A Budget for business and older people

 
Money

This was a Budget for business and older people.

So in that sense, it was a very traditional Tory Budget - perhaps the most Conservative since the creation of the coalition government in 2010.

Is there a general election on the horizon?

There were two big categories of reform - help for businesses to invest and export; and a genuinely radical package of reforms of the tax system as it affects savings.

On business, the annual 100% tax allowance for investment has been doubled to £500,000.

And for exporters, the amount of government credit available to support overseas sales has also been doubled, to £3bn, and the interest rate charged on that credit has been reduced by a third.

There will be few moans about any of that, from the business community.

But more eye-catching are the reforms to savings.

Here, there are three initiatives.

First. the ISA limit is increased to £15,000. All of that can be invested in cash savings accounts for the first time, and it will be possible to convert existing ISA share accounts into cash accounts.

Second, £10bn of new fixed rate bonds at higher interest rates will be made available for those over 65.

And most significantly, the chancellor announced plans to abolish the requirement to invest in low-yielding annuities for those saving for retirement in defined contribution schemes.

That last reform will be widely welcomed by those approaching retirement - although it exposes the government to the risk that some who retire will consume their savings long before they die, potentially creating an increased longer term liability for the state.

George Osborne at 11 Downing Street
UPDATE 1500 GMT

What is very striking is that the new freedom to cash in, being given to those saving for a pension, is expected to raise money for the Treasury.

How so?

Well, those taking the money, rather than buying a low-yielding annuity, will have to pay tax at their marginal tax rate on that cash (so a tax rate of 20% if they are basic rate taxpayers).

And the sums of revenue for the Treasury are non-trivial, a forecast £1.2bn by 2018-19.

Funnily enough, the maximum annual cost of the additional tax break for investment by businesses will be almost the same, £1,3bn, in 2016-17.

As for that increase in credit for exports, that appears to be a free lunch - or at least that's what the Treasury and the Office for Budget Responsibility (OBR) seem to believe.

By contrast, the cuts in tax payable to the government for carbon dioxide emissions by power generators - via what's known at the carbon price floor - will reduce revenues by £870m in 2018/19.

That reduction in the de facto price of carbon-based energy will doubtless by criticised by the green lobby.

Finally, and as I mentioned in my note of early this morning, the OBR has reduced its estimate of how much spare capacity there is in the economy.

What does that mean if the OBR is right?

Well, it reinforces the government's determination to press on with austerity, since (on the OBR's assessment) the current recovery is not generating sufficiently increased tax revenues or sufficiently lower benefit payments to eliminate the public sector's deficit or annual borrowing.

Also it implies that wage inflation may take off sooner than the government might find wholly delightful - for all its desire to see a rise in living standards - because any sign of significant inflationary pressures would force the Bank of England to increase interest rates.

 
Robert Peston, economics editor Article written by Robert Peston Robert Peston Economics editor

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  • rate this
    -6

    Comment number 53.

    It is the election effect.

    Core Tory voters.

    Will gain.

    What a surprise.

    Not.

  • rate this
    +2

    Comment number 52.

    Good news that pension funds up to £30k can be encashed - the cash will boost the economy and HMRC will get 20 years of tax in one go. Financial Advisers will no longer need to advise on 'small' funds and insurance companies will no longer have the cost of paying out 'small' annuity payments. Good news for everyone in fact !

  • rate this
    +4

    Comment number 51.

    A decent budget in my opinion. £15k new ISAs are great. Removed restrictions on pensions is good - you should be able to spend your own savings however you want. Would have liked to see more done on income tax, specifically on the 40% band.

  • rate this
    +3

    Comment number 50.

    So....the tax on bingo has been halved. I guess the amoral gambling industry lobbied long and hard for that one.

    And you can bet your Mum that the Daily Mail won't even mention this, in spite of them frothing at the mouth over the last government's relaxation of gambling regulations.

  • rate this
    +29

    Comment number 49.

    34. If your whole view of pensions relates to just the state element then i see your point but that is a ridiculously narrow view. For anyone who has spent a lifetime saving into a private or workplace scheme and suddenly found that both the value of the pot has shrunk and worse the £ for £ return on annuities has fallen through the floor I would suggest they have hard a hard time wouldnt you???

  • rate this
    -2

    Comment number 48.

    20.
    60022Mallard

    But we musn't let the truth get in the way of a politics of envy story.

