"Yesterday’s budget has made clear the different economic strategies on offer for voters by the two main parties. George Osborne wishes to keep the agenda firmly on the economy with his emphasis on a competent economic plan to reduce the deficit swiftly. Maintaining that, UK PLC can only afford excellent public services if we manage the economy responsibly and get back in the black as quickly as possible. Ed Balls on the other hand, has said Labour would reduce the deficit, but within a longer timescale while safeguarding public services. It is a simple choice, but a hard one to make for many voters. Osborne did everything he could with this budget speech to emphasise the stability and success of his reign as chancellor and warned of returning to the economic incompetence of the labour government.
The budget was largely tinkering, but the savings made from clamping down on tax evasion, bank levies and welfare cuts were sprinkled out far and wide to everyone from beer drinkers to orchestras, churches, charities and drivers. Some of the measures were so trivial it was a wonder they were included at all, but you can forgive the chancellor for wanting to find positives at a time when in reality we are only half way through the timeframe he has laid out for austerity measures.
From our point of view the headlines were:
The ability for pensioners to reconvert their annuities back into a lump sum, (we had an enquiry about this within hours of the announcement)! We have yet to see the detail on this, but it may not be the panacea that pensioners expect. There will be a cost in doing this and we can expect to see much lower lump sums being offered than could be expected over a lifetime - it’s obvious really; annuity providers cannot afford to do anything else.
Removing tax on the interest earned on accounts (up to £1000 or £500 for higher rate taxpayers). This will have an impact on most of our clients, we’re not talking a great deal of money, but it is a move which signals the government understands how hard low-interest rates have been for savers. Despite this, savers shouldn't turn their back on ISAs – the tax benefits build over time and basic rate taxpayers could get dragged into paying higher rate tax on their savings in the future.
* Tax rates and allowances
Increasing the nil rate band and higher rate tax threshold means middle earners will be better off. This also impacts on those wishing to take advantage of the new pensions freedoms as withdrawals are included in your income tax calculations.
Basic rate tax band
Higher rate tax threshold
* Pensions, lifetime allowance
A less welcome measure was reducing the allowance from £1.25m to £1m. For many people it still sounds like a lot, but in order for private sector workers to achieve the kinds of benefits available to public sector workers on retirement this is the level of pension pot you would need. To quote Sky News’ Ian King,
“Mr Osborne presented the decision to cut the lifetime allowance for pensions savings from £1.25m to £1m as a move that only hits rich savers - but that sum, when turned into an annuity, buys a pensioner and their spouse an annual income of barely £22,000 apiece."
* Tax returns
The other headline-grabbing item was the move away from the traditional tax return to a digital tax account. In theory, many more people have been sucked into the tax return system because of the increasing complexity of the nation’s tax system so anything to simplify matters will be welcome. On the downside, the government doesn’t have the best track record with IT systems. I’ll be keeping a close eye on mine if it ever materialises because you can be sure the onus will be on us to spot any mistakes for HMRC rather than the other way around!"
Ruth Power, FMB's Director of Business Development
Click here to read more on the budget from the BBC.