Tax grab will push 400,000 mid-income earners into top band

Cuts in pension relief could hurt teachers and civil servants, while rise in income thresholds will also hit better off

 George Osborne gave with one hand – a surprise £1bn tax giveaway for working people, with an increase in the amount they can earn before paying income tax – but took with the other, as he revealed a £1bn tax grab from middle-earners, which will see 400,000 more people dragged into the 40% tax band.

Widely trailed changes to tax relief on pensions were tougher than expected, with the cap on tax-free contributions falling from £50,000 to £40,000. That reduction, combined with a cut in the "lifetime allowance" for pension savings from £1.5m to £1.25m, will earn the Treasury an extra £1bn.

The chancellor said the measures will affect just one in a hundred savers, but it provoked a furious backlash from the pension industry, which claimed the move would further alienate people from saving for retirement.

The changes to income tax will benefit more than 24 million people, the Treasury said. The personal allowance (that bit of your income on which you pay no tax) was due to rise to £8,105 in the current tax year and to £9,205 in 2013-14, but Osborne said it would now increase by £1,335 in April – £235 more than previously announced. That translates into a £47-a-year tax cut for working people.

Osborne said of the increase: "This is a direct boost to the incomes of people working hard to provide for their families. That's £47 extra in cash next year. We are within touching distance of the £10,000 personal allowance."

But the point at which individuals start paying tax at 40% will fall from £42,475 to £41,451, and then rise by just 1% a year thereafter. As a result, many more people will start paying higher-rate tax, with the government admitting that 400,000 more individuals will be thrown into the higher tax bracket by 2015/16.

The Taxpayers' Alliance, a rightwing lobby group, said: "The chancellor has sent out entirely the wrong message to those earning or hoping to earn the increasingly modest wage where almost half of your income starts to be taken in income tax and national insurance.

"Hundreds of thousands of new people are being ensnared by a punitive rate of tax."

The chancellor also said he is pressing ahead with the cut in the highest rate of tax to 45% from April next year, claiming that the 50% rate, rather than increasing total tax revenue, actually reduced it. "HMRC data reveals that in the first year of the 50% tax rate, tax revenues from the rich fell by £7bn and the number of people declaring incomes over £1m fell by a half. A tax raid on the rich that raises almost no money is a con."

But at the other end of the income scale, millions of working households will be hit by a real-terms cut in tax credits and child benefit. Osborne said most working-age benefit and tax credit increases would be pegged at 1% for the next three years, and previously planned freezes would go ahead.

Child benefit payments will also face further cuts. In a month's time, 1.2 million families with a higher earner will start losing some or all of their child benefit. Osborne had already announced that child benefit rates would be frozen for three years until April 2014, and on Wednesday said that after that, increases will only be 1% a year for the following two years, saving the public finances £175m, rising to £330m by 2017/18.

The government billed the changes to pension taxation as a measure that will only affect a tiny number of wealthy savers. Under the new rules, any payments into a pension scheme above £40,000 will in effect be hit with a charge set at the individual's marginal tax rate.

For someone earning more than £150,000 in the 2013/14 tax year, when the top rate of tax will be 45%, the cost of contributing £50,000 into a pension scheme will rise by £4,500.

But pension experts warn that the changes could also hit teachers, doctors and civil servants, who have a good final salary-based pension scheme.

According to figures prepared by Hargreaves Lansdown, someone earning £55,000 a year could face a tax charge of as much as £13,000 in 2013-14 as a result of the pension cap, although they can take advantage of unused pension allowances to minimise the charge.

The impact will be felt most by someone with a long service record who receives a pay rise towards the end of their career, which can have a significant impact on the final value of their pension.

Meanwhile, savers hoping for a big increase in tax-free Isa limits had their hopes dashed. In the face of collapsing interest rates paid to savers – thanks in part to the government's Funding for Lending scheme – pensioner and other groups had called on Osborne to raise significantly the amount savers can put in tax-free Isas. This would have helped to offset the impact of record low rates.

Instead, he raised the overall Isa contribution limit by less than inflation, to £11,520. The new limit, up from £11,280, comes into force next April. Half the new limit, £5,760, can be placed into a cash Isa. Last April the Isa limit rose by £600.

Osborne also said the government is consulting over whether to allow direct investment via an Isa into smaller and start-up firms, listed on the Alternative Investment Market, a move he said would boost enterprise.

Article source :http://www.guardian.co.uk

George Osborne: "This is a direct boost to incomes … we are within touching distance of the £10,000 personal allowance

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stock markets surge on compromise

FTSE 100 breaches 6000 level for the first time since July 2011, while Dow Jones opens sharply higher

US President Barack Obama said he had fulfilled a campaign promise to make the US tax system fairer with a deal to avert the fiscal cliff crisis that passed after a fierce duel in Congress

Global markets have surged on the first trading day of the new year in relief that the US had stepped back from the fiscal cliff, propelling theFTSE 100 above 6000 for the first time since July 2011.

After weeks of worry, the US Senate and House of Representatives finally passed a compromise bill to water down the combined tax hikes and spending cuts, which had been due to come into effect this month, avoiding the prospect of the world's biggest economy moving back into recession.

Asian markets led the way, with Hong Kong rising 2.9% to its highest level since June 2011.

In London, the FTSE 100 closed up 129.5 points, or 2.2%, at 6027.37. Banking shares were among the biggest risers on relief over the US agreement, with Barclays 5% higher and Lloyds Banking Group up 4%. Mining shares were also boosted by growing optimism about the prospects for the global economy, with the sector accounting for eight of the 10 risers in the leading index.

