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What the 2012 Budget means for students

28 Mar 2012

Last week’s budget was set against the backdrop of rising tuition fees, above target inflation, record youth unemployment, and a decision to freeze the minimum wage rate for 18-20 year olds, so students could be forgiven for hoping for a break or two in the Budget. So what was in there that is likely to affect students? Let’s take a look…


These are the main announcements (in brief) that might have an impact on students:

  • The Personal (tax) Allowance will increase from £7,475 to £8,105 this year, and then £9,205 in April 2013
  • Alcohol duty will increase by 2% above inflation
  • Tobacco duty to rise by 5% above inflation
  • Fuel duty will rise by 3.02p per litre on 1st August, and road tax will increase in line with inflation
  • VAT will now be applied to goods such as sports nutrition drinks & hot takeaway products in supermarkets, which were previously exempt
  • Enterprise loans to young entrepreneurs are being considered, to help them start their own business
  • Sunday trading laws will be relaxed during the Olympic period
  • Corporation tax cut by 1% to 24%
  • Government will fund ultrafast broadband in 10 cities across the UK

So let’s take a look at each of these in more detail to see what difference they may make to students.


Personal Allowance increase

BudgetThis basically means that the amount you can earn before paying any income tax will rise on the 6th April from £7,475 to £8,105, and then rise again on 6th April 2013 to £9,205. So if you have earned £8,105 in the current tax year (April 6th 2011 – April 5th 2012) you should have taken home £7,873.76 after tax and national insurance deductions. If you earn £8,105 in the next tax year (6th April 2012 – 5th April 2013) you will now take home £8,043.44 (after national insurance deductions), which is  £169.68 more for doing the same amount of work!

That change is great if you earn £8,105 per year whilst studying. Many students do not though! The minimum wage for 18-20 year olds (development rate) has been frozen at £4.98 per hour for another year (from October 2012), so if you have a job that pays the minimum wage, you will have to work for 1,628 hours in the next tax year to earn £8,105 – equivalent to more than 31 hours per week. That really isn’t realistic for full time students. Most universities recommend working no more than 17-20 hours per week during term time. If you have 3 x 10 week terms and can find a part time job working 20 hours per week, as well as a full time temporary job working 37.5 hours per week during the holidays, you will work a total of 1,425 hours over the year. To earn £8,105 in that time, you would need to be paid £5.69 per hour. That isn’t out of the question – we have lots of student jobs advertised on www.e4s.co.uk which pay more than £5.69 an hour, but many students will not be paid that much or work that many hours.

If you manage to earn £8,105 per year while studying then the increase in Personal Allowance will reduce your annual tax bill / deductions by £169.68, which is equivalent to 2.1%. The Chancellor has predicted inflation to rise to 2.8% in 2012 though, so even students who benefit from the income tax reduction will not actually be better off in real terms, because prices are expected to rise by more than the reduction in income tax. Ouch! And that is before we even look at the tax rises announced…

Find out more about student tax and tax refunds here.

Tax refunds



Alcohol duty increase

Alcohol duty will rise by 2% above inflation, which will add around 5p to the cost of a pint of beer (based on a pint costing £2.50). If you drink an average of 20 pints per week, then it may cost you around an extra £52 over the next 12 months.


Tobacco duty increase

Tobacco duty will rise by 5% above inflation, which will add around 37p to the cost of a pack of cigarettes.


Fuel duty increase

Fuel duty will rise by 3.02p per litre on 1st August. Road tax will also rise in line with inflation (2.8%), which will add £4.20 if you paid £150 last year. With oil prices remaining extremely high, car insurance costs continuing to rise, and these tax rises, running a car is becoming increasingly unaffordable for students. Public transport costs have also increased in many areas this year, so walking or buying a cheap bike may be the only realistic transport options for students in future!


VAT changes

VATPlans to get rid of anomalies and loopholes with VAT will mean that goods such as sports nutrition drinks and hot takeaway products in supermarkets, which were previously excluded, will now be subject to VAT at the standard rate. If you use nutrition drinks as part of your workout routine or enjoy a hot pie from your local store, then it may cost you up to 20% more in future, depending on whether retailers pass on the full cost of VAT to customers. Most food will remain VAT free though, so you won’t have to fast to avoid tax rises!


Enterprise loans for young entrepreneurs

Young MoneyThe government are looking at offering enterprise loans to young entrepreneurs to help setup a business as an alternative to going to university. Details are a little sketchy at the moment, but we will keep our eye on this and let you know if it becomes a reality.


Sunday trading law changes during the OlympicsManpower Jobs

Sunday trading laws will be relaxed during the Olympic period, so if you wake up at 4:30pm on a Sunday to find that your munchies from a big Saturday night out celebrating a Team GB gold medal cleaned out your food supplies, the supermarket will probably be open for you to crawl to. It could also mean more temporary retail jobs during the Olympics. This will last for 8 Sundays beginning on July 22nd.


Corporation tax cut

TaxCorporation tax will be cut by 1% this year to 24%, with further 1% reductions each year for the following 2 years. The aim of this is to stimulate the economy and create more jobs. It is unlikely to have an overnight effect, but it could lead to more student jobs being created over the next few years.


Ultrafast broadband

LaptopThe government has pledged to fund ultrafast broadband in 10 student cities across the UK, which will mean quicker YouTube video streaming! The aim is to create 100Mbps broadband speeds in London, Edinburgh, Belfast, Cardiff, Birmingham, Bradford, Bristol, Leeds, Manchester and Newcastle.


The verdict

High inflation and tax rises will cancel out any benefits to students from the Personal Allowance increase, so it looks as though students will have to change their lifestyle to avoid being worse off from the budget. Our advice:

  • Replace a couple of nights out in the pub with a bar job
  • Quit smoking
  • Walk / cycle instead of having a car
  • Cut down on hot takeaway food
  • Use ultrafast broadband to do work from home jobs
  • Cross your fingers for economic and future job creation!

Let us know how you think the Budget is going to affect you in 2012.

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