Steady as she goes is the underlying message George Osborne is presenting in his fifth budget as he stresses there can be no let-up in the government’s austerity drive, despite the accelerating economic recovery.
By John Aglionby, Lina Saigol and Jonathan Eley
Treasury officials are touting one major surprise, which is a good thing because the pre-speech announcements have not exactly set the world alight – if the extensive coverage given to the new back-to-the-future £1 coin is anything to go by.
Expected highlights include:
- A cap on welfare spending
- Improved economic growth forecasts – this year’s is expected to rise from 2.4 per cent to 2.7 per cent
- A rise in the personal tax allowance
- A tougher action against tax avoiders.
- A new 12-sided £1 coin.
More speculative predictions include:
- A new 2 per cent stamp duty rate for homes valued between £250,000 and £300,000
- Increased capital allowances for businesses in the form of infrastructure relief
FT Economics Editor Chris Giles and Vanessa Houlder have done a checklist on what to expect.
Not everyone is excited though. FT City Editor Jonathan Guthrie tweeted earlier today:
The main news of today so far is that UK unemployment fell again in the three months to January. While the official rate remained at 7.2 per cent, the number of jobless fell 63,000 to 2.33m.
The FT’s business and employment editor, Brian Groom, says
The UK’s near six-year squeeze on real earnings is easing but the recent strong trend of job creation has slowed.
Average earnings rose 1.4 per cent in the three months to January compared with the previous year, from 1.2 per cent in the October to December period.
That was below January’s 1.9 per cent annual inflation rate, but the Bank of England and the Office for Budget Responsibility expect real wage growth to turn positive in the second half of the year.
The budget is, obviously, as much a political event as an economic one.
FT political editor George Parker reckons Osborne will lay a trap for Labour by forcing a Commons vote on a welfare spending cap.
Labour, meanwhile has produced a list of what it claims are 24 Tory tax increases since Osborne became chancellor.
The top five are:
1. VAT increased – to 20 per cent from 2011
2. Income Tax age-related allowances frozen and eligibility restricted (“Granny Tax”) from 2013-14
3. Income Tax higher rate threshold cut to £42,475 in 2011-12
4. Higher Income Child Benefit Charge introduced 2013
5. National Insurance Contributions rates, limits and thresholds increased in line with CPI rather than RPI from 2012-13
Chris Giles says it is not all good news for Osborne in today’s labour statistics:
The Tories have turned their fire on shadow chancellor Ed Balls, one of their favourite punchbags
And Labour MP Jon Ashworth has turned to Buzzfeed to attack the government’s economic record
The LibDems, are in a bit of a quandary. They have to be supportive of the government – raising the personal income tax allowance is one of their key policy platforms – but they’re also aware that the General Election is only a year away.
Lord Oakeshott, a LibDem peer, told the BBC earlier today the party wanted to the budget to deliver a recovery that is:
“sustainable, fair and everywhere”
- the latter being a reference to the fact that London and the southeast is recovering very strongly while other areas are not.
Here’s the obligatory photo outside 11 Downing Street from the government’s Team Treasury. Not many of them looking super-cheeful, it has to be said.
The team at Capital Economics has this comment on GDP Growth:
While the near-term forecasts for GDP growth may be nudged a little higher, the OBR seems likely to judge that the economy’s spare capacity will be used up more quickly than it previously thought. Accordingly, the growth projections for the later years of the forecast period may be revised down.
Whether households are feeling the recovery is going to be one of the key political battles over the next 14 months.
The latest edition of the household finance index by research firm Markit shows that the sense of well-being dipped slightly in March to 41.9 from 42.1 in February – which was the highest reading in the survey’s five-year history.
However, any reading below 50 is still negative, so there’s a long way to go until the sun can be said to be shining brightly. However, the squeeze on household incomes is easing, Markit believes.
Here’s a rather worrying tweet, if true, from Tory MP Cheryl Gillan. What were MPs doing queuing for Budget Day seats in the Commons before 8am?
FT political editor George Parker emails in:
Cabinet briefed on Budget this morning, ministers delighted at the “good news” contained in it and the fact that Mr Osborne has held back some surprises.
“We will enjoy the look of shock on the faces of you journalists,” said one cabinet member. “This will show the coalition has not run out of steam.”
Osborne’s statement is expected to offer help to savers and pensioners – key voters at the next election.
Markets update from FastFT’s Michael Hunter:
Sterling has been making gains throughout the trading day in the run-up to the Budget. The pound is currently up 0.3 per cent against the dollar at $1.6638.
The BBC’s James Landale reckons the government could be taking a risk by trailing a big surprise….
A wee reminder: The Budget follows Prime Minister’s Questions at midday
More on the surprise announcement…..
Paul Kenny, GMB general secretary
This has been the longest recession in living memory. The Government has to show more urgency to help its main victims, nearly one million young workers out of work, into proper jobs. GMB will assess today’s Budget on what it does to avoid a lost generation.
PMQs is starting – with Cameron paying tribute to the late Tony Benn
Unite general secretary Len McCluskey says the jobless figures mask a low waged workforce:
He also says too much of the good economic news there has been is skewed towards London and the South East – for example, in the North East the unemployment rate is 9.5 per cent – when the national average is 7.2 per cent.
“While the drop in unemployment by 63,000 is to be welcomed, this can’t disguise the thrust of government policy which is towards a low waged economy where insecure employment is rampant.
The recent announcement that the national minimum wage will rise by a derisory 19 pence an hour is an example of the continuing downward pressure on incomes, when the RPI rate of inflation is still running at 2.8 per cent. Wages are badly lagging behind inflation.
“Urgent measures are needed in today’s budget and in the coming months to tackle the two large pools of persistent unemployment – the young and the long term jobless – that continue to be a thorn in the side of the chancellor, George Osborne.
We can’t tolerate an economic landscape that offers precious little hope of real jobs for our young people.
The FT’s auto correspondent, Henry Foy, has emailed in:
Low-cost car brand Dacia has had a cheeky pre-Budget shot at George Osborne with an open letter calling on him to put his money where his mouth is and change his chauffeur-driven Jaguar to one of their cheap Sandero models.
