Chancellor George Osborne’s fifth budget speech this week, despite being widely leaked, still contained a few pleasant surprises.
The most eye-catching measures were for savers, with a revamp of pension arrangements at the centre. Restrictions on pensioners’ access to their pension pots were removed, making it more attractive for retirees to opt for alternatives to an annuity.
The total amount of pension savings that can be taken as a lump sum was raised from £18,000 to £30,000. New pensioner bonds will be introduced. The 10p tax rate for savers has gone. Cash and equities individual savings accounts (Isas) will be merged and the annual allowance hiked to £15,000.
Otherwise, the basic-rate tax allowance rose marginally, as did the higher-rate threshold. Investment allowances for businesses have doubled to £500,000 and been extended to the end of 2015 at a cost of £2bn. The Office for Budget Responsibility hiked its GDP growth estimates for this year and next to 2.7% (from 2.4%) and 2.3% (2.2%).
What the commentators said
“So a rabbit did come out of the hat after all,” said Janet Daley on Telegraph.co.uk. After half an hour of “risibly small” spending commitments, including pothole-fixing budgets, a “reliably Tory voting constituency” – pensioners, and long-term savers – got a boost.
With restrictions eased on pension pots, we should now see insurance and investment companies come up with new products “to court these liberated funds”. Annuity providers will have to “up their game” if they want to keep their customers.
This is a “free-market solution to the problem of annuity rip-offs”. It’s also a belated recognition that savers have been “a long-forgotten species amid years of record low interest rates”, as the FT’s Lionel Barber pointed out.
But while the savings changes and doubled corporate investment allowance bode well longer term, the macroeconomic backdrop for the next few years remains difficult. The GDP growth upgrades and consequent fall in predicted borrowing doesn’t change the fact that “the fiscal consolidation embarked upon back in 2010 is still less than halfway through”, said Capital Economics.
So slow has the recovery been in recent years that we will still borrow £108bn this year. The estimate for this year was once £60bn. Next year the annual overspend will still be over 5% of GDP.
Osborne is also hoping no shocks, such as Scottish independence or a meltdown in China, will blow our new-found growth off course, said Iain Martin on Telegraph.co.uk. If growth falters, the hole we are in will only grow deeper. And the obvious cuts and tax rises have been made, said Janan Ganesh on Twitter.com. “The coming years will be hideous for whoever governs.”