Jeff Salway: Far richer and far poorer under IDS’s new regime

Some were introduced on Monday, most notably the controversial “bedroom tax”, but the biggest changes come into force with the start of the new tax year today.

From a cap on the increase in benefits such as Jobseekers’ Allowance and maternity pay and a reduced higher rate income tax threshold to the so-called “granny tax”, households across Scotland will be affected by a flurry of measures implemented by Westminster.

The changes will pile more pressure on thousands of Scottish families already struggling to stay afloat as wages stagnate and household bills increase.

Not everyone will lose out. The top earners are getting an income tax cut and the increased personal allowance will mean thousands on low incomes will no longer have to pay tax on earnings.

However, the poorest 10 per cent of households will lose an average of £127 as a result of this month’s changes, according to Labour Party analysis of figures from the Institute of Fiscal Studies, whereas the wealthiest 10 per cent will be £1,265 better off.

Neil Whyte, Edinburgh-based tax partner with accountants BDO, said: “The clear winners are those paying tax at the top rate, which will fall from 50 to 45 per cent. At the other end of the income scale, individuals with lower earnings will benefit from the increase in the personal income tax allowance from £8,105 to £9,440.

“Anyone earning between £100,000 and £119,000 a year will actually be hit quite hard as there is a spike in the tax rate at this level due to the personal allowance falling away. Some will lose out as they find themselves drawn into a higher tax band because of so-called ‘fiscal drag’.”

Here we look at the changes being introduced with the new tax year and who they will affect.

HIGHER PERSONAL ALLOWANCES

An increase in the personal allowance – the amount you can earn before paying tax – from £8,105 to £9,440, which takes effect as of today. The government claims the latest increase, on the way to a £10,000 personal allowance that will be introduced next April, will save basic rate taxpayers up to £267.

‘GRANNY TAX’

The freeze in the age-related personal allowance at £10,500 and £10,660 for over 65s and over 75s respectively, in a move dubbed the “granny tax”. The cap and the impact of inflation means around 4.4 million pensioners with incomes above the personal allowance will lose £83 in the 2013-14 tax year, on average, rising to around £500 in the next tax year. The age-related allowance is withdrawn from pensioners with taxable income above £25,400, with those earning above £29,000 getting no added allowance.

WIDER HIGHER RATE TAX BAND

The point at which the higher rate 40 per cent tax band kicks in falls from £42,476 to £41,450 today. Some 400,000 people will be dragged into the higher rate tax bracket, as a result. The number of 40 per cent taxpayers has already leapt by a million to more than four million under the coalition government and is expected to breach the five million level in 2014-15.

TOP TAX RATE CUT

A reduction in the top rate of tax from 50p to 45p will benefit around 267,000 people earning more than £150,000 a year. Some 13,000 people earning more than £1 million will gain by more than £100,000, Revenue & Customs figures suggest.

BENEFIT INCREASES CAPPED

Working age payments including tax credits, income support, Jobseeker’s Allowance and maternity pay will be uprated by no more than 1 per cent a year until at least 2015-16, under changes being phased in from today. More than nine million households will be affected, including some seven million with at least one member in work who will lose an average of £165 a year.

BEDROOM TAX

Social housing tenants are losing 14 per cent of their housing benefit if they are deemed to have a spare bedroom, rising to 25 per cent of their payment if they have two or more spare rooms. More than 100,000 social housing tenants in Scotland are losing up to £52 a month as a result.

DISABILITY LIVING ALLOWANCE (DLA) SCRAPPED

Recipients of the non-means tested DLA will from this month be shifted onto the new personal independence payment (Pip). The care component of the DLA becomes the daily living component, but the mobility component is unchanged. There will be no automatic entitlement to Pip for double amputees or the deaf and the blind. Pip eligibility assessments are run by Atos, the firm that assesses claims for employment and support allowance (previously incapacity benefit). Almost seven in ten of Scots ruled by Atos as fit to work have seen the decision overturned at appeal, in cases where they have been represented by Citizens’ Advice Scotland.

CHILD BENEFIT FREEZE

The weekly child benefit payment is capped at £20.30 for the first child and £13.40 for each child after that. The freeze was imposed in 2011 and is due to be lifted next April. Child benefit recipients have already been hit by the January introduction of the high income child benefit charge. This is where households with at least one earner on £50,000 or more lose 1 per cent of their payment for every £100 of income above £50,000, before it disappears entirely at £60,000.

OTHERS

The basic state pension rises 2.5 per cent to £110.15, while the additional state pension increases by 2.2 per cent. Pension credit edges up 1.9 per cent to £145.40 (£222.05 for two people living together). The annual individual savings account (Isa) allowance climbs to £11,520, half of which – £5,760 – can go into a cash Isa. The inheritance tax threshold remains frozen at £325,000 until at least 2017-18, partly to pay for social care changes south of the Border.