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Comments following the budget

Well the chancellor said very little during his first budget speech and as usual the real detail has to be gained from reading through several hundred pages of the full Budget report. On a day to day basis John and Helen will see very little change beyond that already announced in November’s pre-budget statement.

As predicted there were no new initiatives to benefit and encourage savings by John and Helen, though for people in low income groups the government plans to extend the “savings gateway” pilot nationally. This is an account whereby the government will match savings over a two year period to encourage savings among the less well off.

There were inflation busting increases on duty for tobacco and alcohol, and the chancellor has stated that the duty on these products will rise by 2% higher than inflation for the next 4 years. With the weekly shopping bill already rising faster than inflation, this might hit some people very hard, especially those who drink AND smoke!

We thought travel would be harder than it has been; the previously announced increase in fuel excise duty has been postponed, and there were no immediate increases to air travel duty, though an increase is planned in the future.

The removal of the starting rate of tax for earned income will increase income tax by £223 each from 6th April, but this will be offset by a reduction of 2 pence off the basic rate. For John his tax bill would reduce by about £20 per month, and Helen’s by about £25 per month.

Case study

John and Helen’s main priority is saving money for the future and they each have around £1,000 in savings and a joint account with a further £1,000.

Whilst the rates of income tax have already been fixed, John and Helen might still see a change to direct taxation if the chancellor decides to increase the rates of national insurance. Though the easiest target would be to increase the amount paid above the Upper Earnings Limit, which wouldn’t affect them just yet.

I do not predict any new initiatives to help with their savings objectives, though in the last budget the total ISA limits from this April were increased from £7,000 to £7,200. Again, the last budget introduced a change to the basic rate of tax from 22% to 20% and as a result, the net amount John pays into his pension will increase from £20 to £20.51 per month.

Green taxes are almost certainly going to feature and I would be expecting to see tax increases for air travel, other non green forms of transport, and non green energy use. This may not be through direct taxes, but levies on the respective industries.

Other areas that the chancellor might hit to generate tax revenue could include increases to insurance premium tax and VAT. Although this would not affect the amount they spend, more of what they do spend will end up in the chancellors coffers rather than translate into goods and services.

Case study conducted by Dennis Hall, Yellowtail Financial Planning, www.yellowtail.co.uk