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Comments following the budget

David Cameron’s opening comment on the Budget was that Darling’s delivery reminded him of someone reading the telephone directory and indeed as predicted the government’s room for manoeuvre severely limited and there was little of substance in the budget that had not been widely trailed. The changes to CGT and IHT were exactly as advertised

The cut in basic rate tax from 22% to 20% effective April 2008 still stands from Gordon’s last outing as chancellor – none of us should cheer too quickly because while the removal of the 10% had a disproportionately large impact on the lower paid it still increased tax on the original 10% band to 20% for everyone. So on income tax from April 2008 Gwen is a little better off and there were no further changes announced in this budget. It’s worth noting that concurrent NI increase adversely impact those earning of £40,000 per annum.

The 2p increase in fuel tax was deferred to October so at least a brief respite there!

Food, utility and fuel inflation are all in double figures so Gwen’s net disposable income will almost certainly decrease over the next 12 m. He may be tempted to ask for a pay rise to compensate; if he gets it this will stoke inflation, which may cause interest rates to rise because the chancellor confirmed in his budget that he will be writing to the Bank of England reminding them that they are required to aim for 2% inflation, something we are way past already. This means that UK interest rates will be slower to come down; a situation that makes us almost unique in the world. This will have a direct bearing on UK mortgage costs.

Binge drinking was cited as the excuse for very steep rises in the tax on alcohol; Gwen might be tempted to join the increasing queue to get over the channel for a booze cruise. Cigarettes have also been hit but most now agree this is a socially desirable policy.

The cash ISA limit was confirmed at £3,600 for next year which should help Gwen's savings plans a little.

In closing while it is unlikely that Gwen will be much affected by this last paragraph – unless he marries a rich lady farmer – I must now place myself at risk of upsetting 'greener' readers. I am advised that mankind's contribution to greenhouses gases is 3%. It is thus beyond me why we now need to pay for plastic bags and suffer huge tax increases on 4 x 4 ownership. Those of us who live in the country actually need these vehicles to get around - especially given the appalling state of some rural roads (particularly in the winter).

Maybe Alistair has bought some Toyota shares as its Prius is now the top selling 'eco friendly' car.

Case study

The current economic outlook is not good. We have high government spending and low economic efficiency.

We are staring recession in the face, meaning there is a falling tax take and it will therefore be no surprise when tax rates rise in this budget, the Chancellor has nothing to give away. So he must either increase tax or he will have to increase public sector borrowing which would be foolhardy in the extreme.

What can we expect this time? We know IHT is under scrutiny. So a much trailed joint IHT threshold of £600,000 would take some sting out something increasingly recognised as an immoral tax. CGT is also under close scrutiny and a removal of taper relief and its replacement with a flat 18% pay rate (rather than income tax rates) has also been widely trailed.

Moves to increase corporation tax are possible but with the economy on the edge of recession much govt. action here could tip us into the abyss, so my guess is that income tax or NI will go up at this budget…bad news for all the Gwyns of this world.

As for Gwyn consumer interest in budgets is usually focussed on tax. Last year’s budget heralded a basic rate tax cut from 22% to 20% - good news we all cried - and then came the sting - the much vaunted 10% band for the poorly paid was removed. So in broad terms those who could least afford it, i.e. those earning under £15,000 pa lost out.

We already know there will be a number of cosmetic ideas in the savings arena. ISA's are to be extended and "simplified?" This should have a positive affect on savings but there has been no hint of fresh thinking from a government apparently bereft of new ideas. George Osborne for the Tories flexed his green credentials by suggesting that ISA limits for ethical ISAa should be increased to £10,000. This one was probably floated too late for Alistair to steal (as he did with IHT) so expect nothing there!

Gwyn has money in bank deposit accounts. These rarely pay the most attractive interest rates and of course the proceeds are taxable. He is better off moving £3,000 into a cash ISA before the budget and £3,600 after the new tax year in April. He should join the company pension scheme as soon as it is available especially if there is an employer contribution. If not he should make sure that the new company plan is written on stakeholder terms i.e. no exit penalties and a flat sub 1.5% (preferably sub 1% AMC) otherwise buy her own.

I am still one of those who believe that supply and demand will continue to push (most) UK property prices up over time; even if they are likely to be flat this year. But I still see home ownership as something to aspire to and suggest that with £10,000 in the bank and perhaps with a little parental assistance house purchase should be advanced sooner rather than later. But care should be taken to pick the right property in the right area.

Lastly not budget related but financial advice 101 says make sure income is protected. So consider a permanent health insurance plan. At your age £25 per month should provide enough cover to keep you solvent if the worst happens...

Case study conducted by Simon Webster, MD Facts & Figures Financial Planners Ltd www.fffp.co.uk