“What better way to say we’re all in this together?” the brand − owned by France’s Renault − asks the chancellor, in a letter offering him a test drive in one of the cars.
Dacia is the UK’s fastest-growing car brand by sales, due to customers cutting back and downsizing from mid-range brands into its no-frills, low-cost small SUVs and saloons.
The FT’s Kiran Stacey is following PMQs for us
PMQs is under way − always a slightly strange, tense affair before a Budget. Both leaders know nothing they say will be remembered for more than about 20 minutes, but will want to get their troops fired up for the post-Budget debate.
Ed Miliband’s first question is on Crimea
Law firm Eversheds has serious reservations around potential doubling on cap of business rates relief. Commenting on potential annoucements to be made on business rates in today’s UK Budget, Richard New, partner, says:
Whilst the doubling of the cap would be welcomed by smaller traders as a stop gap before more sweeping reform, there will be serious reservations as to the significance of any impact it may have on the general market.
More thought needs to be given to addressing the concerns of the businesses in those areas of the country which are still struggling to pull themselves out of the recession as the one size fits all approach to relief simply isn’t working.
The Valuation Office also needs to be provided with more resource in order to clear crippling backlogs of cases and to concentrate on the correct and accurate assessment of rates for individual businesses.
CAMERON: Private sector employment is going up 10 times as fast as jobs are being lost in the public sector.
Possible “significant announcement on savings and pensions” says George Parker. What could that be?
We are expecting some movement on “trivial commutation” – the regime that allows savers with small funds to avoid buying an annuity. More on that here:
UK set to clamp down on the annuity market
Other possibilities are a cap on tax-free cash (Ireland has done this) or further changes to the lifetime allowance (tax limit on the total value of a pension fund at the time benefits are taken).
Pensions savings cap lands retired with £230m bill
Tax relief on pensions is very expensive, but ministers are mid way through the auto enrolment process so will not want to do anything that makes pension saving less attractive.
Ed Miliband, Labour leader, says the government will have his party’s support for the “toughest possible” economic sanctions on Russia
Another markets update from Michael Hunter:
Shortly before the speech is due to start, the pound was up 0.3 per cent at $1.6646, while the FTSE 100 was flat at 6,604.33. The FTSE 250, the equities index seen as more representative of the domestic UK economy, was up 0.2 per cent at 16,381.64
Miliband’s second round of questions begins with one on mental health
Cameron responds to Miliband, saying overall, health spending is being protected. But there is still further to go on mental health
Here are some charts from the FT’s graphics team:
Other personal finance commentators are focusing on the basic rate limit (the amount an individual can earn before paying 40% tax – it’s currently £32,010) and stamp duty land tax. Raising the £250,000 threshold for the 3% rate would be popular and could possibly be financed by more tax raids on Kensington mansions.
This is the FT’s current news story from Sarah O’Connor as the budget is about to begin:
George Osborne has promised to nurture a “resilient economy” as he begins his annual Budget against the backdrop of Britain’s rapid but uneven recovery.
>Mr Osborne, the chancellor, is poised to announce the biggest upgrades to growth forecasts in any Budget since the millennium. But he is under pressure to address underlying concerns about the strength of the economy and will announce policies to try to support exports, investment, regional development and skills.
>With an election planned in just over a year, the Budget is Mr Osborne’s last chance to announce measures that will put more money into voters’ pockets before they go to the polls. Westminster-watchers are expecting a few “Budget surprises” on pensions and savings to woo core Tory voters.
Yet there is little money to spare for electoral fireworks. The fiscal watchdog does not think the recovery that started a year ago has increased the long-term growth capacity of the UK. So the improvement in the borrowing forecasts will peter out over time.
>Britain is four years into an austerity programme that has been extended until 2018 because it has taken much longer than expected to close the gaping budget deficit. Mr Osborne is only about halfway through his planned tax increases and spending cuts.
Mr Osborne has already announced some of the Budget measures, including a plan to for a new pound coin and more tax relief on childcare costs. He will also use the Budget to announce a cap on more than £100bn of welfare spending, as he tries to set a political trap for Labour at the next election.
FT commentator John McDermott is perhaps suggesting there should be more Budgets…
Here’s a guide from the Treasury on how much Budget measures cost
Private-sector earnings rise 2.2 per cent in year to January − faster than inflation, up 1.9 per cent
FT columnist Janan Ganesh reckons the Budget could be confined to a few words:
Labour’s Albert Owen describes government’s offer on childcare as a pre-election bribe
Cameron attacked Labour’s “24 Tory taxes” campaign announcement today. But Kiran Stacey thinks it might rebound on him…
Osborne’s daughter in the Gallery… Shouldn’t she be at school?
Higher rate tax threshold for 2014/15 tax year is already known: £41,865, comprising personal allowance of £10,000 and basic-rate limit of £31,865.
PMQs is over. The speaker is making way for his deputy. Osborne is about to stand up to start
As the Budget starts, the pound is up 0.3 per cent at $1.6639. The FTSE 100 is down 0.5 per cent at 6,605.63, while the FTSE 250 is up 0.2 per cent at 16,387.54. The yield on benchmark 10-year UK gilts is up 3 basis points at 2.70 per cent.
Osborne starts by saying economy is recovering faster than forecast
Country still borrows too much, doesn’t save enough, so today we’re doing more to put that right
This is a budget for building a “resilient economy”
The deficit is still one of the highest in Europe, so we’re taking further action today
Yes, manufacturing is growing again and jobs are being created, but manufacturing halved under the last government, so today we back manufacturers and all regions of the country
In this budget we make sure hard-working people keep more of what they earn and more of what they save
BRITAIN HAS 20 YEARS OF CATCHING UP TO DO
Forecasts form OBR coming up…
Today support for savers is at the centre of this Budget
Today the forecast for 2014 growth is 2.7 per cent, was 2.4 per cent in the autumn
2.3 per cent next year, 2.6 per cent in 2016 and 2017 and returns to long-term level of 2.5 per cent thereafter
Economy to be £16bn larger than it used to be
Osborne attacks Balls for the first time…
Osborne says OBR says economy to be larger this year than it was in 2008
There’s no major economy growing faster than Britain today
Lobby correspondent Kiran Stacey adds:
Osborne says this will be a Budget for those who “export, invest and save”. Expect the surprise to be a large give-away for savers – who, coincidentally tend to be older people, who vote more.