    Why is it that every time someone notices being robbed blind the envy word comes up? It is not envy, it is a normal human sentiment to want others to pull their weight.

  • rate this
    +4

    Comment number 47.

    Some genuinely creative things here to help pensioners and savers. Just a pity that the pensioner bonds aren't available at say age 60 years rather than age 65 years.
    Miliband looked like a spiteful schoolboy in his response - he didn't refer to the budget at all - same old rhetoric that he always spouts. Pity Spitting Image isn't still around - they would have had a field day with his weird face

  • rate this
    -10

    Comment number 46.

    This is exactly what we need more money for wealthy older people, who benefitted from 2 decades of the good times.

    This is just the Conservatives securing the vote from their core voters, the older, wealthier generation.

    Not all people in their 50's, 60's and 70's are well off, but they will be better off than people who are now in their teens and twenties will be in 30 years time...

  • rate this
    0

    Comment number 45.

    If you are happy with less than 1% interest (gross) in a cash ISA pop along to your local robber bank and invest. If not go and see a professional adviser and invest in a decent Stocks and shares ISA many of which have delivered over 10% pa returns for the past 5 years. You get what you pay for and for the risk you are prepared to take.

  • rate this
    -29

    Comment number 44.

    Abolishing the 10% tax rule on savings is disgraceful.
    If you earn just above the tax coding allowance, owt you have to pay 20% tax on savings.
    This can only affect the poorest in society.

    RICH BOY STRIKES AGAIN.

  • rate this
    +1

    Comment number 43.

    Can someone please understand.
    Most independent Coffee Houses are self-employed not Companies and don't pay Corporation Tax.
    Income Tax is deducted from people not companies. Companies pay Corporation Tax.
    The money paid in income tax/no IS NOT A CHARGE ON THE COMPANY, it is the money they deducted from the employees.
    You are comparing Income tax and self-employed tax with Corporation Tax!

  • rate this
    +27

    Comment number 42.

    28.PreCensored

    Not necessarily true. The savings interest rates which many pensioners rely on to supplement their pensions have been very poor over the last few years while low interest mortgage rates have benefited many younger property buyers over the same period. When todays pensioners were younger during the 1980/1990s the mortgage interest rate was for many years at 15%.

  • rate this
    +4

    Comment number 41.

    Nothing here for pensioners who through hard work but on a low income and therefore no annuity from a pension that could not be afforded due to being raised immed after the war. I see nothing here to help those whose pensions have gone bust and are stuck on a PPF pension which is on a decreasing scale.

  • rate this
    0

    Comment number 40.

    GB

    500 Starbucks and 500 independents may well pay the same overall in those taxes, but you know that was not the point trying to be made about big businesses in the original message

  • rate this
    +7

    Comment number 39.

    Having recently retired from business I know what you mean.

    I spent the entire lifetime of the previous government shouting for more support for manufacturing industry. Peter Mandelson was the only one who listened and that was too late, but this lot seem to have got the message albeit eventually.

    They have also grasped the truth that the less you tax the more revenue you raise.

  • rate this
    +5

    Comment number 38.

    15 and 19

    The politics of envy.

    Just as you and I couldn't choose our parents neither could GO. I'm sure had you been born to a rich family you would enjoy the benefits too.

    The trouble with politics is leaders of all parties are wealthy and live in big houses in fashionable London-Milliband is just another.

    Better to be a pragmatist who sees the best/worst in all our politicians.

  • rate this
    +2

    Comment number 37.

    It is never those that really need the help that get it. Eventually it all goes to those earning big bonuses etc etc whilst the rest of us work every hour we can to live.

  • rate this
    -6

    Comment number 36.

    11/16

    There are few more dangerous species on the planet than 'conviction politicians'.

    We should thank our lucky stars that we no longer have many.

  • rate this
    +4

    Comment number 35.

    Some good, freeing us from annuities. However ISAs are of no use when rates pay nothing. Further banks make a habit of cheating everyone by sidelining last years on no interest.

  • rate this
    -4

    Comment number 34.

    18. RugbyRugbyRugby
    7 MINUTES AGO
    Removing the pension annuity scam and lifting the tax free savings allowance is well overdue savers and pensioners have been hammered for 6 years

    Pensioners have been hammered for 6 years?! Do the words "Triple Lock" mean anything to you? Of course since one of the "locks" is linked to earnings which haven't risen at all they might as well say "Double lock".

 

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