George Osborne promised no pre-election gimmicks or giveaways in today’s Budget speech, but the Chancellor has delivered a generous boost to pensioners and low income households.
Running just two months before Britain goes to the polls, this Budget has been dubbed the “starting gun” for the General Election, despite the fact that the official campaign does not start until March 30 when Parliament is dissolved. Osborne took the opportunity this afternoon to remind the country what the Conservatives, in coalition with the Liberal Democrats, have achieved over the past five years.
Osborne revealed that over this Parliament the deficit had been halved, and that five years on from the high street banks being bailed out the Government was now in a position to sell more bank shares on the stock market, benefitting the taxpayer.
Economy Grows, Unemployment Falls
Before the Chancellor delivered his speech, the Office of National Statistics announced that the number of people in employment had increased to 31 million the largest rise over six months in the G7 economies, while the number of people unemployed people in the UK fell to 1.9 million. The proportion of people in work aged 16 to 64 was 73.3%, the highest level since records began in 1971.
It was also revealed that in 2014 Britain was the fastest growing major economy in the world, with an annual growth of 2.6%, beating even the US at 2.4%. The Office of Budget Responsibility has revised growth up for the UK in 2015 to 2.5%. Osborne highlighted that the North of England grew faster than the South last year.
Pensioners Rewarded with Cash
As has become the habit for the Budget in recent years, the rumour mill has been in overdrive for the past month, with several policies leaked ahead of today’s speech. Earlier this week it was suggested that pensioners who had already secured a fixed income for life with an annuity would be able to cash it in for a lump sum. This would award existing pensioners the flexibilities awarded to those retiring after April 6, who are able to take advantage of the pensions freedom announced in last year’s Budget. Yesterday in an interview with Morningstar, Head of Retail UK for BlackRock Tony Stenning urged pensioners not to be distracted by the offer of cash.
Disappointment for Inheritance Tax Planners
The Conservatives have long championed a rise in the inheritance tax threshold from its current level of £325,000 to £1 million, making it part of their election campaign in 2010. The Liberal Democrats opposed this move, but it was expected that today the Chancellor would announce a compromise – that properties with a value of up to £1 million would be IHT exempt when passed from parents to children. The proposal was leaked ahead of time and met with positive response.
A spokesman for Saga commented: “The current Inheritance Tax regime is seen as unfair and in need of modernisation - even by those who don't think their estates will be affected. Wanting to pass on something to their family is something parents strongly desire, IHT should be for the really wealthy not a burden on middle Britain who just happen to have lived in a property hot spot.”
Unfortunately it proved to be an unsubstantiated rumour, and instead Osborne announced a review into IHT avoidance through deeds of variation – that is, altering a will after a person’s death to avoid a tax bill.
Tax Cut for Lower Earners – and Higher Earners
All of the major political parties state plans to raise the Personal Allowance – the level at which workers start paying income tax, so it is no surprise that today’s Budget contained a promise to just that.
Just because it was expected does not make it any less welcome however. Osborne’s promise to raise the Personal Allowance to £11,000 will mean a tax cut for thousands lower-income households, taking many lower earners out of the tax system altogether. However, this is still short of the £12,500 the Conservatives outline in their election pledges.
As well as raising the Personal Allowance, Osborne has raised the threshold at which the higher rate of tax of 40% is charged. Currently at £41,865, Osborne pledged to raise the higher income tax threshold to £43,300 by 2017/18 – with an aim to reach £50,000 over time.
Paper Tax Returns Scrapped for Online Service
Tired of your tax return? Good news – within the next five years the time it takes to fill in your annual form for HMRC will be cut from 40 minutes to just 10 minutes. Osborne confirmed plans in today’s Budget to digitalise tax returns, using information from employers, banks and investment providers so that individuals do not need to enter their own documentation.
Considering the complexity of the current online tax returns system this could go either way for consumers. Well executed, this promise would be a significant improvement for thousands of self-employed individuals as well as investors and pension savers. However, HMRC currently operates with a significant margin of error – consumers often complain of being incorrectly taxed following clerical errors – so the prospect of a full automated system may concern some.
Lifetime Pensions Allowance Reduced
Again – not much of a surprise, but lifetime pensions allowance has been reduced from £1.25 million to £1 million. This will be a disappointment to the 4% of pension savers affected, but the Chancellor did at least scrap the idea of reducing the annual allowance you can pay into your pension. He also promised to index-link the lifetime allowance, increasing it in line with inflation from 2018.
Great News for Savers
Building on the significant changes the Chancellor made to ISAs in last year’s Budget, he announced greater flexibilities to tax-efficient savings vehicles. Calling it a “radically more flexible ISA”, Osborne promised that funds taken out of a cash ISA and then re-deposited later that tax year would retain their tax-free status.
Every individual in the UK will also be awarded a Personal Savings Allowance of £1,000 – reduced to £500 for higher rate taxpayers – which will be tax free. This is especially welcome in a low-interest rate environment where the best rates are not being offered by ISAs, but by high street bank current accounts.
First time buyers will also have cause to rejoice as the Government plans to launch a Help 2 Buy ISA specifically for those looking to step onto the housing ladder. For every £200 deposited, the Government has promised to top up £50 – that is a tax-back benefit of 25%.
Good News for Publicans…
There’s another penny off the cost of a pint, and good news for Somerset as cider duties are being reduced. Spirits tax has also been cut and the price of scotch whisky cut too, while wine duty has been frozen.
…And Drivers
Fuel duty increase due for later this year has been scrapped. As Osborne phrased it – fuel duty has been frozen again meaning this Government has been responsible for "saving a family £10 every time they fill up their car".
