Ask The TaxWise Expert

Peninsula Team

November 05 2010

Last Wednesday George Osbornes spending review revealed what the Coalition Government will cut to tackle the budget deficit and shape the economic landscape of the UK for the next five years. I have been left to wonder should he cut as deep and as quickly as his announcements appear to suggest and is he cutting the right things? Only time will tell as to whether the right choices have been made against the backdrop of an ever changing global economic climate. For the time being here is an overview of the key changes announced by the review. Welfare budget faces £18bn cuts by 2014/15 - George Osborne cut deep into the Welfare and Benefits budget with more cuts on the way, to save £7.5billion on top of the £11 billion already announced in the June budget. The Chancellor imposed a one-year time limit on sickness benefit claims, banned young single people from demanding a flat to themselves at the taxpayers expense and axed mobility allowances for people in care homes. Complicated means-tested handouts and tax credits will eventually be replaced by a Universal Credit aimed at cutting fraud and simplifying the system. Some £2 billion is being set aside to fund the change to the system, in what is seen as a victory for Work and Pensions Secretary Iain Duncan Smith. As well as these new announcements, Mr Osborne has already annouced he is removing child benefit from 1.2 million better-off families to save £1 billion, reducing housing benefit claims, saving £1.8billion, and capping household claims at about £26,000 a year. The state pension age will be increased to 66 for both men and women by 2020 – four years earlier than previously planned. Chancellor George Osborne said public sector workers would be asked to contribute more towards the cost of their pension schemes, and the gold-plated final salary pension scheme enjoyed by MPs will be closed. The move would save over £5billion a year. Department of Education saving of 3.4% by 2014/15 - Universities felt the full force of the spending cuts today as it was announced their teaching budgets would be slashed by £2.9 billion. The move led to warnings that institutions across the country could be forced to close. Meanwile, schools were given the welcome news that their budget will increase from from £35 billion to £39 billion over the next four years - a 0.1%increase in real terms. But the Educational Maintenance Allowance (EMA) – a means tested benefit provided for disadvantaged 16 to 19-year-olds to encourage them to continue their schooling - has been scrapped. Home Office funding cut by 23% - Funding for the Police will be cut by a fifth in real terms over the next four years which sparked fears amongst commetators that the number of police officers will need to be cut across Britain. Chancellor George Osborne told MP’s Police spending will fall by 4% each year of the spending settlement, with the aim of avoiding any reduction in the visibility and availability of police on the streets. Taxation – Although H M Revenue & Customs (HMRC) budget was reduced in real terms George Osborne ring fenced £900 million to be used for targeting tax evasion and avoidance. HMRC have been targeted with an additional £7 billion of tax reciepts form the above sources over the next five years. Overseas Aid – was perhaps controversially one of the few areas to survive unscathed in the spending review. The Department for International Developments budget will rise to £11.5 billion over the next four years - reaching 0.7%of national income in 2013. Chancellor George Osborne said the boost to the overseas aid budget - a growth in real terms of 37%over four years - will cut deaths from preventable diseases in the developing world. Science – and green technology has taken a hit but was less than expected. The £4.6billion budget is the same in cash terms, and a 9%cut over four years in real terms. Controversially, a green investment bank will be set up but with reduced funding of £1 billion. £200 million will go to developing offshore wind technology and manufacturing, and support the upgrade of ports to support the industry. Trials of carbon capture, and plans for carbon storage equipment on new coal and gas plants will go ahead with a scaled-down budget of £1billion. Rail Commuters - will be hit with increased annual fare increases from 2012. Under the current system, the annual increases in regulated fares, which include season tickets, are capped at 1%above the retail price index (RPI) inflation level. However Chancellor George Osborne annouced that from 2012 the cap will be RPI plus 3% which - if introduced for next January - would have meant season tickets going up almost 8 per cent. Mr Osborne said the rise was needed to pay for new trains and improve passenger conditions. But Mr Osborne said the amount of money for transport projects over the next four years would be greater than for the previous four years. In addition he confirmed that the £16 billion London Crossrail scheme would go ahead and listed a number of other key projects that would escape the axe. These included Manchester to Liverpool rail electrification, widening schemes on the M25, improvements to the M1, M4, M5, M60 and M62 and an upgrading of the A11 in East Anglia. TaxWise is available to help answer any tax queries. Just call the Advice Service on 01455 852555 and one of our specialists will be happy to help.

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