Eurozone still shaky and emerging markets fragile.
“It’s a reminder of why we need to be cautious”
The most important consequence of our plan is more people in work
The FT’s John McDermott tweets: https://twitter.co…446264560031256576
Some said our plan would mean 1m jobs would be lost. Net job creation has been three times faster than any other recovery
24 per cent fall in claimant count in one year, according to data out today, Osborne says
OBR predicts earnings to grow faster than inflation this year for first time in years
First time in 35 years, higher employment rate than in the US
Osborne: taken together, the growth figures mean our economy will be £16bn larger than forecast just four months ago
He moves on to control of public finances:
We have taken difficult decisions. The IMF says UK is cutting headline and structural deficits faster than any other developed country in the world
There is a huge amount of cheering in the House.
Deficit will be 6.6 per cent next year, 5.5 per cent and 4.4 per cent in subsequent years, and reach 0.8 per cent in 2018-19
No deficit in 2018-19
The FT’s markets editor Chris Adams: https://twitter.co…446265395633459200
Need more hard decisions and more cuts.
“Who had the credibility to deliver them?”
The UK now has a higher employment rate than the US for the first time in 35 years Osborne says.
This year’s borrowing £108bn – 12bn less than a year ago
Borrowing for the next few years: £95bn, £75bn, $44bn, £17bn. Then a surplus.
£24bn less than last forecast will be borrowed in next few years – more than spent on police
The FT’s editor Lionel Barber tweets:
Reduced borrowing will mean reduced interest payments will be the equivalent of saving every family £2,000 a year
Moves on to discussing inflation − CPI to stay at 2.0 per cent in near future
ON DEBT: It will peak at 78 per cent in 2015-16
Interest payments on the debt lower than expected, saving £2,000 per person.
Foreign reserves 50% higher than when government came to office
Now announcing new £1 coin.
It will blend security features from the future with elements from the past
Nod to concerns about rising house prices; Osborne says OBR doesn’t think house prices will return to previous peak in real terms until 2018 but urges vigilance at the Bank of England (which has wide-ranging powers to discourage risky lending)
“We are entering a critical phase and must learn from the past”
Osborne says he will not squander the gains
All decisions are paid for. Taxes are lower but so is spending
We will fix the roof when the sun is shining − a remark he has made before
Comments on spending versus taxation implies another fiscally neutral Budget. Or, as some would have it, rearranging the deckchairs
New charter for budget responsibility to be brought forward this autumn
0.7 per cent of nation income to remain for official development assistance (ODA)
£1bn reduction announced in autumn in departmental spending to be made permanent
He moves on to welfare cap. Vote on it to be in parliament next week.
The FT’s Jonathan Guthrie sends this impression of the Budget so far:
A budget for investors, exporters and savers, but not so far a budget for people determined to increase the UK’s intractably low productivity. Gordon Brown couldn’t fix it either.
Welfare cap to be £119bn in 2015-16
In future any government that wants to spend more on benefits will have to be honest with the country
State pensions will be outside the welfare cap. No surprise there − they are a touchy issue for older voters. All parties effectively committed to the “triple lock”, whereby state pensions rise by earnings, inflation or 2.5 per cent a year.
The rich are making the biggest contribution to the reduction of the deficit, because we’re all in this together
That prompted the deputy speaker’s first intervention – what a surprise
Groans all round as THAT catch-phrase is trotted out… all together now:
WE’RE ALL IN THIS TOGETHER
Twice as many taxes being collected as before the government came to office
He moves on to closing tax avoidance measures
Today we go further still, raising HMRC’s budget to tackle non-compliance and more powers to collect money from bank accounts from people who refuse to pay, more checks on migrants
On to tax avoidance, big theme in previous Budgets. Registered tax avoidance schemes have fallen by half. Now increasing HMRC budget and powers to fight avoidance. OBR says full package could bring forward £4bn in revenue
15 per cent stamp duty on any corporates buying houses worth more than £500,000 − down from £2m
Waiving inheritance tax on members of emergency services
Reference to “misuse of VCT and EIS” to avoid tax. These are government-sponsored schemes to encourage direct investment in small companies. They come with generous tax reliefs widely used by better-off investors. It’ll be interesting to see the detail in the Red Book
He’s now mentioning LIBOR. He says the financial services are hugely important to this country, and he wants to promote this all around the world. BUT he also wants the fines paid.
We will give HMRC modern powers to collect debts from bank accounts of people who can afford to pay but have repeatedly refused to, like most other western countries.
Double lending available to £3bn and interest to be cut by a third for export financing
Big news there on “enveloped” property. Purchasers of residences within a company shell will have to pay 15% stamp duty from midnight tonight, if value exceeds £500,000 at purchase. Previous threshold was £2m. No mention of “Ated” though − the annual charge on properties already held within a corporate shell.
Loud chuckling from Harriet Harman as Osborne cracks jokes about leaders betraying brothers.
All long-haul flight tax rates will be capped, wherever they’re going. Taxes on private flights to be increased.
“Wherever you are in the world, you cannot fail to see ‘Made in Britain’”
Bankers get away with everything as Osborne says Libor fines will help scouts and guides… expect lots more chocolate-chip cookies. But on a more serious note, money from fines will also go to military, search and rescue services, military cadets and St John’s Ambulance.
Moves on to Scotland: says budget of an independent Scotland’s finaces would be “precarious”.
Britain is better together.”
Housebuilding up 23 per cent but that’s not enough…. He reiterates previously announced schemes
Right to build funding…self-build has been damp squib in UK compared with other European countries
It’s ‘steady as we go’ on the markets as traders stay tuned to the speech – The pound is up 0.3 per cent at $1.6633. The FTSE 250 is up 0.2 per cent at 16,382.56 and the FTSE 100 is 0.1 per cent lower at 6,599.79.
Under Labour, Private Jets weren’t subject to Air Passenger Duty. We’re changing that, now they will.
“We’re getting Britain building”
“More Ebb than fleet” as Osborne mocks Labour’s inability to turn Ebbsfleet ‘garden city’ plans into homes – fewer than 300 actually built.
