Budget 2014: Osborne's speech is one for savers, pensioners, drinkers – and floating Tory voters

Chancellor announces pensions shake-up to woo over-50s, tax-free savings limit increase and a raise in the threshold for higher rate tax - but Labour says young are being ‘left even further behind’

George Osborne was accused of compounding the problems facing Britain’s “jilted generation” of young people after he unveiled a “silver savers’ Budget” aimed at winning the over-50s vote at next year’s general election.

The Chancellor’s big surprise was a sweeping shake-up of pensions and savings which will allow people to draw down all of their pension pot in cash when they retire, instead of having to buy an annuity to provide an annual income.

The limit for tax-free individual savings accounts (Isas) will be raised to £15,000 a year and pensioners will be able to buy new bonds with above-market interest rates.

What Mr Osborne hailed as “a Budget for the makers, doers and savers” was widely seen as an attempt to target the over-50s before next year’s general election. The “grey vote” is a key group because it turns out in much higher numbers than young people. It includes many natural Conservative supporters, some of whom have been attracted by the UK Independence Party.

Read more: The Independent's Budget coverage in full

The Chancellor regards the biggest reforms to pensions since 1921 as his second most important measure after his drive to balance the nation’s books. However, the small print reveals that the pensions changes will bring in £1.2bn to the Treasury by 2018-19 because people will pay income tax on the money they take out of their pension pots.

Insurance shares plunged by £3bn after the Budget, with leading annuities providers including Legal & General, Aviva, Standard Life and Prudential seeing sharp share price falls.

 

Mr Osborne could bask in a much better outlook for the economy. The Office for Budget Responsibility (OBR) revised its growth forecast for this year to 2.7 per cent, up from its 2.4 per cent figure in December. It predicted growth of 2.3 per cent next year and 2.6 per cent in 2016. The OBR revised down its borrowing figure for the current financial year from £111bn to £108bn, saying it would fall to £95bn next year and predicting a £5bn surplus by 2018-19.

The Chancellor said his spending cuts would have to continue after the election, adding: “The question for the British people is: who has the credibility to deliver them?” He tried to set a trap for Labour by imposing a £119bn cap on the welfare budget by 2015-16, covering all areas except the basic state pension and jobseeker’s allowance. But Labour said it would support the cap in a Commons vote next week.

Mr Osborne found room for some limited pre-election sweeteners – a 1p a pint cut in beer duty; freezing the duty on spirits and ordinary cider and halving bingo duty to 10 per cent. Business received help with energy bills, and new tax breaks and incentives to encourage companies to invest and export.

The Chancellor confirmed that the personal tax allowance would rise from £10,000 next month to £10,500 in April next year. As The Independent revealed on Saturday, he rejected growing calls from Conservative MPs to aid the middle classes by bringing in a higher than expected threshold for the 40p tax band. It will rise by 1 per cent, less than inflation, in each of the next two years – from £41,450 to £41,865 next month, and then to £42,285 next year, effectively dragging more people into the 40p band as their incomes rise.

The Liberal Democrats trumpeted the £10,500 personal tax allowance that Nick Clegg had demanded in November, going further than his £10,000 flagship policy at the 2010 election. In a Coalition trade-off, the Liberal Democrats approved Mr Osborne’s “savers’ package”, which was not their top priority.

Labour argued that the pensions and savings measures would provide most help to the rich and would not tackle the cost of living crisis. Ed Balls, the shadow Chancellor, welcomed moves to “empower” people to get a better deal on annuities amid low rates but warned that many could end up with a bad deal. “Will we have people disadvantaged or taken down the wrong road?” he asked. “Will we have people running out of money and forced to rely on the welfare state?” Mr Balls said the savings ratio, the proportion of people’s disposable income they save, would decline rather than rise.

Labour joined charities in highlighting a “generation gap” in the Budget. A Labour source said: “There was absolutely nothing to help young people, despite record unemployment. After this Budget, they are left even further behind.”

William Higham, Save the Children’s director of UK poverty, said: “The Budget was a missed opportunity to address the needs of families that are struggling to pay their food bill and children whose parents cannot afford to pay for uniforms and school trips.”

Osborne aides insisted that young people would benefit from the higher Isa limits; the rise in the personal allowance; an extension of the Help to Buy scheme and more apprenticeships. They denied that the savings shake-up would benefit the rich, saying that three-quarters of the five million people who currently saved up to their cash Isa limit were basic rate taxpayers.

Ros Altmann, a Downing Street pensions adviser under Tony Blair, said it was “a brilliant Budget for Tory election prospects.” Chris Sanger, the head of tax policy at Ernst & Young, said Mr Osborne’s “great granny giveaway” would “make saving for a pension much more attractive”.

But Nigel Green, the chief executive of the deVere financial advisory group, warned: “This policy of allowing a full drawdown [of pension pots] is extremely dangerous and ill-conceived for both individuals, who are considerably more likely to become financially dependent on the state, and the wider economy, which needs the population to be as financially independent as possible.”

Budget 2014: The key changes

* Level at which people start paying income tax to be increased to £10,500.

* Cash and shares Isas to be merged into single New Isa with £15,000 annual limit.

* All restrictions on access to pension pots to be removed, ending the requirement to buy an annuity.

* New Pensioner Bond available from January.

* Beer duty cut by 1p a pint while duty on spirits, whisky and ordinary cider is frozen. Tobacco duty to rise by 2 per cent above inflation.

* All long-haul flights to come under lower rate of Air Passenger Duty currently charged on flights to US.

* Help to Buy for new-build homes extended to 2020.

* Bingo duty halved to 10 per cent but duty on fixed-odds terminals rises to 25 per cent.

* Package to cut energy bills.

PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
News
ebooksAn unforgettable anthology of contemporary reportage
Life and Style
food + drink
Arts and Entertainment
musicBand's first new record for 20 years has some tough acts to follow
News
Shoppers in Covent Garden, London, celebrate after they were the first to buy the iPhone 6, released yesterday
tech
News
Liam Payne has attacked the media for reporting his tweet of support to Willie Robertson and the subsequent backlash from fans
peopleBut One Direction star insists he is not homophobic
Life and Style
healthFor Pure-O OCD sufferers this is a reality they live in
Arts and Entertainment
A bit rich: Maggie Smith in Downton Abbey
tvSeries 5 opening episode attracts lowest ratings since drama began
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Trainee / Experienced Recruitment Consultants

£20000 - £25000 per annum + OTE £40,000: SThree: SThree are a global FTSE 250 ...

Science Teacher

£6720 - £33600 per annum: Randstad Education Nottingham: We are currently recr...

Supply teachers needed in Wigan!

£12000 - £24000 per annum: Randstad Education Manchester Secondary: Due to the...

Trainee Recruitment Consultant - Soho

£20000 - £25000 per annum + OTE £40000: SThree: As a Recruitment Consultant, y...

Day In a Page

A roller-coaster tale from the 'voice of a generation'

Not That Kind of Girl:

A roller-coaster tale from 'voice of a generation' Lena Dunham
London is not bedlam or a cradle of vice. In fact it, as much as anywhere, deserves independence

London is not bedlam or a cradle of vice

In fact it, as much as anywhere, deserves independence
Vivienne Westwood 'didn’t want' relationship with Malcolm McLaren

Vivienne Westwood 'didn’t want' relationship with McLaren

Designer 'felt pressured' into going out with Sex Pistols manager
Jourdan Dunn: Model mother

Model mother

Jordan Dunn became one of the best-paid models in the world
Apple still coolest brand – despite U2 PR disaster

Apple still the coolest brand

Despite PR disaster of free U2 album
Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments