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’
Andrew Grice has been Political Editor of The Independent since 1998. He was previously Political Editor of The Sunday Times, where he worked for 10 years, and he has been a Westminster-based journalist since 1982. His column, Inside Politics, appears in The Independent each Saturday.
Wednesday 19 March 2014
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.
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