Kiran Stacey in the lobby says:
Companies in dispute with HMRC will have to pay up front if similar tax avoidance schemes have been ruled illegal, and then claim the money back if they win the eventual legal case. The Treasury thinks this will raise £4bn – a significant amount for the chancellor to play with.
Additional £124m to help with flood defences
£200m available to repair roads. Local authorities to bid for the money
Extend grants for smaller businesses to broaden apprentices programme
£270m guarantee for the Mersey Gateway Bridge
More funding for graphene, a great British innovation, says Osborne. There are already two “graphene stocks” on Aim, another in the pipeline.
“We going to outbid, outsmart and outdo the rest of the world”
The FT’s Kiran Stacey:
A couple of significant bungs for Scotland there − a reduction in air passenger duty rates, something Scottish airports have complained bitterly about; and more money for Inverness airport − coincidentally in Danny Alexander’s constituency.
First enterprise zone to be set up in Northern Ireland
From the Ft’s Editor:
Making seed EIS scheme permanent. It was introduced in 2012 Budget to boost investment in start-ups
One more figure from OBR: North Sea tax receipts to fall £3bn
Osborne says that the housing policies he is announcing today will support more than 200,000 new homes for families.
Annual business investment allowance of £250,000 to expire this year. But it’s not just going to be extended but doubled.
Moves on to manufacturing. Praises US manufacturing − says reason is because energy costs are lower. Says energy efficiency is going to be promoted.
£7bn package to cut British business’ energy costs
Carbon taxes to be capped
Osborne says carbon price floor changes will save consumers £15 a year over and above the £50 annual saving from earlier deal with energy companies to cut green levies.
Compensation worth £1bn to protect manufacturers from green levies
Richard Rose, Tax Partner at BDO LLP, comments:
The death knell has just been announced for those owning a residential property via a company”
“We also want to help hard-working people keep more of what they earn and save”. Is the surprise coming?
Fuel duty rise planned for September will not take place
Fixed-odds betting terminals duty raised to 25% and look at wider reform of offshore gaming firms. FOBTs are a mainstay of betting shops for the like of William Hill, Ladbrokes etc.
Bingo duty will be halved to 10 per cent
On energy bills for manufacturers, Osborne says half the firms that will benefit most are in the north of England, with a third in Scotland or Wales
Tobacco and alcohol. Tobacco will rise 2% above inflation. The escalator was due to end but it won’t now.
Alcohol duty to be targeted. Scrapping escalator for all duty. They will rise in line with inflation except for Scotch whiskey – which will be frozen. Some cider makers’ duty will also be frozen. The beer duty will not be frozen, it will be cut by 1p.
This is turning into a real white-van man Budget − cheaper beer, cheaper cider (make a snakebite…) and lower fuel costs. And cheaper bingo to boot.
Personal tax allowance:
Today we can afford to go forward. up to £10,500 from next year
Richard Rose, Tax Partner at BDO, comments:
1.3m more people in jobs, 1.5m more jobs forecast, less claimants – the 7% unemployment rate looks like it’s going to be smashed. Does this mean he will not do anything to ease the tax burden for employers?
People earning up to £100,000 will be paying less tax because of this budget
Osborne “incredibly proud” of changes to personal allowance – trying to snatch some credit back from Lib Dems, with whom the policy is most often associated
I am linking the rate of the transferable tax allowance for married couple to same as for individuals
The FT’s John McDermott tweets:
There is market reaction to the news on increased tax rates for fixed-odds betting terminals. Shares in bookmakers are falling, with Ladbrokes down 2.5 per cent at 155p and shares in William Hill down 2.9 per cent at 366.8p.
Something for savers at last:
Isa limits: merging cash and stocks Isas to one product.
Isa transfers from shares into cash will be allowed.
Limit to rise to £15,000
Junior Isa £4000
Pensioner bond to be run by NS&I, paying 2.8 per cent for one year and 4 per cent on longer terms.
Lifting cap on premium bonds and changing odds to create more winners.
RECAP ON TAX ALLOWANCE:
Basic rate tax allowance to rise to £10,500 next year.
Higher rate threshold to rise to £41,865, and then another 1% next year.
Married couples’ allowance will rise in line with basic rate allowance.
“People who have worked hard and saved hard all their lives should be trusted with their finances.”
“No one will have to buy an annuity”
Savers in defined contribution schemes “should be trusted with their own finances”
Cut income requirement for drawdown to £12k from £20k
Remove restrictions on taking money out of pensions: “No one will have to take an annuity”
“Everybody will get advice”
“Those who want the certainty of an annuity, can shop around for the best deal.”
Pensioner bond: Up to £10bn of these bonds will be issued. A maximum of £10,000 can be saved in each bond
The most far-reaching reform to the taxation of pensions since the regime was introduced in 1921
He’s not kidding. This is massive.
Final rabbit: the 10% savings tax rate will be scrapped!
“The message from this budget is this: You’ve earned it, you’ve saved it. This government is on your side”
Reform of taxation of defined contribution pensions to help 13m people
Osborne sits down
Right-wing think-tank the Policy Exchange tweets:
You can download all of the Budget 2014 documents here
The FT’s John McDermott on the rabbit:
Ed Miliband is getting up to speak
He says working people are worse off under the Tories
Here’s a summary of the chancellor’s support for savers
He says standards of living have fallen “sharply and steeply”
He says living standards have dropped 44 out of 45 months under this PM
Tax allowance is the same old Tory trick − refers to the 24 tax rises since government took office
Miliband says the picture of the country painted today will not be recognised by millions
Miliband: Working people are worse off under the Conservatives
Pensions expert Ros Altman comments:
The “chancellor’s chums” and the “prime minister’s friends” are the only ones who are better off, Miliband says
Miliband says Osborne can’t afford a pay rise of £250 a year for a nurse – and the leader of the Lib Dems is with him “every step of the way”
Miliband reverts to old attack lines on the government’s failure to meet its 2010 promises on clearing the deficit
Miliband points out that Osborne forgot to mention the 24 tax rises in place since the 2010 election
If you want to read the full budget speech, it’s on the FT site
Whose recovery is it under the Tories – it’s the recovery of the few, not the many, Miliband says
Personal finance editor Jonathan Eley:
Still catching up with all that! Savers have been calling for help ever since the Bank of England cut its main interest rate to 0.5 per cent – today they got it in spades.
