Local financial advisor Ian Green breaks down the Chancellor's announcements
Mr Osborne (GO) announced a “Budget for hard working people”. Good news for me as I’d been working hard all day and the next morning summarising the budget and writing this stuff…
Also, as anticipated, we heard that the Office for Budget Responsibility (OBR) have reduced their forecast for UK GDP, though the IMF still believe it will be ahead of many other countries in Europe including France and Germany – I can’t help but feel like the time I won an ugly competition…
The OBR don’t believe that the current quarter will prove to be recessionary, suggesting that a “triple dip” is unlikely.
Jobs are continuing to be created, with 6 Private Sector jobs created for every 1 cut in the Public Sector.
As to borrowing, critics of the budget point out that taking everything into account, GO’s aim of reducing the deficit is failing. And failing badly. The deficit, at £120billion (just a mind bogglingly HUGE number when you try to put it into any kind of perspective) this year, is about the same as last year and is predicted to be about the same next year. The target of cutting this has slipped into the next parliament and has taken with it some of the possible cuts on public spending.
THE BANK OF ENGLAND
GO reaffirmed the 2% inflation target for the Monetary Policy Committee (MPC) and added flexibility to interest rate setting by allowing factors other than inflation to be considered when rate setting. What will “unconventional monetary measures” mean?
GO also confirmed discussions with BoE to extend the Funding for Lending scheme.
TAXES AND RELIEFs ETC.
The Chancellor stated that “the tax cuts in this Budget are paid for” and at first listen that seems to be true, so not a give-away Budget, more of a re-arranging Budget. Looking at all the figures, it certainly seems roughly ‘neutral’ in fiscal terms.
New tax reliefs for creative industries (viewers of my occasional videos on www.iangreen.tv will note I do all that without the aid of tax relief!) ; a new incentive on extra-low emission vehicle to be brought in. Also a Shale Gas Field Allowance and quicker planning procedures for this industry announced.
The current CGT “holiday” is extended for the SEIS in 2013/14.
No CGT on shares sold to employees. Employers can now also offer double the amount in tax-free loans (now £10,000) to employees for such things as season tickets.
Stamp duty abolished for shares on growth markets such as AiM.
Cut from 28% to 21% already announced, and now a 20% rate effective 2015/16. The small profits rate and main rate will be unified, apparently for the first time since 1973…
Then & Now
In a quick break from the budget, can you guess what these comparisons are? Answers at the end.
A £8,396 £162,924
B 8.27p 138.4p
C 11p £1.35
D 987,000 2.5million
EMPLOYER NATIONAL INSURANCE
An Employment Allowance should eradicate the first £2,000 of a company’s national insurance contributions. Possibly one of the budget’s headline ‘giveaways’.
Tax agreement in place with Isle of Man and Channel Islands. The much anticipated general anti-avoidance rule (GAAR) will ensure that the fair tax rates are collected and paid. This will be accompanied by a policy to ‘name & shame’ firms that sell aggressive tax planning schemes – note, this absolutely does not include Green Financial! The GAAR is designed to tackle what are considered abusive, yet legal schemes which contravene the will of parliament.
Will the reduction in corporation tax (see above) prompt the likes of Starbucks and Amazon to pay their share? Starbucks have offered £20million to the public purse already. If they don’t step forward willingly maybe the ‘£4.6billion clampdown’ on tax avoidance will make them? GO said “We are leading international action on tax avoidance...global rules governing multinational firms…should be updated from the 1920s…made relevant to the internet economy of the 21st century”
CHILDREN & CHILDCARE
Changes to the current scheme from 2016 - tax-free vouchers as announced yesterday.
Good to see consultation on the possibility of merging the old ‘Child Trust Funds’ into ‘Junior ISAs’. Clients of at least a few years standing will remember when Junior ISAs were announced and the detail available, I just couldn’t understand the need to keep CTFs and the complexity around who could have what type of plan. Simplification in this area, so it is easier for friends and all the family to save for children, would be much welcomed.
Also as previously trailed, a flat-rate pension of £144 pw (not per annum as GO said in the House) brought forward to 2016. Defined Benefit Scheme members will see an NI increase, though will receive larger State pensions “as a result”.
Individual perspectives on this will vary. Policy makers say the new flat rate pension will be better for 90% of people. If you are in the 10% you may view this announcement as a £5billion a year windfall for the treasury at your expense. If you are one of the 9 in 10, you may view the simplified flat rate pension as a welcome and more generous state pension.
