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A MASTER OF GIVE AND TAKE; BUDGET 2007: ANALYSIS.

Byline: By Record money expert Alex Morgan

LIKE a seasoned conjurer, Gordon Brown waited until the end of his Budget speech to pull the major vote-winning rabbit out of his hat.

And, in the tradition of the very best magic tricks, all was not as it seemed.

In the last moments of his final speech as Chancellor before, he hopes, taking over at No10, Brown announced he was slashing the basic rate of income tax from 22p to 20p.

The change - which takes effect in April 2008 - would, he said, give the UK its lowest basic rate for 75 years.

On the face of it, for someone earning pounds 25,000 a year, it means a welcome tax saving of around pounds 350.

However, with impressive sleight of hand, it seems Brown the conjurer can take away just as quickly as he hands out - quicker, in fact.

Because just a few moments earlier, he'd announced he was removing the lower-rate 10p tax band.

This means - unless he plans a far more generous than usual increase in the personal tax-free allowance - that instead of paying 10p in the pound income tax on the first couple of thousand pounds or so of our taxable income, we will all start paying the new 20p rate right away.

The end result? Our pounds 25,000 earner will actually be less than pounds 150 a year better off - under pounds 3 a week - and that's before rising inflation and soaring household bills take their toll.

True, it's better than nothing. But it's hardly the glittering "farewell-to-the-Treasury" gift he'd have us believe.

Bad for buyers

There wasn't much for house buyers to cheer about either.

In his Budget last March, the Chancellor raised the threshold at which one per cent stamp duty is payable on property purchases from pounds 120,000 to pounds 125,000.

But despite house prices still on the rise, there was no further increase in the starting point.

As it becomes harder to find a home for less than pounds 125,000 in many areas, an increasing number of hard-pressed first-time buyers will have to dip even further into their pockets if they want to climb on to the housing ladder.

Help for parents

In the main, however, Brown's last Budget was designed to have a little something for everyone - "little" being the key word as many of his handouts were less than generous.

The principal gainers were families on low incomes and pensioners.

The rate of child benefit for the first child will rise from the current pounds 17.45 a week to pounds 20 in 2010.

But with retail price inflation at 4.6 per cent a year, the increase means the actual spending power of the weekly payment is likely to be virtually unchanged.

The Chancellor also announced increases in tax credits.

But, again, for households struggling to cope with rising interest rates and soaring gas, electricity and council tax bills, these won't go far.

Cash for the old

For higher-earning pensioners, there were bigger income tax allowances - but these will be of no value to those struggling to cope on the basic state pension. The rise in pension credit will offer little real help either, as it is pegged to inflation.

Grants of up to pounds 4000 to install central heating will be welcomed only by the minority without it - and who can actually afford to turn it on when they do get it.

The best news was an extra pounds 6billion for those who have lost their pension because their work scheme has gone bust - but this is no less than they deserve.

Small savers

In his preamble, the Chancellor said he was particularly keen to reward savers - but his idea of a reward isn't the same as most people's.

For the first time since they were introduced in 1999, he raised the annual investment limit for tax-free individual savings accounts (ISAs).

From April, savers will be able to shelter up to pounds 3600 a year from the taxman in a mini-cash ISA - an increase of pounds 600.

This might sound significant - but for someone using the full allowance and earning a healthy six per cent interest on savings, it will mean a paltry pounds 7.20 a year extra in tax savings.

The limit for maxi ISAs will rise by an even more modest pounds 200 to pounds 7200.

Little change

The inheritance tax threshold also goes up - from the current pounds 285,000 to pounds 350,000 in 2010.

But with property the main component of many estates and house prices continuing to rise, this is likely to save only a small number from the 40 per cent tax.

In fact, if the threshold had risen in line with house-price inflation over the past 10 years, it should be more than pounds 425,000 by now.

Wealthy investors will also enjoy a small increase in capital gains allowances but this will have little impact on most ordinary people.

For them, inflation-linked rises in taxes on petrol, booze and cigarettes, and road tax hikes for gas-guzzling 4x4s, will be of far greater interest.

So, despite all the "final Budget" fanfare, while Brown could soon be sitting pretty in No10, the rest of us are left pretty much where we started.

Numbers crunched by Jim McLaughlin, senior wealth manager at Executive Benefit Consultancy Limited

*All calculations are based on the final effects of the Budget as some of the tax benefits will be introduced over 3 years
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Publication:Daily Record (Glasgow, Scotland)
Date:Mar 22, 2007
Words:920
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