Full amount will be eligible for either cash or shares as the products will be merged – currently, the cash limit is half that for investments.
Savers can switch from stocks and shares into cash. Currently, only transfers the other way are allowed.
The limit will rise from £11,520 now to £15,000 and the Junior Isa limit will rise from £3,760 to £4,000
It’s Tory values, it’s Tory choices, it’s same old Tories
On pensions, people are finally to be trusted with their own money.
Free and impartial advice on how best to crystallise a pension pot
No compulsion to buy an annuity
Withdrawals out of pension funds over the 25% tax free cash rate will be taxed at normal marginal rate, not 55%
The income requirement for flexible drawdown will be cut to £12,000 (from £20,000)
Raise the capped drawdown limit to 150% (it was only recently raised to 120%)
Increase the amount that can be taken in full at retirement to £30,000 (it’s currently (£18,000)
The changes to limits take effect from March 27; the proposals on annuitisation and free advice will require legislation, which the government hopes to have in place by April 2015.
Commenting on the demand for upfront payment of tax in avoidance cases, Michael Wistow, Head of Tax at Berwin Leighton Paisner, says:
If the government insists on demanding upfront tax payments in avoidance cases, a proper right of appeal is critical. This was not the case in the recent consultation. Without this right to appeal, the Chancellor risks putting political considerations ahead of basic taxpayers’ rights.
It is also proposed that HMRC will demand upfront payments in cases similar to those which have already been decided in favour of HMRC. Whilst populist, it is practically impossible to use one case to determine hundreds of others, given the variety of taxpayers’ circumstances.”
A big criticism of the pension system has been its inflexibility; these reforms, if implemented, would substantially neutralise that charge. People would be able to get at their money (plus the government’s tax relief) without worrying about punitive tax charges as is the case now.
The FASTFT TEAM have posted this on how pension providers are reacting:
Shares in UK-listed pension providers are falling after the Budget included measures to stop people withdrawing funds from pensions to take an annuity.
There will be a wide-ranging reform of the Isa and pensions regime that represents a significant departure from previous piecemeal tinkering with rules.
The annual savings limit will be raised to £15,000, savers will be able to put the full amount into cash, and transfers of stocks and shares Isas into cash will be permitted (currently, only transfers into stocks and shares Isas from cash are allowed).
The junior Isa limit is raised to £4,000, too.
Shares in Aviva are down 1.5 per cent at 509p and Legal & General is 2.3 per cent weaker at £23.14.
Meanwhile, Hargreaves Lansdown, which has already revealed plans to cut fees on some pension products in an announcement earlier this month, is up 2 per cent at £13.40.
The debate has now finished in the Commons
Much laughter as Miliband says five old Etonians are writing the Tory Manifesto.
FT economics editor Chris Giles says the big highlights are:
The changes to pensions and annuities,
The carrots to manufacturers, particularly the £7bn to help them overcome the green levies, and the doubling of the investment tax allowance.
HSBC Trade Forecast shows UK export confidence at record high, but R&D investment must improve for Britain to maintain global position
Reaction from British Chambers of Commerce Director General John Longworth:
“Business wanted a Budget that was disciplined, focused, and geared toward the creation of wealth and jobs – and that’s what the chancellor has delivered.
“With a huge confidence gap still separating employers from young job-seekers, we are very pleased to see the chancellor heed our call to help firms take on and train tomorrow’s workforce. Overcoming that confidence gap means more investment in young people, more apprenticeships, and more jobs, which are critical with more than 900,000 16-to-24-year-olds still out of work.
“Osborne’s focus on investment, exports, house-building and economic resilience passes the business test. By making a better business environment his top priority, the chancellor has recognised that successful and confident companies are the key to transforming Britain’s growing economic recovery into one that is felt in homes and on high streets.
“As with any Budget, there were some populist measures that were not at the top of business’s wish list. Luckily, these were far outweighed by considered measures to support business growth and wealth creation.
“Many of these measures are excellent for now, and for the future. Yet the nurturing of a truly great economy requires more action than one Budget can deliver. At the upcoming General Election, Britain’s entire political class must commit to a long-term programme that delivers better infrastructure, a stronger skills base, access to finance for growing companies, even more export support and a clear, consistent tax environment. Otherwise some of the chancellor’s welcome moves might not have the desired effect in years to come.”
However, the UK needs to encourage businesses to investment in R&D to capture more of the value of their merchandise exports, enabling them to move up the value chain over the long term. The latest figures show the UK invests 1.77% of GDP in R&D, a figure that has remained broadly constant over the past 20 years, compared to 2.77% in the US, 2.84% in Germany and 2.25% in France.
It is developing economies that have accelerated investment over the same period. In developing Asia, R&D spend as a percentage of GDP has more than quadrupled to 1.8% and has almost caught up with that of Europe, while China now spends the equivalent of 1.8% of its annual GDP on R&D, a near doubling of its expenditure over the past 20 years.
Steve Bromhead, UK head of infrastructure, industry and utilities at built asset consultancy EC Harris:
Plans to make £200m available for bidding to Local Authorities to improve highways is positive, as long as it is quick, speedy and simple. With over 350 Local Authorities in the UK, how is £200m going to reach the areas that really need it? Prioritisation of investment linked to the real benefit to the local economy is the challenge faced by the Local Authorities going forward.
As the UK economy starts to grow, we cannot continue to delay investment into our ageing infrastructure. Investment needs to be turned into action and the government needs to accelerate to ensure it can deliver on its promises.”
The Federation of Small Businesses has reacted:
Today’s Budget offered a clear signal for businesses to grow through the increased investment allowance with a focus on manufacturing. The £7bn package to cut manufacturing energy bills will help create jobs and strengthen this key sector
This release from NS&I:
The chancellor has also announced in today’s Budget plans for NS&I to help support savers by:
Launching a special issue of a market-leading savings bond for people aged over 65 which will go on sale during the final quarter of the current financial year (January 2015) with the indicative interest rates announced as 2.80%/AER (1 year) and 4.0%/AER (3 year).