US investors have also reacted positively to the late night agreement, despite worries the deal could see the country's credit rating lowered. The Dow Jones Industrial Average has opened up 224 points, or 1.7%, higher at 13,326.

In Europe, Germany's Dax and France's Cac have both risen more than 2%. Even the struggling eurozone countries have been lifted, with the Athens market up 3.8%, Italy 3.6% higher and Spain adding 3%.

But some cautioned that Tuesday's US agreement had merely delayed a decision for two months, and predicted further volatility to come.

Mike van Dulken, head of research at Accendo Markets, said: "We are back near the highs of last Thursday when 6000 was almost missed by just a whisker. Some may be disappointed that the initial reaction to thefiscal cliff deal has not taken up back there quicker, however, optimists must bear in mind that the deal has only bought an extra two months and pessimists should remember that full volume trading may take a few more days to resume."

Simon Denham at Capital Spreads said: "The problem is that all the US has managed to do is take a leaf out of the European's books by kicking the can down the road. Spending cut delays for a couple of months means that more negotiations will take place in only a few weeks time and we will have to go over the same old ground again."

Meanwhile, Lee McDarby at Investec Corporate Treasury, pointed out an additional element in the next set of US discussions: "A final note on the cliff for now is that when negotiations re-open in a few weeks' time they will have to cater for the US debt ceiling, which wasn't addressed in the bill passed on Tuesday and is set to be reached mid-February. It appears the US government is going to have a busy and challenging beginning to 2013."

Article Source : http://www.guardian.co.uk

Azure Global’s vision is to be widely recognized as a reputed firm of financial business advisors, achieving real growth for ambitious companies and to become the first choice for F&A outsourcing for accountancy practices and businesses alike for more info visit our site Azure Global and join us On Facebook 

Fiscal cliff deal: European markets soar as compromise agreed

European markets soared, with shares in London up over 90 points, as Washington produced an eleventh hour compromise on national budget

Eurozone manufacturing output down

Ireland was the only member of the 17-nation single currency bloc to grow its manufacturing output in December, according to purchasing managers' surveys.
Europe slipped further into recession in the last quarter of 2012, with new orders from factories continuing their slump.
Markit's Eurozone Manufacturing Purchasing Managers' Index (PMI) crept down to 46.1 in December from 46.2 in November. The index has been below the 50 mark, which divides growth from contraction, since August 2011.
factories cut their workforces at a faster pace than in the previous month and Germany, Europe's largest economy, saw output shrink for the 10th month in a row, and at a faster pace than in November.
Ireland remained the only Eurozone country seeing manufacturing growth in December, while activity was close to stabilizing in the Netherlands. The rate of decline remained significant in France, Spain and particularly Greece, where the index fell from 41.8 to 41.4. Italy saw manufacturing contract at the slowest rate for nine months, but the drop was still marked.
IHS Global Insight economist Howard Archer thinks 2013 will bring more of the same:

While Eurozone manufacturing activity may have suffered its worst contraction around October, the December purchasing managers’ surveys indicate that the sector is still stranded well into recessionary territory and that conditions continue to be tough going into 2013. Indeed, manufacturing output looks highly likely to have contracted markedly in the fourth quarter of 2012, thereby contributing to an expected third successive modest drop in Eurozone GDP.
A further drop in manufacturing output seems very much on the cards for the first quarter of 2013, and any significant recovery in manufacturing activity still looks some way off. In particular, domestic demand in the Eurozone is likely to remain constrained by tighter fiscal policy in many countries, high and rising unemployment, and limited consumer purchasing power.

Eurozone manufacturing output down

Ireland was the only member of the 17-nation single currency bloc to grow its manufacturing output in December, according to purchasing managers' surveys.
Europe slipped further into recession in the last quarter of 2012, with new orders from factories continuing their slump.
Markit's Eurozone Manufacturing Purchasing Managers' Index (PMI) crept down to 46.1 in December from 46.2 in November. The index has been below the 50 mark, which divides growth from contraction, since August 2011.
factories cut their workforces at a faster pace than in the previous month and Germany, Europe's largest economy, saw output shrink for the 10th month in a row, and at a faster pace than in November.
Ireland remained the only Eurozone country seeing manufacturing growth in December, while activity was close to stabilizing in the Netherlands. The rate of decline remained significant in France, Spain and particularly Greece, where the index fell from 41.8 to 41.4. Italy saw manufacturing contract at the slowest rate for nine months, but the drop was still marked.
IHS Global Insight economist Howard Archer thinks 2013 will bring more of the same:

While Eurozone manufacturing activity may have suffered its worst contraction around October, the December purchasing managers’ surveys indicate that the sector is still stranded well into recessionary territory and that conditions continue to be tough going into 2013. Indeed, manufacturing output looks highly likely to have contracted markedly in the fourth quarter of 2012, thereby contributing to an expected third successive modest drop in Eurozone GDP.
A further drop in manufacturing output seems very much on the cards for the first quarter of 2013, and any significant recovery in manufacturing activity still looks some way off. In particular, domestic demand in the Eurozone is likely to remain constrained by tighter fiscal policy in many countries, high and rising unemployment, and limited consumer purchasing power.

Azure Global’s vision is to be widely recognised as a reputed firm of financial business advisors, achieving real growth for ambitious companies and to become the first choice for F&A outsourcing for accountancy practices and businesses alike for more info visit our site Azure Global and join us On Facebbok