October 23 2014 Latest news:
Annabelle Dickson, Political Editor
Friday, March 21, 2014
As the dust settles on this year’s Budget, political editor Annabelle Dickson takes a look at how different social groups will be affected.
Pensioners could be ‘priced out’ of buying an annuity as a result of the radical reforms to retirement savings announced in the Budget, a respected economic think-tank has warned.
Chancellor George Osborne made incentives for savers and pensioners the centrepiece of his Budget statement.
But the Institute for Fiscal Studies (IFS) said there would be losers from the package.
IFS director Paul Johnson said: “The liberalisation of pension rules is expected to lead to more tax revenue over the next few years. But that depends on rather uncertain behavioural assumptions and in the long run the Treasury expects the measure to reduce annual revenues in future years.”
The Budget package will see people given free financial advice about their pension pots, and allowed to draw as much of their defined contribution fund as they want. Instead of being hit with punitive 55% tax on sums they extract, they will instead pay normal rates. But those who still want to purchase an annuity to fund their retirement will suffer, the IFS warned.
The early results of an EDP24 online survey into the Budget found that 29pc believe the budget will leave them better off, 20pc worse and 49pc say it will make no difference. More results are online
50-something earning over £42k nearing retirement, children have flown the nest.
Despite a campaign from Tory backbenchers, there was no significant rise in the threshold at which the higher rate is paid.
But those who have been able to save, will be boosted by the increase in the ISA limit.
The biggest change however will be for those about to collect their pension.
Annuities, often cited as the most hated financial product in Britain, are effectively a bond which provides a retirement income for the rest of your life.
The Chancellor has announced a new law that will get rid of the requirement to buy an annuity entirely. Instead, people will be able to take the lump sum as cash and organise their own spending.
Small business owner looking to expandabroad
There was a raft of business- friendly measures in the Budget.
The chancellor doubled finance to help firms export to £3bn, cutting interest rates on lending by a third.
He also increased the annual investment allowance for businesses to £500,000, until next December,
For those based in enterprise zones, capital allowances have been extended further.
A cut in aviation taxes will also benefit those looking to do business in China or Brazil with a £28 saving on the journey.
Cut in aviation taxes and export help
Single person on a first and low salary
While a nice gimmick, the 1p off a pint is unlikely to make a huge difference to the finances.
But the rise in the personal allowance to £10,500 next year, will. A basic rate taxpayer will see a saving of about £112 in 2014-15 and a further £100 in 2015-16 on their annual income tax bill.
Efforts to boost the housing supply, with a £500m pot to provide loans to small housing developers, could help those who will be buying in the future. Even better if you fancy a move to Ebbsfleet, where there are plans for a whole new garden city.
Raising of the income tax threshold from £10k to £10.5k
Low-paid working couple looking to get on the housing ladder
Hopes of a radical stamp duty cut never materialised, providing little help for those looking to buy.
But the changes to Individual Savings Accounts (ISAs), which will make it possible to save £15,000 in total in cash or any mix of cash or stocks and shares, will be a boost, as will raising the personal tax allowance.
Raising the income tax threshold
Married homeowners with two children. One works, one stays at home.
Stay-at-home mums and dads lost out on the new childcare tax break, worth up to £2,000.
The move, which will not kick in until next autumn, only applies to homes where all parents work.
But the previously announced marriage tax break, which will see more than four million married couples benefit from tax breaks, could provide a very minimal boost, with the allowance increasing from £1,000 to £1,050. But in its first year, the policy will only cost £25m: just over £1 each for every married person in the UK.
For rural-dwelling families reliant on a car, a freeze in fuel duty and cut to energy levies will be a small help, but bills still remain painfully high.
Unemployed man in early 30s with family
Welfare is to be capped at £119.5bn for 2015-2016.
Pension credits, severe disablement allowance, incapacity benefits, child benefit, maternity and paternity pay and universal credit will all be within the scope of the cap.
The cap will include spending on the Employment and Support Allowance, but not spending on Jobseeker’s Allowance.
But the government will argue that moves to boost business, including a tax cut to bingo halls and on beer, will help get the unemployed back to work as businesses expand.
Key policy? Welfare cap