A maximum of £10,000 can be saved in each bond. The limits and the exact rate of the bond will be set in the Autumn Statement.
Lifting the investment limit of Premium Bonds from £30,000 to £40,000 from June 1 2014 and then further increasing that from £40,000 to £50,000 in 2015-16
Increasing the number of monthly £1 million Premium Bonds prizes from one to two per month, with effect from the August 2014 prize draw.
To enable NS&I to deliver this, its 2014-15 Net Financing target will be £13 billion (in a range of £2 billion either side of this, from £11 billion to £15 billion).
Here’s a snap verdict from the FT’s environment correspondent Pilita Clark:
Manufacturers have won a raft of concessions in the Budget with a £7bn package to cut energy bills that will cap a contentious green tax and shield companies from RISING renewable energy subsidy costs.
In a move the chancellor said would create “a Britain that makes things again”, a tax on fossil fuels used to generate electricity will be frozen at 2016 rates until the end of the decade.
Separately, an existing compensation scheme for steel makers, chemical plants and other heavy electricity users will be extended by four years up to 2020, while a new plan worth nearly £1bn will protect these companies from rising green power subsidy costs.
Here’s the verdict from Jonathan Guthrie, the FT’s City editor:
At first blush this is a very good Budget for savings and investment companies, particularly the likes of Hargreaves Lansdown and St James’s Place. They will potentially continue to manage the pension funds of the better off for much longer thanks to the abolition of compulsory annuity purchase.
By the same token, it is negative for big insurers that sell lots of annuities such as Legal & General and the Prudential. Lower down the food chain, impaired life annuity specialists such as Partnership Assurance may also be hit.
The doubling of the annual investment allowance is good news for small manufacturers. But it has little impact for the huge companies sitting on billions of cash and remain reluctant to invest.
Diageo is the beneficiary of a freeze in whisky duty intended to bolster Scottish resistance to independence. And Gala has promised to build three new Bingo halls even as the chancellor halves tax on the faltering pastime but raises duty on fixed-odds betting terminals
Reaction from Ronnie Ludwig, partner in the Private Wealth Group at Saffery Champness, on tightening the net around those using tax avoidance schemes:
“The requirement to pay tax on disputed tax avoidance schemes is a further bayonet into the dying corpse of aggressive and abusive tax avoidance schemes in the government’s anti-avoidance battlefield. The fact that those entering into such schemes will have to pay tax up front on the assumption that the schemes will fail when challenged under the GAAR, will further dissuade all but the most fervent individuals from investing in them. The government war against aggressive tax avoidance continues unabated”.
FT commentator John Gapper’s take on the pension changes:
Here’s the verdict on the Budget from Chris Giles, FT economics editor:
Here’s some market reaction to the budget:
Shares in Aviva are down 1.5 per cent at 509p and Legal & General is 2.3 per cent weaker at £23.14.
Meanwhile, Hargreaves Lansdown, which has already revealed plans to cut fees on some pension products in an announcement this month, is up 2 per cent at £13.40.
The cut in bingo duty to 10% is bound to make a few headlines. Here’s a reaction to it from Daniel Anning, a partner in the leisure team at property consultancy Gerald Eve:
“The move to reduce duty on bingo to 10% will be welcomed by the industry as recognition of the double taxation levied and the unfair treatment compared to other types of gaming.”
More from Chris Giles, this time on the annuities change:
Here’s Kiran Stacey’s assessment of Ed Miliband’s performance:
Ed Miliband had what even his Conservative opponent Andrew Tyrie called “the toughest job in Westminster” today – responding to a Budget for which he had no time to prepare.
The chancellor’s surprise moves on savings rates and pensions meant the Labour leader was not able to tackle the substance of the Budget itself, so chose instead to focus on the well-worn themes of the cut in the top rate of tax to 45p – something announced two years ago – and falling living standards.
Referring to Mr Osborne’s announcement of a new design for pound coins, Mr Miliband said: “He can change the shape of the pound, it doesn’t matter if the pound is square, round or oval if people are £1,600 worse off under the Tories.”
Labour MPs cheered, although their enjoyment was noticeably more muted than that on the Tory benches in response to Mr Osborne. The test now for Labour is whether they can unpick the Budget as successfully as they did in 2012, which has gone down in political memory as the “omnishambles Budget”.
Simon Cox, Managing Director, Molson Coors UK & Ireland, says the cut in beer duty is a welcome step in the right direction:
“This duty cut gives a much needed boost to our customers and the brewing industry, securing jobs and saving money for beer drinkers up and down the UK. This, and the scrapping of the duty escalator last year, is a very welcome and vital break, but there is still some way to go as Britons still pay an excessive amount in tax on beer compared with Europe.”
Reaction from Mike Amey, managing director and head of UK portfolios at PIMCO:
“Very muted market response to the chancellor’s statement, with the main focus on measures to encourage personal savings, business investment and exports. The growth and deficit forecasts are both modestly favourable, with the deficit down and growth up. However, in macroeconomic terms this Budget will not affect deliberations round at the Bank of England, where a newly constituted MPC will still be looking towards higher short rates over 2015.”
Elissa Bayer, Senior Investment Director, at Investec Wealth & Investment, has given the budget a sort-of thumbs up:
“It’s encouraging to see that savers can benefit from a new breed of tax-free ISAs with an allowance of £15,000 and the end to the absurd rule that only allows savers to transfer cash ISAs into stocks and shares and not the other way round. This will boost the savings industry and allow basic rate taxpayers to benefit from greater flexibility. The radical change to the pension system, which means that around half a million people won’t have to buy an annuity, will benefit the economy in the long run as more and more people drawdown money from their pension and spend.
“The government’s growth and fiscal reduction figures are attractive but there is still a long way to go – 2018 is a long way off. The idea that £4bn will be raised from people or entities that have illegally avoided paying tax and that the HMRC have been given the authority to get the money direct from people’s bank accounts, will be ugly and certainly not straightforward.
“As ever the question remains, where will the government find the money to follow through with these ambitious plans?”
