We examine what the Chancellor has announced – and what it means to employers and employees
“We must act now so we don’t pay later. This Budget puts the next generation first.”
A defiant opening from Chancellor George Osborne in the Budget announcement, and one that he reiterated through his speech, as he spoke of delivering “real opportunity and social mobility.”
Commenting that the labour market is delivering highest employment in history, and saying that the British economy is stronger, growing, and resilient, Osborne also promised to help working people, through helping them to save – and keep – more of the money they earn.
Political rhetoric aside, however, what were the big announcements that shape this promise?
Pensions, savings and financial education
Post-tax relief U-turn, everyone was waiting to see what was announced in the pensions world – and this is the Budget that has made pensions and general savings more inextricably linked than ever.
Osborne said: “Pensioner poverty is down and the gender pay gap has never been smaller”, as he promise to raise the tax free personal allowance to £11,500 and the higher rate threshold to £45,000 in 2017.
However, the Chancellor also expressed his concern that young people aren’t saving enough, and gave his “different solution to the same problem”: firstly, raising the ISA limit to £20,000 by April 2017.
Describing pensions as “too complicated” to encourage savers, he also pledged that more information would be provided on the flexibilities – as well as announcing tax relief on financial advice. Meanwhile MAS, TPAS and Pension Wise are set to be restructured as a single advice service.
And the biggest commotion came towards the end of the Budget statement: “a new flexible way to save” in the Lifetime ISA.
The ISA, available to savers under 40, is aimed at allowing savers to put money away for both a mortgage and their retirement. Savers are entitled to put up to £4000 into the ISA per year, and the government will match £1 for every £4 saved.
Crucially, if the ISA is kept intact until the age of 55, there is no tax on withdrawal – as there is in the case of some pension flexibilities.
Industry professionals across a wide body of benefits have been awaiting this Budget until the fear of the continued threat that salary sacrifice might be abolished – along with employers who have helped their staff make significant financial tax and NI savings.
There was a collective sigh of relief as no mention was made in the Budget statement – but salary sacrifice benefits are not out of the woods yet.
The Budget policy papers reveal that: “The government wants to encourage employers to offer certain benefits but is concerned about the growth of salary sacrifice schemes: clearance requests for salary sacrifice arrangements from employers to HMRC have increased by over 30% since 2010.”
In response, they are “considering limiting the range of benefits that attract income tax and NICs advantages when they are provided as part of salary sacrifice schemes.”
Nonetheless, some benefits can rest easy: “The government’s intention is that pension saving, childcare and health-related benefits such as Cycle to Work should continue to benefit from income tax and NICs relief when provided through salary sacrifice arrangements.”
Now it remains to be seen which benefits will make the cut…
Despite saying of reducing the deficit, “We will spend no more than we raise in taxes”, Osborne nevertheless announced steps to help smaller businesses, while closing the loopholes in business tax to ensure multinationals pay the correct tax in the UK.
In support of new enterprise, the Chancellor promised a simpler tax system for self-employed people, as well as permanently doubling the small business rate relief threshold to £15,000 from April 2017.
Accordingly, the higher rate threshold will be raised to £51,000 at the same time.
Meanwhile, corporation tax will be further reduced, hitting 17% by April 2020, while capital gains tax has been cut to 20% – 10% for basic rate taxpayers – from April 6 of this year.
“A Britain fit for the future”
As the government looks at children learning maths until the age of 18, as well as focussing on their health and wellbeing, are we going to see a more financially-savvy, engaged, healthy and active workforce?
It’s to be hoped – a further 0.5% increase on insurance premium tax will make health insurance benefits more expensive for employers.
Osborne set out a broadly positive view, talking about the further fall of unemployment, and the creation of 2 million jobs.
However, uncertain times still lie ahead, and underneath the bold tone, the Chancellor also warned that the country must invest now to prevent future problems.
He also gave a stark (if personally politically motivated) view of Brexit, quoting the Office for Budget Responsibility: “A vote to leave could usher in an extended period of uncertainty…with negative implications for greater volatility in financial and other assets”.