Budget Comment: Jeff Salway, Personal Finance

A political statement with a number of well-targeted measures

GeoJeff Salway 2rge Osborne’s pledge to keep the Budget free of gimmicks and giveaways was the kind of promise you’d expect from a politician with an election on the horizon.

Empty, to be precise – unlike a hat that turned out to contain a fair number of rabbits.

There may not have been a bombshell to compare with the pensions liberalisation announcement that dominated headlines last year, but it was a political budget with an array of well-targeted measures.

The reception from the Conservative backbenches made it clear that the Chancellor hit his target more than he missed it, not least with tax cuts aimed squarely at savers, investors, aspiring homeowners, pensioners and middle-income earners.

The new personal savings allowance is a tax cut by another name, while a further increase in the personal allowance, a planned rise in the higher rate tax threshold, increased Isa flexibility and the marriage allowance were all Tory crowd-pleasers.

The expected increase to £1m in the inheritance tax threshold failed to materialise, which suggests that it will instead appear (once again) in the Conservative election manifesto.

Osborne was true to form in other respects too.

Take the new help-to-buy Isa, giving deposit-savers a government top-up. It’s a nifty enough idea and will no doubt prove popular. It may also qualify as a gimmick, however, and one with a few counterproductive implications.

While it’s an easy sell, even mortgage lenders have felt obliged to point out that the Budget entirely failed to tackle the biggest single problem facing both first-time buyers and the wider housing market – a shortage of affordable new homes. In turn it may well drive up house prices, the last thing that prospective buyers need.

That may be deliberate, however. Osborne has let slip before that he views rising house prices as a vote winner. The help-to-buy Isa could be seen through the same prism.

Similarly, the personal allowance measure obscured a distinct lack of support for the low income working households that have borne the brunt of the coalition government’s spending cuts. As Citizens Advice were quick to point out, ‘people on the lowest incomes and those without savings benefit least from this Budget’.

Then there was yet more tinkering with pensions, a hallmark not just of this chancellor but of all recent occupants of 11 Downing Street. Osborne confirmed that the government would consult on launching a secondary annuity market, giving existing annuity holders the chance to sabotage their retirement security in the name of so-called pensions freedom.

The consultation document underlines that most people would be better off keeping hold of their annuities, telling you all you need to know about the wisdom of the proposal.

Chopping another slice off the pensions lifetime allowance was a predictable move too, as if designed to wind up a pensions industry still reeling from last year. If it seems at odds with other proposals designed to incentivise private savings provision, that’s because it is. But then it was an entirely political move, aimed at undermining Labour’s plans to use a lifetime allowance reduction to fund a tuition fees cut.

Political to the end…but will it be enough?

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