2014 Budget Summary

It’s fair to say that yesterday’s budget was unexpectedly eventful, including some major changes to ISA and pension rules that we think make financial advice more important than ever. The big headliners are highlighted below but we thought we would write with a snapshot of all the announcements and the background to the Budget itself.

What is the Budget?

The Budget is a report presented each year by the Chancellor of the Exchequer to Parliament and the nation. The primary role of the Budget is to control public finances by setting out how much tax the Government will collect, how much the Government will borrow and how much the Government will spend. The Budget Responsibility and National Audit Act 2011 requires the Government to produce a Budget Report (which is the formal name for the Budget) for each financial year. The Charter for Budget Responsibility sets out what the Budget Report must cover.

When the Government publishes the Budget, the Chancellor gives a speech to Parliament in which he sets out the key decisions on tax, borrowing and spending, and his reasons for taking those decisions. This speech is known as the Budget Statement.

The official forecast on which the Chancellor bases the Government’s Budget is provided by the Office for Budget Responsibility (OBR). The Budget Responsibility and National Audit Act 2011 requires the OBR to publish two economic and fiscal forecasts for each financial year, including one published at the Budget. The OBR’s duty is to examine and report on the sustainability of the public finances and it is required to do so objectively, transparently and impartially.

PLEASE NOTE: This update is not intended as an in-depth analysis of the Chancellor’s speech (we will leave that to the industry commentators) but we hope this brief snapshot helps you gain a quick grasp on the key points delivered by the Chancellor from the dispatch box.

Forecasts

• Due to the positive economic pictured described, the Chancellor announced adjustments to previous growth forecasts from those previously announced.
• Growth forecast for 2014 –  revised up to 2.7%
• Growth forecast for 2015 – revised up  to 2.3%
• Growth forecast for 2016 – remains unchanged at  2.6%
• OBR says UK growing faster than any other major economy
• OBR expects 1.5million more jobs over next 5 years
• Deficit  forecast for 2014 is 6.6% and for 2015 it is 5.5%
• Borrowing forecast to reduce to £95 billion for 2014/2015 and then reducing further with no borrowing forecast by 2018/19
• OBR revises down national debt to 74.5% of GDP
• OBR expects to meet 2% inflation target this year

Taxation/Welfare

• New cap on welfare bills.  Welfare cap of £119bn to be applied in 2015/2016
• Much harsher approach and measures to be applied to tax collection and tax avoidance schemes. HMRC budget increasing to assist in stopping tax avoiders
• LIBOR fines to be redirected to military charities
• 15% stamp duty to be introduced on property over £500k bought via a corporate envelope
• Tax receipts from North Sea Oil revised down
• Tobacco duty escalator extended (rising 2% above inflation)
• Beer duty escalator scrapped altogether and beer duty to be cut by 1p – Duty frozen on Whiskey and Cider.  All other alcohol duties to increase as planned in line with inflation
• Personal tax allowance – to increase to £10,500 from 2015
• Higher rate tax threshold to increase to £41,865 from April 2014 and then by further 1% in 2015
• Married couples tax allowance to rise to £1,050
• ISAs – Cash and stocks & shares ISAs to be merged into a simple, single ISA.  All existing monies can be transferred from stocks and shares to cash and vice versa. Limit increased to £15,000
• Junior ISA limit to increase to £4,000
• New pensioner bond to be introduced from January 2015
• Major far reaching reforms to tax treatment of defined contribution pension schemes:  Income requirement for flexible drawdown to be reduced to £12,000; increasing the amount of total pension savings that can be taken as a lump sum, from £18,000 to £30,000; increasing the capped drawdown withdrawal limit from 120% to 150% of an equivalent annuity; increasing the maximum size of a small pension pot which can be taken as a lump sum (regardless of total pension wealth) from £2,000 to £10,000 and increasing the number of personal pots that can be taken under these rules from two to three; complete freedom to drawdown as much or as little as needed; No pensioner will have to buy an annuity;
• 10p tax rate for savers abolished

Transport/Fuel/Energy

• Air passenger duty – all long-haul flights will carry same long haul US tax rate
• Start up support for more flights from regional airports
• £270million guarantee approved for Mersey Gateway Bridge
• Money pledged to improve flood defences and fund road repairs
• Charge on private jets to increase
• More investment in nuclear, renewables and shale gas
• £7bn package to reduce manufacturer’s energy bills
• Fuel – Car fuel duty rise planned for September scrapped

Small Business / Business in General

• Lending to exporters to increase to £3bn
• More money to be made available to support apprenticeships
• Corporation tax to reduce to 21% (20% in 2015)
• First enterprise zone to be introduced to Northern Ireland
• Annual investment allowance to be doubled to £500,000 and extended to end of 2015.
• Business rate discounts to be extended for a further three years

Public Sector

• Public service pensions to be properly valued

Housing

• Further reforms to planning to increase house building
• £150m to be made available for new build housing
• Help to Buy Scheme extended to 2020
• First new Garden City for 100 years to be built at Ebbsfleet

Other Points

• NEW £1 coin to be introduced in 2017
• Raising duty for fixed odds betting machines
• Bingo duty halved to 10%

And finally…

As is always the case with complex legislation such as this, it pays to seek advice from a professional financial planner.

The contents of this article are for guidance only and do not constitute financial advice. If you have any questions about the issues featured please contact us.

Call our friendly, knowledgeable team for a confidential, no obligation discussion: 01527 880345

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