Jamie Jenkins, Head of Pensions Strategy, gives his thoughts on the Budget 2017
Savers have braced themselves for surprises from the Budget speeches of recent years. Not this time. On pensions and ISAs, there were no material changes at all and the various tax thresholds have been maintained or uprated as expected. This gives us a great opportunity to embed the changes of previous years to make sure savings products work well for all who use them.
Instead, we saw a strong focus on the economic numbers as the Chancellor grapples with the unpredictable costs associated with Brexit, while trying to return the annual finances to surplus at some point in the 2020s. There was some progress on the deficit and, on some measures, our national debt is reducing, but productivity remains a real concern and much of what was announced was geared towards improving just that.
One notable statistic is that the cost of interest alone on the national debt is greater than the combined costs of running the Police and Armed Forces. It’s easy to see the attraction in getting it down.
There was the usual round of measures to stimulate infrastructure investment and there is growing encouragement for pension funds to play a role in this. Expect more on that in the coming months.
The ‘technological revolution’ we are facing up to demands better services, so measures were announced to improve fibre broadband, 5G coverage and facilities and tax breaks for electric cars.
Expect more on diesel cars and food packaging, too, as the Chancellor rightly pointed out that any economic prosperity we promise our children is irrelevant if we haven’t managed to save our planet.
The minimum wage is increasing from £7.50 to £7.83, a rise of over 4%, which is considerably more than average wages have risen by in recent years. The Personal Allowance (the starting amount of income which people get tax free) is also increasing from £11,500 to £11,850, and the higher rate allowance to £46,350 (different allowances apply in Scotland and will be confirmed in the Scottish Budget next month).
These measures will clearly have an impact for some employers, but neither should be a surprise. I suspect the detail confirmed on business rates and VAT thresholds will be of more interest, at least for smaller firms.
If there was any big announcement in this Budget, it was the immediate and complete removal of Stamp Duty for first time buyers for houses up to £300,000. This will cover 80% of people looking to get on the property ladder. For houses valued up to £500,000, stamp duty will be disregarded for the first £300,000, too. Combined, this should cover 95% of first time buyers.
All in all, the Chancellor pledged £44bn across a range of schemes aimed at encouraging home ownership among younger people. Few would argue with the intent, but there will be some criticism that stimulating demand merely inflates prices further, so there are still significant challenges in targeting this money effectively.
For those whose main interest is simply navigating the rules for ISAs and pensions, they remain largely unchanged.
Annual ISA limits stay at £20,000 per person, with a range of different ISAs to choose from. Each has its own rules and limits and is designed for different purposes, whether that’s medium or long term investing, or saving for a house deposit.
Contribution limits for pensions are unchanged at £40,000 per person each year. For those who have accessed taxable income after the age of 55, the limit is reduced to £4,000, and restrictions also apply for those earning above £150,000 a year. The maximum amount you can accumulate in a pension over your lifetime has been uprated slightly from £1,000,000 to £1,030,000, as planned.
For workplace pensions, the plan remains the same. With 8.7 million people now auto-enrolled, the next phase is to increase contributions from both employers and employees, starting in April 2018.
All in all, a quiet Budget with no talk of rabbits and hats. Most savers will relish the absence of any further change in the rules, at least for now.
The information on this blog or any response to comments should not be regarded as financial advice. These are the views of the author.