With only 50 days to go until the 2015 election on 7th May, some pre-election tasters were expected to be announced in this year’s budget to tempt the voters. After George Osborne stated that there would be "no giveaways and no gimmicks", the 2015 budget was clearly geared towards the upcoming election, and there were some interesting revelations towards the very end of the speech, particularly benefitting savers and first time buyers.
Throughout the hour long budget, George Osborne described a recovering national economy which is fundamentally stronger than at the beginning of the current parliament. He discussed measures geared towards job creation, backing the self employed, homebuyers, pensioners and hard working people. He asserted that we are on the road from austerity to prosperity, that the plan is working and we should stick to it.
Interestingly, the chancellor commented that the North grew faster than the South last year and painted an picture of truly national recovery in relation to unemployment (which is predicted to fall to 5.3% this year), increased household disposable income per capita and a 5% increase in GDP per capita. Inflation is forecasted at 0.2% for this year.
The risk presented to the UK from economic stagnation and instability in the Eurozone was covered in detail, and as a result the government is seeking to expand links with the fastest growing parts of the world, for example doubling support for British exporters to China.
The chancellor confirmed that proceeds from the sales of Lloyds shares and Northern Rock, and savings in relation to lower interest and welfare payments would be used to reduce the national debt, rather than for any ‘election swaying’ announcements.
Generally, George Osborne stuck to the mantra of “all in this together”, and confirmed that the rich are making the biggest contribution to economic improvements and that inequality, child poverty, youth unemployment, pensioner poverty and the gender pay gap have all decreased.
Some of the highlights from the budget for individuals and businesses were as follows:
- The tax free personal income tax allowance will increase to £10,800 from April 2016. This is then scheduled to increase to £11,000 the following year, with an ultimate goal of reaching £12,000. The typical taxpayer should therefore be £120 per year better off from next month.
- The government have curbed the size of largest pension pots, however tax relief costs continue to increase. On this basis, the Lifetime allowance will be cut from £1.25m to £1m. From 2018 this will however increase with inflation. There will be no reduction to the annual allowance on the basis that this would only affect the likes of teachers and police officers.
- As announced in the Autumn statement, new legislation will be brought in to tackle tax evasion, a common reporting standard will be agreed around the world and a new artificially diverted profits tax (dubbed the “google tax”) will be legislated for next week, to take effect from 1 April. Rules will also be brought in to clamp down on agencies and umbrella companies and their abuse of travelling expenses and such. New penalties will be introduced for tax evaders, and the professionals who help them.
- Entrepreneurs relief will only be available for those genuinely selling business, and will impact upon people looking to incorporate business to benefit from the tax free drawdown associated with goodwill. This was announced in the Autumn Statement.
- Inheritance Tax (IHT) avoidance using deeds of variation are to be examined. The chancellor explained that a wide range of views will be sought in relation to this; deeds of variation are a useful tool for IHT planning but they are also an invaluable legal document so we will be keeping an eye on these developments.
- The bank levy will be increased to 0.21% this year and will raise £900m per year.
- There will be no VAT reclaim allowed in respect of foreign branch overheads.
- New funds will be implemented for veterans and regimental charities, and automatic gift aid will be available on the first £8,000 funds raised rather than £5,000.
- From April, national insurance contributions for under 21s will be abolished. Class 2 NICs will also be abolished during the next parliament.
- The temporary increase to Annual Investment Allowance, to £500,000, was scheduled to end on 31 December, with the allowance reducing to £25,000. The reduction will not be as significant, though has yet to be announced.
- One of the big announcements, which was anticipated, was the proposed abolishment of self assessment tax returns altogether, with a move to a new digital tax reporting and collection system. It is not entirely clear yet how this will work, but information will be automatically uploaded to new digital tax accounts and taxpayers will be able to manage their account online, paying a single simple business tax. This will be a revolutionary change to tax collection and will affect taxpayers and practices alike. We’ll be watching this one carefully.
- There will be no changes to tobacco and gaming duty. There will be a further 1p off a pint, 2% off cider, scotch, whiskey and other spirits duties, with wine duty frozen. The fuel duty increase will also be cancelled again for this year.
- The new spouse transferable tax allowance comes in in two weeks.
- Following the huge changes to pensions, the chancellor confirmed that the 55% pension tax charge will be abolished.
- Changes to ISAs will see them become fully flexible, giving taxpayers the freedom to take cash out and put cash back in without losing the tax free entitlement.
- A brand new help to buy ISA will be introduced to tackle low interest rates and high deposit requirements. For every £200 first time buyers save, it will be topped up by £50 from the government. This means that first time buyers can effectively save directly from pre tax income.
- A new personal savings allowance will take 95% savers out of tax on savings altogether. The first £1,000 interest income will be completely tax free, resulting in tax free saving for almost the entire population. It will be interesting to see what impact this has on ISAs.
The chances are that there will be another budget following the election, as we saw in 2010 with a second budget only 90 days after the first. Depending on who wins the election, there could be some significant changes to the proposals, and some could be thrown out completely. It will be interesting to see what impact the budget has had on the opinion polls.