ROOF Blog

Figures in last week’s pre-Budget report reveal 60,000 low-income families now face paying 90 per cent of any earnings directly to the taxman.

The number of affected families is up from 30,000 last year and is forecast to rise again to 70,000 next year.

The very high tax rates arise from complex rules that mean low income families have their benefits slashed if they take up work.

These so-called marginal tax rates – far higher than those faced by top earners – are blamed for discouraging thousands from seeking work.

First-time buyers were dealt a blow in the pre-budget report when the chancellor announced that the current stamp duty holiday would not be extended beyond the end of the year.

Alistair Darling also scrapped plans to raise the threshold for inheritance tax from £325,000 to £350,000. Currently, anyone buying a property for £175,000 or less avoids paying one per cent stamp duty.

This threshold has been in place since September 2008 when the chancellor increased it from £125,000.

Since the stamp duty holiday was introduced, about 132,500 house-purchase mortgage transactions have escaped the tax, according to research by the Council of Mortgage Lenders.

This accounts for more than a quarter of the 486,400 house purchase loans in the period.

Tax rebates for people who ‘go green’ by installing solar panels or wind turbines on their homes or swapping their company car for an electric vehicle will be announced by Alistair Darling tomorrow.

Although his pre-Budget report will include few giveaways as he promises to rein in a £180bn budget deficit this year, the Chancellor will give householders and drivers a financial incentive to play their part in saving the planet.

At present, people who sell electricity to the National Grid are taxed on the income. In future, it will be exempt from tax.

A householder on basic rate tax selling £900 of electricity to the grid from April would receive the full amount, instead of £720 as at present.

Housebuilders and construction workers have begun a campaign to fight off a new tax crackdown on the building trade, which the industry claims will stifle the sector’s recovery and make it difficult to hit government housing targets.

The Home Builders Federation and the Federation of Master Builders will launch its Stop the Unfair Building Tax campaign today to try to persuade the government to rethink proposals that the industry says will push more workers into the black market.

The Government wants to stamp out false self-employed status in the building industry, which it says costs the Exchequer £350 million a year.

It proposes to collect tax and national insurance contributions from an estimated 300,000 workers who claim self-employed status.

Workers will be deemed employees unless they supply their own materials and equipment, or other people’s labour as well as their own.

A member of the Bank of England’s interest rate setting committee has called for the introduction of a tax on housing that would act as an ‘automatic stabiliser’ to help avoid real estate bubbles like the one that helped to cause the financial crisis.

Adam Posen, an American academic and external member of the Monetary Policy Committee, countered suggestions that central banks should have been quicker to raise rates in the run up to the crisis, arguing that tighter monetary policy would have had little effect in halting bubbles.

Citing the greater damage caused by housing slumps than by collapses in prices of other assets such as equities or commercial property following booms, Mr Posen proposed that new tools need to be created in order to target the residential real estate market in particular.

Labour’s strategy for tackling poverty has reached the end of the road and Britain risks a return to Victorian levels of inequality, according to a major two-year study by the Labour-affiliated Fabian Society and Webb Memorial Trust.

With 20 per cent of the population still stuck in poverty, the report calls for sweeping reform of the tax and welfare systems under which higher earners would finance more generous, universal benefits.

With all three main parties committed to cut spending to reduce the huge deficit in the public finances, the authors are worried that the battle against poverty will suffer.

They urge the parties to sign up to a new ‘poverty prevention strategy’ – not for the next Budget, but for the next 30 years.

Tim Horton, the Fabian Society’s research director, said: ‘We could be at a tipping point that sends Britain back towards Victorian levels of inequality and social segregation, and makes the solidarity which could challenge that social segregation ever more difficult to recover.’

Shelter is calling for greater tax breaks for householders who rent a room to lodgers, because the tax threshold – the amount a person can receive in income before paying tax – is so low it puts people off from offering a room to potential renters.

The present threshold of £4,250 hasn’t changed since it was set in 1997, despite rent rises of more than 110 per cent since then.

But Shelter believes many more homeowners, especially those struggling with mortgage costs, would rent out a room if they didn’t have to worry about tax repercussions.

Shelter director of policy and campaigns Kay Boycott said:

‘In the current economic climate, many homeowners are battling to meet their mortgage payments and many are looking for options to maximise their income.

‘If the rent-a-room threshold was higher and the scheme better publicised, it could prove a real incentive for people to take in a lodger, and the take up of rent-a-room opportunities could increase.’

Shelter is calling for the threshold to be raised to £9,000 a year to reflect rising rents, which would cost the Treasury around £5 million per annum, plus a publicity drive to ensure greater take up of the scheme.

Figures from the Office for National Statistics show the UK economy shrank by 2.44 per cent in the first quarter of 2009 – the fastest rate in more than 50 years, and much worse than expected. Gross domestic product has fallen 4.9 per cent in year on year figures – the largest drop on record.

In related news the Organisation for Economic Cooperation and Development has told the government to cut its budget deficit by a larger amount than it currently intends, or it will face major problems in the coming years. The OECD said that Britain’s deficit would climb to 90 per cent of economic output – much higher than the 80 per cent projected by the Treasury in the Budget – and in order to maintain the economy the government should target ‘more ambitious’ budget cut backs, rather than raising tax.

Treasury figures show that welfare payments will exceed income tax receipts by almost £25 billion in 2009/10. Treasury is expecting to take in £140.5 billion on gross income tax receipts, and pay out £164.7 billion in social security benefits, growing to £170.9 billion in 2010/11, equal to government spend on the NHS, schools and universities combined. The Treasury has blamed the worsening state of public finances on the ‘global financial crisis and recession’. 

The Association of Residential Letting Agents (ARLA) says that landlords need incentives to drive improvements in the private rented sector as thousands of tenants were living in homes that are sub-standard and in need of modernisation. ARLA wants the government to introduce incentives such as tax relief, to encourage landlords to improve their properties, arguing that 61 per cent of their members claimed they would upgrade their properties in some way if immediate tax relief was available.