Excellent news for those in pension ‘drawdown’. Many have been faced with substantially lower annual incomes due to changes in legislation coupled with low interest rates. After much lobbying GO announced The Government has commission the Government Actuary’s Department (GAD) to undertake a fundamental review of the assumptions underpinning drawdown rates. Hopefully this will lead to further rises in income availability, especially after the return of the 120% figure that was taken away previously.
Most professionals want the GAD maximum used to set drawdown rates to be calculated using a mixture of long-term corporate bond yields and long-term gilt yields. The GAD maximum is currently based on 15-year gilt yields.
Making the change would better reflect the price of a single-life annuity on the open market and would increase the maximum income available to savers. Estimates suggest moving to long-dated gilts will increase the GAD max by about 10 per cent. Adding investment grade corporate bonds into the yield mix could add another 5-10 per cent.
Again as anticipated, there will be a significant change to the current limits, from 2016, with a new cap to protect savings above £72,000 and a “threshold” of £118,000. We expect this to a) be fleshed out and b) change between now and then!
Consultation to take place on changes to the current rules which require a declaration of tax status to be made each time a donation is given.
HELP TO BUY
A new scheme to help house builders and house buyers. PART 1: £3.5bn to be spent on shared equity loans. The Government will offer 20% of property value as deposits, as long as purchasers put down 5%. Available to people on all incomes (not just first time buyers) for newly built homes, up to £600,000 in value - interest free for the first 5 years. PART 2: A mortgage guarantee scheme to help all homeowners. £130bn of mortgages “guaranteed” by the Government (lasts until 2014).
Views seem to be split on this. Is it a welcome move that will help those who can’t afford big deposits to get onto or move up the housing ladder? Support for the housing market acting as a driver for economic growth? Or is it, as one economist described it, “absolutely insane” as it fuels an increase in sub prime lending helping those who can’t afford it to borrow?
GO scrapped the Fuel Escalator, and the Escalator for beer, also CUTTING the tax on beer by 1p. A great help to pubs and certain parts of the UK – it was noticeable how many of his colleagues (and a couple of opposition MPs) GO credited for their work in areas which he then gave good news on.
Not wishing to make light of a serious offence, but I heard one wag comment after the budget that the cut in beer duty along with the scrapping of the fuel duty rise was a big win for drink drivers.
PERSONAL INCOME TAX ALLOWANCE
The personal income tax allowance is increased to £10,000 from 2014/15.
Great news for lower earners but the previously announced drop in the higher rate threshold (and future rise of just 1%) means that more people will be ‘fiscally dragged’ into the higher rate tax bracket.
Speaking as a financial planner, this means the work I do assisting clients in providing tax efficient income takes on even greater value. Do contact me if you, or family and friends, want to discuss legal and simple ways to be as tax efficient as possible.
No good news here. The treasury have told NS&I once again that they must aim for no new money in! So don’t expect to see premium bond prizes increase, or new bonds or savings certificates on sale anytime soon.
As ever, this missive is intentionally only a summary of the points covered in the Chancellor’s speech and further investigation of the detail in the full 112 page Budget document will be required.
Budget news you may not have heard, or needed to know…
Bingo! Overseas bingo operators can now participate in the national game, theoretically increasing the prize pool
Rubbish! Landfill tax has increased by £8 a tonne. Bad news for operators in that industry and of no consequence to fly-tippers
To infinity and beyond! £2.1 billion of R&D support for the aerospace sector over 7 years
Red Tape Challenge! The whole regulatory system will be looked at [Sir Humphrey exits stage left…]
On your Marks, Get Set, Go! Are you an overseas athlete competing in Glasgow at the commonwealth games next year or the London Anniversary Games? Then you are exempt from income tax
Answers to then and now for 1973
A Average house price
B Litre of petrol
C Loaf of Bread
D Number of unemployed
|The required small print: Please don’t take this article as personal or specific financial advice. It is intended to be guidance only. The value of any tax break will depend on your personal circumstances. Tax and the associated laws are subject to almost constant change. This is correct as at the time of writing. E&OE. If you are in any doubt as to whether this information is of benefit to you please seek independent financial advice. Please remember if you invest in stocks and shares the value of your investment can go up as well as down. Other elements such as currency exchange fluctuations could affect the value of your investment. If you have property based investments you may not be able to sell when you wish to realise your funds. Past performance is no guarantee of future returns. If you invest in cash based investments inflation may erode the purchasing power of your savings.
Green Financial Advice Limited is Authorised and Regulated by The Financial Services Authority No. 523308
March 21, 2013