Fool News: Mixed Bag For Those On Low Incomes

Some people will suffer when the 10% income tax starting rate is abolished next April.

Individuals on low incomes should brace themselves for an income squeeze next April as Alistair Darling chose not to redress the effects of the abolition of the 10% starting tax rate on income and pensions in his Pre-Budget report yesterday.Changes in income tax were announced in the March Budget, with the initial 10% band being dropped in favour of a reduction of the basic rate of tax from the current 22% to 20% from next April.Although many will see the increase in tax offset by rises in personal tax allowances for people over 65 and in tax credits, those on low incomes who are neither a pensioner over 65, nor eligible for tax credits will be left worse off.Female pensioners between 60 and 64 will bear the brunt of the 10% tax band removal, as the inflation based increase of £1,180 announced by the chancellor to compensate for the loss of the lower rate band will not be enough for them. In an example used by the Low Incomes Tax Reform Group, a woman in this age bracket on an income of £7,455 in the current tax year could pay £187 more in the next year if allowances increased by 3.5%.Moving away from pre-budget tradition, the Chancellor deferred announcing 2008-09 rates and allowances for income tax, national insurance contributions, Working and Child Tax Credits and Child Benefit/Guardian's Allowance until next year, after the September inflation figures becomes available.However, in a separate announcement, the Government has been praised for considering plans to roll out the `savings gateway.'This relatively low-key scheme was launched in 2001 to encourage saving amongst lower income households by promoting regular saving.The initial pilot saw banking facilities being provided by Halifax at 5 locations across the country; Tower Hamlets (London), Gorton (Manchester), Cumbria, Cambridgeshire and Hull. Over a period of 18 months, every pound up to a maximum of £25 per month was matched by a pound from the Government. At the end of the term, individuals who had saved the maximum (£375) would gain a princely sum of £750 including the matched funds.In total, over 22,000 people took part in the pilots, achieving a total of over £15 million in savings. The Chancellor laid out plans yesterday to see if the scheme would be feasible nationwide. Subject to the results of this work, further announcements on rollout are to be made in the next Budget.