay to rise from £350 – £380 per week.
- Winter fuel allowances will continue for a further 12 months, despite falling energy prices.

• Homeowners – Better off

The Homeowners Mortgage Support scheme has been extended for 6 months to help homeowners experiencing income reduction due to job losses.

The Homeowners Mortgage Support scheme is designed for homeowners who are not eligible to receive income support, to enable them to reduce their mortgage payments without penalty for a period of up to 2 years.  Under the scheme, homeowners will be able to reduce their monthly payments to 30% of the interest they owe. Lenders will be protected against default by a government guarantee.

In order to apply for the government help, homeowners must:

- Have an outstanding mortgage of up to £400,000 and less than £16,000 in savings.
- Own no more than one home
- Be borrowing from a lender who has signed up for the scheme
- Have no income protection insurance
- Not qualify for jobseekers allowance or income support
- Be an owner-occupier
- Have purchased their home before December 2008

• Homebuyers – Better off

A range of measures have been announced to help people get onto property ladder in a bid to stimulate the mortgage market.

- Stamp duty suspension extended

The Chancellor has extended the suspension of Stamp Duty of properties costing £175,000 or less until the end of 2009. This will continue to benefit first-time-buyers, who are the most likely group to purchase homes for under £175,000, by cutting the cost getting on the housing ladder.

- Shared equity mortgage scheme

New low cost home ownership plans announced, with £80 million earmarked for the shared equity mortgage scheme.

- Banks encouraged to start lending to homebuyers again

The Treasury has also announced a plan to underwrite £50 billion mortgage-backed securities, to encourage banks to start lending again. This is designed to stimulate the mortgage market, and should make finding a mortgage easier as the government will help banks by shouldering the risk of lending.

• Savers – Better off

The government is getting behind savers to encourage them after months of seeing their returns go down as interest rates have been slashed. Help comes in the form of increased tax allowances on ISAs.  The tax-free allowance has been raised from £3,600 to £10,200 allowing savers to get more from tax-free savings; of this new threshold, £5,100 will be able to be saved in cash.

• Pensioners – Better off

Pensioners, some of the worst affected by the credit crunch as they see their income from savings plummet due to falling interest rates will be better off.

- Those grandparents who carry out caring responsibilities for their grandchildren will receive pension   assistance via national insurance top-ups.
- Pensioner benefits, usually linked to inflation, will not fall due to the current deflation.
- Pensioners will receive their planned winter allowance next year.
- As of November, the threshold of savings held before benefits are lost will rise to £10,000.
- Pensioners to be the first to benefit from the new, £10,200 tax-free threshold on ISAs.

• Higher earners – Worse off

High earners have been targeted as a way to find the huge deficit in the budget.

- A new top rate of tax will come into play from 2010 for those earning over £150,000. This top rate of tax will be 50p in the pound.
- Those earning more than £150,000 will have their tax relief on pension contributions cut.
- Those earning more than £100,000 a year will have their personal tax allowances abolished from next April.