Budget Day - a special report

By Danny Cox | 12 Mar, 2008 

Chancellor Alistair Darling said the core values of his Budget were fairness and opportunity. He added that the Government would do everything in its power to maintain stability, claiming that Britain is better placed than any other major economy to withstand the global slowdown, writes Danny Cox, Head of Financial Practitioners. 

As is normal now, there is virtually nothing that hasn’t already been leaked or announced.  Confirmation that insurance investment bond taxation isn’t changing is bad news for the ABI and their members who have been lobbying hard to get a reduction in tax rates.

For savers and investors the key points are:

» Total ISA limit confirmed at £7,200 and Cash ISA limit confirmed as £3,600 a year from April 6

» Capital Gains Tax changes including Entrepreneurs Relief all confirmed. For private investors this means a flat rate of 18% from 6th April 2008. Compare the difference in tax that you might pay with our Capital Gains Tax Calculator

» No change to Insurance Investment Bond taxation. This is another nail in the coffin for Insurance Investment Bonds making them much less attractive from a tax perspective than unit trusts

» Another look at long term fixed rate mortgage deals. In simple terms, unless long term fixed rates are at least as competitive as shorter term deals (if not more so) why would you choose one?

» Transferable IHT thresholds confirmed, makes Will planning slightly easier

» The basic rate income tax band is changing from 22% to 20% from 6 April for earned and pensions income. The starting rate band of 10% will be abolished for earned and pensions income

» Large increases to personal allowances for the over 65s means less tax on pensioners and promotes saving for retirement

» Increase in limits on Enterprise Investment Schemes from £400,000 to £500,000. Good news for high risk investors with significant incomes

For consumers the key points are:

» Cigarettes up 11p a packet

» Beer up by 4p a pint, wine 14p a bottle, spirits 55p a bottle and cider 3p a litre by Sunday

» Duties on alcohol will go up by 2% above inflation for next four years

» Winter fuel allowance will go up from £200 to £250 for the over 60s and from £300 to £400 for the over 80s

» £950 higher first year rate of road tax for most polluting cars but a 2p rise in fuel duty has been delayed for six months

» Increase in green tax on flights

The Chancellor announced a number of measures to fight global warming including:

» A commitment to charge for using plastic bags by 2009 unless supermarkets do it themselves

» A £26m fund to help make homes greener

» New non-domestic buildings to become zero-carbon from 2019

» Asking the European Commission for tougher targets on car fuel emissions

» Major reform of the vehicle excise duty from 2009. For new cars from 2010, the lowest polluting cars will pay no road tax in the first year. Higher polluting cars will pay more

» Climate Change levy to rise in line with inflation from April

We have produced a section on our website that is dedicated to Socially Responsible Investment.

The Chancellor cut the Government’s 2008 economic growth forecast from 2 - 2.5% to 1.75 - 2.25% which is more in line with private sector forecasters. His growth forecast for 2009 was also cut from 2.5 - 3% to 2.25 - 2.75%.

Mark Dampier, Hargreaves Lansdown Head of Research, said: “Not for the first time this is a Budget that has been a complete waste of time. Having said that, I wouldn’t want to rule out finding something nasty buried in the smallprint – as has been the case in previous Budgets.”
 
Tom McPhail, Head of Pensions Research said: “There is a lot of detail to go through but I haven’t found anything yet to get even vaguely excited about.” There had been a slight easement in trivial commutation rules that enable people with pension pots of £16,000 or less to take the total as a cash lump. It means that those holding pots of £2,000 or less will be able to take those, too, as a lump sum even if that takes the total involved to more than £16,000. He was disappointed that there was no increase in the £3,600 universal pension allowance or even a review of the rule of the compulsory annuity purchase age which remains at 75.