Personal tax and benefit changes
David Phillips
© Institute for Fiscal Studies
What we already knew about
In 2010/11:
• 50% income tax above £150,000, and personal allowance
phased out over £100,000.
• £20 increase above indexation in child element of Child Tax
Credit
• £50 (£100) increase in winter fuel payment to 60+ (80+) being
withdrawn
In 2011/12:
• Income tax personal allowance to fall £130 below indexation,
and basic rate limit frozen
• Pension contribution tax relief to be reduced from 50% to 20%
between £150,000 and £180,000
• 0.5% increase in NI rates paid by employees, employers and the
self employed, and £600 increase in primary threshold
© Institute for Fiscal Studies
New announcements: benefits and tax credits
In 2010/11:
• 1.5% real increase in child benefit, disability benefits and the
working tax credit.
• Start roll-out of free school meals for primary school children
whose parents work and earn less than £16,190 (England only)
In 2011/12:
• Same benefit rates to be cut by 1.5% in real terms
• Complete roll-out of free school meals
• Working Tax Credit hours threshold of 16 hours for age 65+
© Institute for Fiscal Studies
New announcements: taxes
In 2010/11:
• 50p per month tax on landline phones
In 2011/12:
• Further 0.5% increase in employee, employer and self-employed
rates of NI
• Further increase of £570 in NI primary threshold
– Those earning up to about £20,000 gain if exclude impact of
employer NI increase (about £14,000 if wages are cut in response to
employer NI)
In 2012/13:
• Higher-rate income tax threshold frozen in cash terms (forecast
3.25% real cut)
© Institute for Fiscal Studies
Changes to combined income tax and NI
schedule
Year
Budget
2007
intention
£0
–
£5.7k
0%
£5.7k
–
£6.4k
£6.4k
–
£6.9k
£6.9k
–
£44.3k
£44.3k
–
£100k
£100k
–£113k
38.8%
Note: assumes contracted in to second state pension, only one job,
constant earnings throughout the year
© Institute for Fiscal Studies
£113k
–
£150k
47.7%
Over
£150k
Changes to combined income tax and NI
schedule
Year
£0
–
£5.7k
Budget
2007
intention
0%
April 2009
0%
£5.7k
–
£6.4k
£6.4k
–
£6.9k
£6.9k
–
£43.9k
£43.9k
–
£100k
£100k
–£113k
38.8%
21.1%
38.8%
Note: assumes contracted in to second state pension, only one job,
constant earnings throughout the year
© Institute for Fiscal Studies
£113k
–
£150k
47.7%
47.7%
Over
£150k
Changes to combined income tax and NI
schedule
Year
£0
–
£5.7k
£5.7k
–
£6.4k
£6.4k
–
£6.9k
£6.9k
–
£43.9k
Budget
2007
intention
0%
April 2009
0%
21.1%
38.8%
April 2010
0%
21.1%
38.8%
£43.9k
–
£100k
£100k
–£113k
38.8%
Over
£150k
47.7%
47.7%
47.7%
Note: assumes contracted in to second state pension, only one job,
constant earnings throughout the year
© Institute for Fiscal Studies
£113k
–
£150k
65.4%
47.7% 56.6%
Changes to combined income tax and NI
schedule
Year
£0
–
£5.7k
£5.7k
–
£6.3k
£6.3k
–
£6.9k
£6.9k
–
£42.6k
£42.6k
–
£100k
£100k
–£113k
38.8%
£113k
–
£150k
Over
£150k
Budget
2007
intention
0%
47.7%
April 2009
0%
21.1%
38.8%
April 2010
0%
21.1%
38.8%
47.7%
65.4%
47.7%
56.6%
April 2011
before PBR
0%
11.7%
39.5%
48.4%
66.0%
48.4%
57.2%
47.7%
Note: assumes contracted in to second state pension, only one job,
constant earnings throughout the year
© Institute for Fiscal Studies
Changes to combined income tax and NI
schedule
Year
£0
–
£5.7k
£5.7k
–
£6.3k
£6.3k
–
£6.9k
£6.9k
–
£42.6k
£42.6k
–
£100k
£100k
–£113k
38.8%
£113k
–
£150k
Over
£150k
Budget
2007
intention
0%
April 2009
0%
21.1%
38.8%
April 2010
0%
21.1%
38.8%
47.7%
65.4%
47.7%
56.6%
April 2011
before PBR
0%
11.7%
39.5%
48.4%
66.0%
48.4%
57.2%
April 2011
post PBR
0%
12.1%
49.0%
66.6%
49.0%
57.8%
29.7%
47.7%
40.2%
47.7%
Note: assumes contracted in to second state pension, only one job,
constant earnings throughout the year
© Institute for Fiscal Studies
Distributional effects of reforms for April 2010
Change in Net Household Income
1.00%
0.00%
-1.00%
Income Decile Group
-2.00%
-3.00%
-4.00%
-5.00%
-6.00%
Pre-Announced
© Institute for Fiscal Studies
New Announcements
Total
Distributional effects of reforms for April 2010
Change in Net Household Income
1.00%
0.00%
-1.00%
Income Decile Group
-2.00%
-3.00%
-4.00%
-5.00%
-6.00%
Total
© Institute for Fiscal Studies
Change in Net Househould Income
Distributional effects of reforms for April 2011
1.00%
0.00%
-1.00%
Income Decile Group
-2.00%
-3.00%
-4.00%
-5.00%
-6.00%
Pre-Announced
© Institute for Fiscal Studies
New Announcements
Total 2011
Change in Net Househould Income
Distributional effects of reforms for April 2011
1.00%
0.00%
-1.00%
-2.00%
Income Decile Group
-3.00%
-4.00%
-5.00%
-6.00%
Total 2011
© Institute for Fiscal Studies
Change in Net Househould Income
Distributional effects of reforms for April 2012
1.00%
0.00%
-1.00%
Income Decile Group
-2.00%
-3.00%
-4.00%
-5.00%
-6.00%
Total 2011
© Institute for Fiscal Studies
April 2012 Reforms
Total 2012
Change in Net Househould Income
Distributional effects of reforms for April 2012
1.00%
0.00%
-1.00%
Income Decile Group
-2.00%
-3.00%
-4.00%
-5.00%
-6.00%
1
2
3
4
5
6
Total 2012
© Institute for Fiscal Studies
7
8
9
10
Distributional effects by household type
MBU, k
MBU,nk
Couple Pensioner
Single Pensioner
TE Coup, K
TE Coup, NK
SE Coup, K
SE Coup, NK
NE Coup, K
NE Coup, NK
LP, emp
LP, unemp
single, emp
single, unemp
-5.0%
-4.0%
-3.0%
-2.0%
-1.0%
Change in Net Household Income
Total change by 2012
© Institute for Fiscal Studies
0.0%
1.0%
K=with children
NK = no children
New announcements: other measures
• Slower roll-out of auto-enrolment in personal pension accounts
– Raises £0.1 billion in 2012/13, £0.7 billion in 2013/14 and £1.6
billion in 2014/15
• Curbs to public sector remuneration to affect earnings and
pensions of public sector workers
– 1% cap on pay settlements in 2011/12 and 2012/13 (expected to
amount to a cut of £3.4 billion in annual pay bill by 2012/13).
– £1 billion cut in annual contributions to public sector pensions by
2012.