How will I benefit from the reduction in VAT?

The 2.5 percentage point cut in VAT, from 17.5 per cent to 15 per cent, will come into effect on Monday. Whether consumers benefit depends entirely on whether shops decide to reduce their prices by that amount. Many retailers, particularly small businesses, and shops that sell small value items, may decide instead to keep the extra money. It is also worth remembering that VAT is not charged on some goods, such as food and children’s clothes, so there will be no savings in these areas. There will also be no benefit for gas and electricity customers as VAT on domestic energy bills is already charged at a lower rate of 5 per cent, which is not changing.

How will changes to the personal allowance affect my take-home pay?

The personal allowance – the amount of income on which you pay no tax – will increase from £6,035 to £6,475 in April 2009. But from April 2010, high earners will see this allowance gradually disappear. The allowance will be reduced by £1 for every £2 earned above £100,000. If your income is above a second limit of £140,000, you could lose your entire personal allowance. This new regime creates a range of arbitrary marginal tax rates, ranging from 40 per cent to 60 per cent, as you progress up the income scale.

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What is happening to national insurance contributions?

From April 2011 anyone who earns more than £20,000 will find that the Government takes more of their salary. National insurance contributions will go up by 0.5 percentage points to 11.5 per cent on earnings up to about £44,000 and by 1.5 percentage points above that.

Were any other changes to income tax announced?

In April 2011 a new top rate of income tax of 45 per cent will be introduced on all earnings above £150,000. Someone earning £200,000 will be £2,500 worse off. The Chancellor also hit shareholders with a new top rate of 37.5 per cent on dividend income.

Was there any good news on income tax?

Yes, the Chancellor made permanent the concessions introduced earlier this year. In last year’s Budget, the Government abolished the 10p income tax rate, to pay for a 2p reduction in the basic tax rate from 22 per cent to 20 per cent. However, the move brought a backlash from Labour MPs, forcing the Chancellor to raise everyone’s personal allowance by £600, backdated to April 6, to compensate those who lost out. That was worth £120 for all 22 million basic-rate taxpayers. Yesterday the Chancellor announced that this increase would be made permanent, with a further increase of £130 in April, worth another £25.

Were there any other tax goodies on offer?

Yes, April’s increase in child benefit – worth an average of £22 - will be bought forward to January, while the above-inflation increase in the child element of the child tax credit will be bought forward by a year to April.

What help was there for pensioners?

Pensioners are among the biggest winners from the Budget. The pension credit, which is the minimum income guaranteed to pensioners, will increased in April from £124 to £130 a week for individuals and from £189 to £198 for couples. Every pensioner will also get a £60 one-off payment, rising to £120 for couples, to help to pay for energy bills. In January the basic state pension for a single person will also rise from £90.70 to £95.25. Mr Darling also announced that £100 million would be brought forward to help people to insulate their homes.

Will there be any help with my mortgage?

The Government has secured a commitment from lenders not to repossess homes within three months of the owner going into arrears. The Government is also establishing a lending panel to monitor whether banks pass on Government support through better rates for households and small businesses. Mr Darling also welcomed the recommendations made by Sir James Crosby, the former chief executive of HBOS, in his report on mortgage finance. Sir James wants the Government to guarantee mortgage-backed securities to increase the funding available for new home loans. Experts said that this should should inject some much needed activity back into the housing market.

Was there any help for savers?

With the Government keen to encourage spending to boost the economy there was very little on offer for savers, with no increase in the existing tax-free savings allowances. There were, however, measures to encourage people on low incomes to save more. From 2010 the Government will contribute 50p for each pound that an individual saves in its new savings gateway scheme. The maximum government contribution will be £300 per person. Only people on certain benefits and those claiming tax credits will be eligible.

Was there any help for drivers?

In part, yes. There are currently seven road tax bands ranging from A to G. Cars in band A have no duty while cars in the top band pay £400 unless they were bought before March 23, 2006. From April, the Government was planning to have 13 new bands ranging from A to M, with the top rate increasing to £455 by 2010. But yesterday Mr Darling said that he would be phasing in the new rates with increases limited to £5 per vehicle in 2009 and the large increases for the more-polluting vehicles drastically reduced. However, there was less good news on the cost of fuel. The Chancellor announced that the 2.5 percentage point cut in VAT on fuel would be negated by a commensurate increase in fuel duty.

What about flights?

One of the big surprises was a large increase in air passenger duty on long-haul flights. From April there will be four new bands depending on the distance you fly, with rates going up from a maximum of £80 today to £170 for the highest band in 2011.

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