I’m a bit late to the UK Budget commentary – I wanted to hear more experienced/knowledgable opinions before setting out my own. Anyway, here are some quick thoughts that came to mind while watching the source material + reading summaries of those commentators:
- The UK actually has a budget. Not well-known among UK folks, but the US is utterly incapable of passing a budget. Perhaps a triumph of separation of powers, or perhaps a prime example of how sensible things can’t pass Congress, but idiotic things can.
- A clear campaign tool. It seemed to me there were a few programs/expenditures selected for budget inclusion purely to make snide comments about the opposition. Still, if I were in the ‘internet of things’, I’d be happy with the new subsidies nonetheless.
- Savers win…I think. A few items that were interesting to me:
- Lower income taxes. Yup, still a Conservative government, even if the policy was a Liberal Democrat policy. The increase in tax-free allowance will mainly help middle-class folks; those who should be saving more.
- Tax-free interest. WOO HOO! Middle-class earners now get £1,000 of tax-free interest a year; higher earners now get £500 tax-free. With today’s average savings account rates of about 1%, that means accumulated cash savings about about £50-100k will earn tax-free. Sweet – this is basically a 20% subsidy on bank interest. Hopefully an incentive to save more.
- More flexible ISAs. For the non-UK’ers out there, one of my favourite programs in the UK is the Individual Savings Account (ISA). They are tax-free investment/savings wrappers which can be used by any UK resident. Like a US Roth IRA, but you can withdrawal funds at any time. The new rules mean you can withdraw from an ISA, then put back the money in the same tax year. Previously the withdrawals couldn’t be put back.
- The Help to Buy ISA. Ugh. Continuing my rant on UK housing, the next ruse to prop up house prices is a 25% savings subsidy for those saving for a house down-payment. The saver puts in £200/month; the government puts in £50/month, until a maximum £3,000 subsidy (so £15,000 total in the account). Great – again using demand subsidies to treat a supply issue. <humph>
- Sell-back your annuity. I see this as a big problem down the road, but one I hope doesn’t hurt too many folks. I’ve written before about the new pension rules in the UK; now those who have recently been forced to buy an annuity can resell for cash. Given annuities are basically individual insurance contracts, I can’t see a very liquid secondary market being setup. That will lead to poor prices for pensioners, who in turn will be easy to scam. Hopefully I’m wrong.
- Pensioners – less savings for you. Despite the above, the lifetime maximum allowance for tax benefit (i.e. tax-deferral) has been further decreased to £1m from £1.25m. Given today’s annuity rates, the lower cap allows for a lifetime income of about £2,000/month (assumptions: retire at 60, joint, inflation-indexed, no guarantee, no tax-free lump sum). That’s a bit lower than UK median income. So seems a bit stingy to me – it’s a cap which many ordinary savers will probably hit.
- What I didn’t hear enough of: infrastructure investment. I’ve written before how I view the situation: use record-low government borrowing rates to build infrastructure (and more social housing, while we’re at it).
In sum: I’m looking forward to tax-free interest (even with peer-to-peer lending, apparently), and the lower taxes. The rest is kinda ‘meh’, aside from my bad thoughts on HTB ISA and new pension rules.