National IFA firm Inter-Alliance's Charles Ansdell responds to Gordon Brown's Pre-Budget speech with...
National IFA firm Inter-Alliance's Charles Ansdell responds to Gordon Brown's Pre-Budget speech with disappointment rather than excitement, and offers a quick breakdown on the issues that matter.
Brown's Borrowing bad for Business, but pensions are safe
Gordon Brown announced a borrowing pre-budget statement to boost public infrastructure like the NHS and public services generally. The chancellor made the pre-budget against a weakening economic outlook, a certain level of worker discontent over pay, CBI resistance to any additional tax burden. Indeed, in a barbed remark against ongoing public sector strikes, Mr Brown stated the Government was unwilling to back down on public sector pay due to the economic consequences. Claiming that with inflation running at 2%, any pay rise could derail the Government from its economic goals.
The major announcements for individuals concerned pensions provision. Mr Brown sought to quash ongoing speculation that the higher rate tax payer benefit for pensions, along with the lump sum benefit, were going to be removed.
Tax benefits were also introduced for pensioners. From April next year, no one over the age of 65 will pay tax until their income reaches £127 a week. The personal allowance for people aged 65-74 will be raised to £6,610 and to £6,720 for those aged 75 and over. This contrasted with the freezing of the basic allowance at £4,615 for those under 65, while other personal allowances will be increased with inflation.
Income tax personal and age-related allowances 2003-04 (£ per year)
|Personal allowance (age under 65)||4,615||(0)||4,615|
|Personal allowance (age 65-74)||6,100||(+510)||6,610|
|Personal allowance (age 75 and over)||6,370||(+350)||6,720|
|Blind person's allowance||1,480||(+30)||1,510|
| Married couple's allowance* (aged less than 75|
and born before 6 April 1935)
|Married couple's allowance* (aged 75 and over)||5,535||(+100)||5,635|
|Married couple's allowance* - minimum amount||2,110||(+40)||2,150|
|Aged income limit||17,900||(+400)||18,300|
* Married couple's allowance given at the rate of 10 per cent
Source: Inland Revenue
There could be more interesting moves on pensions soon, with the publication of the Government's green paper on pensions on 17th December. The Government has also indicated its intention to follow a number of recommendations of Ron Sandler's review on the financial services industry, which could have further implications for individuals.
The Government has also indicated there will be a radical simplification of tax on pensions.
Children and Families
The pensions initiatives are augmented by a number of schemes aimed at Children and families. The Government will be publishing a document shortly covering their future strategy for obtaining a work life balance, including more flexible hours and the adoption of paternity leave.
This is accompanied by extra income put into the social fund to help those on low income manage their finances. From April 2003, the maximum payment in the funeral fund raises to £700 (from £600) and £90m will be added to the discretionary fund by 2005-2006. These will join the Child and Working tax credit, announced in the Budget earlier this year, which will give greater benefits to those with children.
More significantly, however, the Government announced the introduction of a number of savings products aimed at reducing the savings gap, and building up funds for children's retirement. This features the implementation of the Child Trust Fund, aimed at boosting savings for under 18s.
Training and Skills
The Government has continued the introduction of a number of initiatives aimed at improving the workforce's skills and education. These include the introduction of an employer-led Taskforce to support the improvement and expansion of Modern Apprenticeships. The government will also look at training employers.
Interestingly, the Government will also introduce schemes to make it easier for small companies to recruit high caliber individuals from abroad. This has interesting implications for individuals abroad looking to work in the UK.
The improvement in training and skills forms part of a broader scheme to encourage higher employment. This includes a number of support initiatives for "depressed" neighbourhoods suffering from high concentrations of unemployment (they will benefit from an accelerated "New Deal"), and additional support measures to ease the transition to work.
For individuals this means the introduction of a Community Investment Tax Credit to encourage private investment in enterprises in disadvantaged communities. The first round of tax credits will be allocated by the end of 2002-03.
As announced in Budget 2002, the Government is also introducing the Working Tax Credit from April 2003 to help tackle poor work incentives and persistent poverty among working people, including those without children. On its introduction, the Working Tax Credit will guarantee minimum incomes of:
Brown's most boring Budget?
It definitely hasn't been the most exciting budget but is one designed to deliver Labour's pledges on public services. Income tax has remained sacrosanct, and no further rises have been made to NIC. Most significantly the Chancellor made a strong statement that public sector wage inflation would be kept under control, and the Government would not give in to Union demands.
However, the public sector improvements will come at a cost - Labour's borrowing record has been good to date but this has been achieved in surplus year. The knock on effects on the UK's already vulnerable stock markets may have a significant impact on the stock markets, and adversely affect many of the pensions benefits the Government is seeking to introduce.
£300bn of liabilities
View from the front row
Transfer from occupational scheme
Appointed by FCA and PSR boards