The Salary Calculator

As you are probably aware, in June this year the Chancellor announced in his emergency budget that VAT (Value Added Tax) would increase from 17.5% to 20% from the 4th January 2011. This will mean a small increase in the cost of most goods and services, as suppliers will have to increase the price they charge to cover the extra VAT they are having to pay to the Government.

Although a lot of people wait until the January sales before making a large purchase, in some cases you might find that it’s worthwhile to buy before the end of the year so that you only pay the lower 17.5% VAT. However, bear in mind that the amount of VAT increase is only small (a little over 2%) compared to the kind of discounts often offered in January sales.

For large purchases, such as a new car, the VAT increase could lead to a significant increase in price so it is worth checking what the VAT increase means for you. Fortunately, over at our sister site The VAT Calculator we have created a simple tool that shows you how much more something will cost if you buy it after the VAT increase. Just enter the current cost (including VAT) and see what the cost changes to with 20% VAT – try out the 20% VAT comparison calculator.

You can learn more about VAT by reading the information here.

A little over a year ago, I recommended Tim Harford’s The Undercover Economist. Now, I can also recommend his latest book, The Logic of Life, to anyone who wants to understand how economic “rational” thinking affects all of us every day.



In The Logic of Life, Tim explains how all of us act rationally (that is, with reasoned self-interest) every day, even in some situations where we think we are acting purely emotionally or altruistically. He demonstrates that some actions which appear to be irrational (like government subsidies that benefit only a few special-interest groups but increase tax for many other voters – surely the government would try to please the most voters?) are actually rational. He doesn’t argue that every decision we make is completely rational, just very many of those that we don’t even spend time thinking about.

My favourite part is where he gives several reasons why your boss is overpaid – something we’ve all wondered in the past, and it’s both reassuring and disconcerting to learn that there might be a legitimate reason for it. More disconcerting is the chapter explaining that racism can be rational – and demonstrating that while rationality may be more prevalent than we expect, it is not always to be applauded.

If you’d like to get some insight into a few of life’s little mysteries, click on the link to the right to buy the book. You’ll be helping to support this website and you might just learn something!

I’m in Greece at the moment, a country which has been suffering recently from severe economic problems. Over the past decade the government has taken advantage of the security of being part of the Euro and borrowed more than the country’s total annual revenue. The downturn lead to less advantageous borrowing rates, leaving the country with an increasingly difficult task to repay the loans (sounds like the “sub-prime” crisis but for countries rather than homeowners, doesn’t it?). Cuts in public sector pay and benefits have lead to protests and riots. So does this affect you if you’re visiting the country?

My experience is no. The weakened Euro has helped increase the number of visitors to Greece and its islands, where I am right now. Hotels and restaurants therefore are not short of customers and although I have seen a number of closed establishments, such businesses can fail even in boom times. Prices for meals and drinks remain reasonable – no sign of businesses using inflation to combat financial problems. There have also been no effects of any strikes, although if you were to be relying on public transport you may run out of luck (I have had no problem using the buses here, however).

The holiday resorts, bars, shops and tourist attractions have been as busy as ever and it doesn’t appear that the larger economic problems of the country are having an impact on the day-to-day experiences of a tourist enjoying the hospitality of a popular holiday destination.

The new Chancellor of the Exchequer gave the coalition government’s first Budget today, within 50 days of the election as promised. There were a great many changes, most of which will take place from April 2011, so I have added a new row to The Salary Calculator to give an indication of what the impact might be.

Unfortunately, a lot of the figures won’t be confirmed until towards the end of this year, so I have had to make some estimates based on what was described in the Emergency Budget report. For those who want to know, details of the figures I’ve used are below. For those who don’t – you can go straight to the “April 2011” row of the Salary Calculator for April 2011 values.

Another change announced in the Budget was an increase in standard VAT rate from 17.5% to 20% effective from 4th January 2011. The VAT Calculator has also been updated so you can see what a difference this will make to purchases.

The calculations for the April 2011 values in The Salary Calculator are based on the following assumptions. Under 65 personal allowance increased to £7,475, over 65 allowance increased to £9,940, over 75 allowance increased to £10,090. Threshold of 40% tax lowered to £35,000 from £37,400. National Insurance rates increase from 11% to 12% for basic and 1% to 2% for additional, as set out by the previous government’s budget. National Insurance basic rate threshold increased to £7,475, additional rate lowered to £42,875. All other values unchanged.

Edit (5th January 2011): The values above have been updated with the latest information from the Treasury and the April 2011 calculations have been updated in line with these. The Salary Calculator will be updated again with final values in early Spring 2011, following the budget update.

With the economy having improved over the last couple of months, and many people last year choosing to have a cheaper holiday and stay in the UK, perhaps this year there’ll be more of us thinking of treating ourselves to a trip to Europe this summer. And if you’re one of them, good news – over the last few weeks the Euro exchange rate has improved significantly!

Although €1.20 to the pound is not what you might consider a great rate, it’s not been at that level since the pound plummetted at the end of 2008. Unfortunately, it’s not all good news – this improvement is not due to the pound getting stronger but the Euro getting weaker – the pound continues to fall against the Yen and the Dollar (although it has seen a recent rally on this last count). The BBC’s Gavin Hewitt has written a great blog post explaining why the Euro is in such trouble.

When will the pound return to its previous strong position? Well, the rates we remember of a few years ago such as 2 dollars to the pound are not going to return anytime soon, but if confidence in the UK economy increases then investors will value the pound more. An increase in UK interest rates would also give a boost (since saving pounds then becomes more worthwhile) – but this would impact on mortgage interest rates for a lot of homeowners. Would you rather find it easier to pay your mortgage every month, or have a bit extra holiday money in the summer?