Osborne gives savers a boost

Changes to tax-free savings accounts announced in the Budget are good news for savers.

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

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."

Recommended

Beyond the Brexit talk, the British economy isn’t doing too badly
Economy

Beyond the Brexit talk, the British economy isn’t doing too badly

The political Brexit pantomime aside, Britain is in pretty good shape. With near-record employment, strong wage growth and modest inflation, there is …
17 Oct 2019
What's behind Britain's coronavirus testing disaster?
UK Economy

What's behind Britain's coronavirus testing disaster?

Britain’s system of testing for the virus that causes Covid-19 collapsed just when we needed it most. What went wrong?
26 Sep 2020
Insurers may be forced to pay out to firms hit by Covid
Small business

Insurers may be forced to pay out to firms hit by Covid

Hundreds of thousands of firms who have been affected by the Covid-91 pandemic may now be able to claim on their insurance policies.
25 Sep 2020
Can Rishi Sunak’s winter plan save the UK economy?
UK Economy

Can Rishi Sunak’s winter plan save the UK economy?

With his Winter Economic Plan, chancellor Rishi Sunak is hoping to support the economy through the dark months ahead as restrictions tighten again. Jo…
25 Sep 2020

Most Popular

The electric-car bubble could get an awful lot bigger from here
Renewables

The electric-car bubble could get an awful lot bigger from here

The switch to electric cars is driving a huge investment bubble. But that’s not necessarily a bad thing, says John Stepek. Fortunes will be made and l…
24 Sep 2020
How the stamp duty holiday is pushing up house prices
Stamp duty

How the stamp duty holiday is pushing up house prices

Stamp duty is an awful tax and should be replaced by something better. But its temporary removal is driving up house prices, says Merryn Somerset Webb…
25 Sep 2020
Can Rishi Sunak’s winter plan save the UK economy?
UK Economy

Can Rishi Sunak’s winter plan save the UK economy?

With his Winter Economic Plan, chancellor Rishi Sunak is hoping to support the economy through the dark months ahead as restrictions tighten again. Jo…
25 Sep 2020