One company that’s benefiting from the budget is Applied Graphene Materials. Its shares have jumped 16%
And here’s a recent FT piece on the graphene industry and its listing plans
The insurers are taking a beating:
Legal and General’s shares are now down 7.2 per cent, Aviva 4.45 per cent, Prudential 2.20 per cent
Reaction from Mike Turley, head of public sector at Deloitte, the business advisory firm on the implications for the public sector and those on welfare:
“In confirming that cuts will continue into the next Parliament, today’s Budget reaffirms that the public sector is going to have to grapple with tightening purse-strings for years to come.
“The Chancellor was right to draw attention to the public sector’s debilitating level of debt. This is the year that the interest alone on the government’s debts will exceed £1 billion a week. Central government debt interest this financial year will cost almost as much as our total public spending on education.
“Between raising taxes and cutting spending there is huge scope for improving efficiency in the delivery of our public services and boosting productivity in the public sector, which has been flat for the last 15 years. This is being addressed in pockets of the public sector but there was little discussion in today’s Budget of how this can be achieved on a national scale.”
“The proposal to cap welfare spending is an important step in tackling a long-term pressure on public finances. Welfare accounts for 29% of public spending and, in recent years, demand has continued to push this up. £119 billion of welfare spending is set to fall within this cap in 2015/16, rising in line with inflation to £127 billion in 2017/18.
“While some benefits, such as state pension and Jobseeker’s Allowance are excluded, those elements that are included have increased by 58 per cent, £45 billion, since 2000/01.
“Care does need to be taken, however, to ensure that capping welfare spending does not lead to increased costs elsewhere in the public sector. Targeting certain benefits could add pressure to spending on education, social services, housing and policing, so the danger is that costs are simply displaced.
“Building in accountability on welfare spending and ensuring that, if a future government breaches the cap, a statement will need to be made to Parliament, adds some welcome governance into the system.”
But perhaps the biggest loser is Partnership, according to FastFT’s Chris Nuttall
Shares in Partnership, the specialist pensions provider, have fallen more than 27 per cent after announcements in the UK budget that will effectively end a requirement for new pensioners to buy annuities with their savings.
Partnership is down 27.5 per cent at 231p after beginning the day lower on its announcement that a new UK ban on commission charges had “a deeper and longer impact on the retirement and care annuity markets than we foresaw”.
It is the biggest faller on the FTSE 250, followed by Ladbrokes – down more than 13 per cent due to an increase in duty from 20 to 25 per cent on fixed-odds betting terminals.
William Hill is a big faller on London’s main index – down 7.5 per cent at 348.6p for the same reason – while Rank Group is up 5 per cent at 152p due to bingo duty being halved to 10 per cent, providing a boost to its chains of bingo halls.
And here’s a chart on some of the other tumbling share prices in the insurance industry….
In the time it’s taken me to publish the Partnership post, Chris Nuttall tells me its shares are now down a whopping 43 per cent
And, to be even-handed, here’s a winner – retail financial services provider Hargreaves Lansdown:
Here’s Partnership’s steeper cliff:
Simon Walker, Director General of the Institute of Directors, which has never been shy in supporting the government, reacted by saying:
“This is a responsible and imaginative Budget which should promote growth, exports and investment. It will be widely welcomed across the business community.
“We applaud the strengthening of the link between savers and business investment, through ISA and pension reforms. This has the potential to bring profound change, shifting our culture from debt to savings.
“Support for Britain’s exporters is particularly welcome. Increased capital allowances and reform to Air Passenger Duty were both called for by the IoD and will benefit a wide range of British businesses. Measures to tackle energy costs are also encouraging.
“Whilst we support the increase in the income tax personal allowance, we are disappointed that more and more workers will be dragged into the 40 per cent income tax band, as the Chancellor has failed to raise the higher rate tax threshold by any meaningful amount.”
Jim Meakin, Baker Tilly’s Head of Tax said:
‘All the shocks in this year’s budget appear to have been positive, with the changes to ISAs and pensions being the most significant. The big question is how these will be funded. The suspicion at the moment is that the Government is relying on the £4bn they are expecting to collect through anti-avoidance measures, but will this be enough?’
And, for more balance, the gamblers’ shares (Ladbrokes and William Hill) have also taken a beating. What odds would you have given on that at midday?
And another company taking a pasting…..
The headline of FT commentator Tim Harford’s reaction article says what he thinks:
Economic quackery and political humbug
Has there ever been a chancellor of the exchequer more entranced by the game of politics? Most of George Osborne’s Budget speech was trivial. Some of it was imponderable. The final flurry of punches was substantial. Every word was political.
So let us applaud George Osborne for playing his own game well – a game in which economic logic is an irritation, the national interest is a distraction, and party politics is everything.
Nancy Curtin, Chief Investment Officer of Close Brothers Asset Management comments is pretty happy with the budget:
“We saw sound and fury signifying more change than expected from this year’s Budget. Realistically, Osborne had to make the most of very little. Five years ago, the deficit was expected to reach half the level it is at now, and although the UK is in economic recovery mode, there is little room to deviate from fiscal tightening. That said, upbeat revisions by the OBR put a spring in Osborne’s step, reaffirmed that Plan A is working, and provided an early electoral platform to highlight the progress made on reducing the deficit. While there were no seismic economic changes that will substantially move the markets, staying the course will be seen as good for gilts, and will mean that monetary policy is likely to remain accommodative for longer. There is no free lunch in an indebted world. A Labour led looser fiscal policy would simply mean tighter monetary policy.
“More encouraging still are the steps the government are taking to promote the more balanced recovery needed. Trade is still a long way from the Chancellor’s pipe dream of £1 trillion in exports by 2020. While the global environment is still challenging, strengthened support for UK Trade and Investment, doubling export finance available and cutting interest rates for exporters by a third, and additional relief to energy intensive firms should go some way towards building more momentum. Sluggish business investment also remains a hurdle to faster growth, and it is still a fifth below peak levels. The extension and doubling of the annual investment allowance should help here. In conjunction with the forthcoming reduction in corporation tax, operating conditions for firms are improving, which bodes well for GB plc and for UK equities.
Here’s FT economics editor Chris Giles’s assessment of the budget – in charts.
