Wednesday, March 30, 2011

U.K. Budget 2011: The "Squeezed Middle"

CNBC: Britain's "Squeezed Middle" Feels Pinch Before Budget

Millions of low- and middle-income families in the U.K. have been dubbed the "squeezed middle" as they continue to face the harsh economic realities of inflation, tax increases, and government budget cuts. According to current estimates, six million families are in this group and over half of them have little to no savings and struggle to pay their bills. While this group consists of 1/3 of the working population, they only earn 22% of the national income, down from 30% in 1977. Because they make up such a large portion of the electorate, politicians worry about the "squeezed middle," fearing that they are more likely to switch parties than those who are either more wealthy or poorer.

Ever since the current Coalition government decided to eliminate the child-benefit credit for taxpayers whose total family income is over £40,000, it has been accused of making things more difficult for this group. For the time being, it looks like that trend will continue. Under the budget passed last week, the higher-rate tax threshold was reduced from £43,475 to £42,475, which will result in 750,000 more people paying higher tax rates. Additionally, families earning more than £41,329 will lose £2,500 worth of tax credits per year. Unemployment is expected to reach 8.1% by 2012. An increase in value-added tax (VAT) and inflation has also hurt consumers. Based on this, it is easy to see how the "squeezed middle" have been so severely affected by the measures that the government has taken to address its budget crisis.

However, one benefit that most U.K. citizens will receive in light of the most recent budget is an increase in their personal tax allowance. This allowance consists of the amount of income that individuals can make before it gets taxed. The amount will be raised by £600 to just over £8,000 per year. The budget also announced that the government will provide first-time homebuyers with a combined income of less than £60,000 with interest-free mortgages for five years if they make 20% down payments on a recently built home. The government hopes that this effort will help the housing market recover and jumpstart the construction business.

No comments: