George Osborne’s Budget for 2014 was billed as one “for savers”, by the Chancellor himself, with an ISA and personal tax allowance increase grabbing the headlines.
Changes to the rules surrounding pension pots mean that no one will need to buy an annuity and will give them the right to “face to face” advice.
Despite the Chancellor’s positive take on the economy, which he says is growing faster than the US and Germany, Labour were keen to address the “cost of living crisis”.
Leader of the Labour party, Ed Miliband, said that on average Brits were £1,600 worse off under the Coalition government.
It remains to be seen whether or not the announcements will go far enough in improving the economy and the standard of living as a whole.
See below for an explanation of the key announcements from the Budget 2014
The overall ISA limit was expected to increase in the 2014 Budget but Mr Osborne’s announcements will mean larger raises to the limit and how these savings operate in general.
The current ISA limit stands at £11,520 (this will increase to £11,880 from 6 April) and can be combined between a cash ISA and a stocks and shares ISA.
However, from 1 July 2014 this will increase to £15,000 and will allow savers to merge their ISAs into a single one.
- The annual limit for ISAs will be increased to £15,000 from 1 July 2014
- Savers can transfer all ISAs they already have into one and make use of the full £15,000 allowance
While the increase is significant, it remains to be seen how much benefit savers will get out of the new ISA allowance.
Current record-low interest rates mean that even the best ISAs on the market will not give most savers more than £25 extra.
Tax and personal allowance
Following pressure from the Liberal Democrats and deputy prime minister, Nick Clegg, to raise the personal tax allowance to £10,500, it was little surprise that the Chancellor put this in the Budget.
Meanwhile, the threshold for the 40p income tax will continue to rise at a relatively slow rate, which is likely to see more people pay the higher rate of tax than before.
Labour claim that around 1 million more people will pay tax at the higher rate under the Coalition’s plans than under their own.
- Amount people earn before tax will rise from £10,000 to £10,500
- 40p tax or higher rate tax threshold will rise from £41,450 to £41,865 next month, and by a further 1% next year
- No inheritance tax for emergency services members who give their lives in the course of duty
- Under 21s will not pay National Insurance
- Beer duty to be cut by 1%, making pints 1p cheaper
- Tobacco duty to rise by 2%
- Bingo duty halved to 10%
- Air passenger duty on all long haul flights to be same rate as flights to USA
- Tax free childcare from next year
Housing and flooding
Mr Osborne reiterated plans to extend the Help to Buy equity loan scheme to 2020, among other measures which he says will allow 200,000 new homes to be built.
However, it’s unlikely this will be able to keep up with demand. London, alone, “needs more than 800,000 new homes” by 2021, according to London Councils, which represents the capital’s local authorities.
Following the recent flooding disasters, £140m has been reserved for flood defences and an extra £200m pothole fund has been created.
- Help to Buy equity loan scheme extended to 2020
- 15% stamp duty charge for people buying properties worth over £500,000 through a corporate envelope
- New £200m pothole fund
- £140m for flood defences
The Chancellor outlined plans for a new Pensioner Bond with interest rates of 2.8% on one-year bonds and 4% for three-years, available from January 2015.
The most significant changes will come in the annuity reform, which will allow people more freedom to choose what they do with their pension pots.
Mr Osborne’s move comes in response to growing frustration around the requirement to buy an annuity and the inflexibility of the market.
- New right to “face to face” advice for pensioners
- Freedom to draw down as much or as little of their pension pot as they want
- No need to buy an annuity
In other announcements, the welfare cap, which affects a range of social security benefits including maternity allowances but excludes pensions and Job Seekers Allowance, will be introduced from 2015, starting at £119bn and rising in line with inflation.
- Pensions and Job Seekers Allowance excluded from welfare cap
- Welfare budget capped at £119bn from 2015 and rising in line with inflation
This cap will affect those receiving housing benefit and disability payment, among others, going into the next Parliament.
Labour has said that they plan to introduce their own welfare cap, lasting three years, if elected in 2015.