FastFT has published a post that should provide Osborne some food for thought – namely that while the UK economy is growing fast now, it’s still got a lot of catching up to do to overtake the US. Here’s a Reuters chart showing the work that still needs to be done:
John Overs, partner at Berwin Leighton Paisner, said of the changes to the pension industry:
“The changes to defined contribution pension schemes is good news for the financial services industry. Retirees will now be presented with a greater choice of products from the industry, so while companies will earn less from annuities, they will see an uplift from the sale of other products.
This will be a mutually beneficial situation for companies and individuals, leading to greater diversity and competition within financial services.”
Bill Dodwell, head of Tax Policy at Deloitte said: “Today the Chancellor produced a Budget focused on savers, with additional funds devoted to bingo players and drinkers.
It’s a lengthy assessment but worth reading….
“Increasing the ISA limit to £15,000 from 1 July 2014 – and merging cash ISAs and stocks and shares ISAs will help millions of savers and reduce administration for the fund management industry. Removing tax from a greater level of ISA cash savings helps counter-act the impact of low interest rates – but the Exchequer cost of the measure will naturally increase as interest rates rise. This will cost £80 million next year, rising up to £230 million and then £325 million.
“The proposed changes to defined contribution pensions – which now cover 13 million people – will help individuals manage their own savings more effectively. It is good to see that the Government is providing funds to help prospective pensioners with advice to cover the much wider range of choices. From 2015, it will no longer be necessary to take an annuity (relying on drawdown instead) and there will be some earlier relaxations from 27 March. The 25% tax-free cash lump sum is retained but from April 2015 withdrawals in excess of this amount will be taxed at marginal rate, instead of the penal 55% rate applying currently. There will be consultation about how to extend some of the reliefs to defined benefit schemes.
“The main avoidance measure will be the new requirement for users of tax schemes to pay up front tax as if they had not undertaken the scheme. This takes effect from Royal Assent and is an acceleration of cash payments rather than an absolute increase in taxation. HMRC win far more cases than they lose, when they litigate tax avoidance schemes. This is estimated to bring in £4 billion over five years.
“The main business tax measure is the boosting of the annual investment allowance – currently £250,000 per annum in the two years from January 2103 – to £500,000 from 1 April 2014-31 December 2015. This allows businesses to get immediate tax relief on investments in plant and equipment. Whilst the relief is welcome, constantly changing this relief is complicated to understand and may not have quite the beneficial effect intended.
“Business will also note the Chancellor’s commitment to bring into effect quickly the proposals on internationals tax changes coming from the OECD. The first five actions in the Base Erosion and Profit Shifting project are due for approval in September 2015.
“Overall, this Budget is a modest giveaway of some £500+ million, in the context of forecast taxes of over £600 billion.”
Paul Macro, partner in the DC & Savings team team at pension adviser Mercer is not completely convinced by the changes to pensions:
“Clearly all of this is good for flexibility but does go against the ‘save for income in your retirement’ mantra if people can simply take all as a lump sum.
“This could be a step on the road to a combined pension/ISA allowance regime and an opportunity to make further changes to pension tax relief on contributions. We welcome any moves to make it easier for the consumer to find the best solution to convert a pension pot into an income.
“Consumers will need more support in making sure they acquire the right product at the right time at the right price on an on-going basis. We welcome the ‘Right to advice’ initiative but it needs to be sustainable and genuinely available to all retirees both at the point of retirement and beyond. We await further details.”
Sharlene Goff, the Ft’s retail banking correspondent has spotted this nugget in the Budget:
Peer-to-peer lending will be allowed within tax-free individual savings accounts (Isas) for the first time in what providers have hailed as a “seminal moment” for the nascent industry.
This rapidly growing form of finance enables consumers and businesses to fund each other. The government has supported the sector, with its business bank directly investing in some of the biggest platforms.
However consumer groups have warned that people may not fully understand the risks involved in investing in peer-to-peer lending. Consumers’ funds are not protected by the Financial Services Compensation Scheme and they could lose all their money if borrowers fail to repay.
Here’s the reaction of John Cridland, the CBI director-general. It’s what you’d expect, considering the help Osborne gave to businesses:
“The Budget will put wind in the sails of business investment, especially for manufacturers.
“This was a make or break budget coming at a critical time in the recovery and the Chancellor has focussed his firepower on areas that have the potential to lock in growth.
“The CBI has pushed hard for this significant and much-needed energy package that will help keep manufacturing jobs in the UK, while underpinning vital investment in new energy.
“The doubling and extension of the Annual Investment Allowance, together with making the seed enterprise investment scheme permanent, will be a shot in the arm for many medium-sized businesses.
“On pensions, what’s important is that people on low incomes can make more informed decisions on defined contribution schemes. For many, that will still mean taking advice and buying an annuity, but the increased flexibility will be welcomed.
“We are pleased that the Government has chosen to consult on the implications of making a similar change to defined benefit pensions as stability for these schemes is essential.
“Changes to the ISA system reflect our call to help rebuild a savings culture.”
William Hill has released this statement on the Budget:
“William Hill notes the announcement by the UK Government that it intends to increase the rate on Machine Games Duty on B2 content from 20% to 25%. Based on 2013 B2 gaming machine gross win, had this rate applied in 2013 it would have cost the business an additional £16m. This measure is expected to take effect from 1 March 2015.”
Lobbying can pay off, leisure industries correspondent Roger Blitz has tweeted:
Rank owns Mecca bingo clubs….
Great tweet from Faisal Islam of Channel4 News:
Here’s a link to the OBR’s latest forecasts
The OBR reckons the housing market is going to continue growing at a rapid rate, but not forever….
More on the OBR and house prices:
Oliver Knight of estate agent Knight Frank has blogged on the fine print. Here’s a taste of what he has to say:
“The OBR has revised its forecast for house price growth for the 5 years to 2018-19 from 27% (in December) to 30.8% (now). According to the OBR, growth of 8.6% is expected in 2014-15, 7.4% in 2015-16, 4.3% in 2016-17, 3.7% in 2017-18 and 3.7% again in 2018-19.
“The OBR notes that by the end of the forecast period, house prices are expected to be 0.5% below their pre-crisis peak in real terms and the house price to income ratio to be 2.3 per cent below its pre-crisis peak.”
On that note we’re going to call it a day. Thanks for following and for all your comments…