There had been a great deal of pressure mounting on the Chancellor to boost growth and address the spiralling national debt and deficit as the last three years of austerity have not had the desired effect.
The nation was looking for an inspiring and uplifting Budget that would trigger a turnaround in fortunes for both the economy and the government. His, ‘it is taking longer than anyone hoped’ opening remark was met with howls of derision and came as no great surprise.
He made all the usual big picture announcements around inflation targets, growth and government borrowing forecasts, and gave the tabloids some nice headline opportunities with a 1p off beer duty, but what else was there for businesses and the man and woman in the street?
Well, while I’m sure the scrapping of the planned September rise in fuel duty will be welcomed, the Chancellor didn’t make any radical announcements or policy changes.
One tax cut for jobs and growth came the way of a 1% cut in corporation tax to 20% in 2015.
Personal allowances have increased from £8,105 to £9,440 for the new 2013/14 Tax Year and up to £10,000 the following year. Those aged over 75 are not so lucky with their allowance being frozen at £10,660. However, the Basic State Pension will go up to £5,727.80 for a single person and £9,159.80 for couples and by 2016 (a year early) the proposed level pension will be introduced.
Interest rates still favour the borrower rather than the saver, but a small gesture that I was pleased to see was the ISA limits will be increasing to £11,520 for 2013/14.
TAX AVOIDANCE - As part of his Budget speech, Chancellor George Osborne said HM Revenue & Customs is planning to “name and shame” the promoters of tax avoidance schemes in a fresh crackdown on individuals or companies who do not comply with tax laws.
The Government is due to publish a progress report on its tackling of tax avoidance and evasion this week. It has already set up a ‘general anti-avoidance rule’ with several ‘tax havens’, which will allow the tax authorities to recover money saved by any scheme which is deemed to have been set up simply to avoid tax.
But not all tax planning is abusive and arrangements such as discounted gift trusts and loan trusts remain unaffected by the changes.
IHT - The Government also confirmed today its intention to freeze the inheritance tax nil rate band at £325,000 until April 2018. They expect approximately 5,000 additional estates per year to become taxpaying estates by 2017/2018 due to this freeze. Therefore, non-abusive inheritance tax planning will become an important requirement for many clients in the years to come.
STATE PENSION - The basic state pension will rise by 2.5% in April, taking it to £110.15 a week.
The Government has also announced it would introduce a single flat-rate pension of £144 a week in 2016.
SINGLE TIER PENSION - The change from separate Basic State Pension and State Second Pension (S2P) to a combined Single Tier Pension will now happen in April 2016, a year earlier than planned. The starting level of pension, for a full 35 year National Insurance record, is £144 per week in 2013 money.
The single tier pension is good news for those being auto-enrolled into workplace pension schemes, as it ensures that it will always pay to save by lifting low income workers off means tested benefits in retirement.
Those who had previously contracted out will have a lower entitlement than £144 to reflect the contracted out pots built up in their personal pensions. But they can rebuild back up to the full £144 by working and paying National Insurance after 2016, and the bringing forward of the launch increases their scope for doing this.
INCOME DRAWDOWN - The Budget has confirmed that 26th March 2013 will be the date when capped income drawdown rates will rise from 100% to 120% of the value of an equivalent annuity.
Furthermore, the Budget confirms that the government has commissioned the Government Actuary’s Department to review the income drawdown tables. This review will look at the assumptions used to provide drawdown rates to "make sure they continue to reflect the annuity market." Ensuring that drawdown rates remain accurate is to be welcomed as GAD rates have been so low in the past that they have effectively fallen below annuity rates.
CAPITAL GAINS TAX - The annual exemption from tax of any capital gains will increase by 1% a year in 2014-15 and 2015-16, to £11,000 from 6 April, 2014 and £11,100 from 6 April, 2015.
ISA - The stocks and shares ISA limit will rise to £11,520 and the cash ISA limit will rise to £5,760 with effect from 6 April 2013.
INCOME TAX - The personal allowance is currently £8,105 and will go up to £9,440 from April this year. But the Chancellor announced today that he is raising the allowance to £10,000 in April next year (one year earlier than expected), which means that almost 3 million of the lowest paid will not pay any income tax.
Longer term we will see higher rate income tax payers are better off - The higher rate income tax threshold will increase by 1% a year in 2014/2015 and 2015/2016. That is below the level of inflation, and is likely to bring another 400,000 taxpayers into the 40% higher rate.
NATIONAL INSURANCE CONTRIBUTION - Every company in the UK is to be able to get up to £2,000 cut from their National Insurance Contributions (NIC), which means that they can hire someone on £22,000, or four people on the minimum wage, and pay no jobs tax. This is intended to help small firms.
CORPORATION TAX - Osborne cut Corporation tax from 23% now to 20% from April 2015.
FUEL DUTY - No increase in fuel duty in September.
ALCOHOL DUTY – Immediate reduction in alcohol duty on beer by 1p a pint as (beer was due to go up by 3p in April). But 'duty escalator' to remain in place for wine, cider and spirits.
TOBACCO DUTY - Escalator stays in place – so tax on a packet of cigarettes to go up by inflation +5%.
While we all hope that he succeeds in generating the much needed growth in the economy - only forecast to be 0.6% in 2013 rising to 2.8% in 2017 – it is fair to say that the credit crisis left the economy on its knees and, perhaps unavoidably, the subsequent plans and actions adopted by the government are more of a step into the unknown than a tried and tested formula to recovery.
Ian Poysden Dip Pfs