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Budget 2014: seven things we learned

Our run down of what turned out to be quite a packed budget

#1

Traditional cash and equity ISAs are to be replaced by an exciting new hybrid: the Nisa. The most eye catching feature of the New Individual Savings Account is the significant increase in the annual allowance to £15,000, from a current £11,760.

The government said that around five million people a year currently come up against the annual cash ISA allowance of £5,760. The Treasury estimate this will cost the exchequer £230 million in revenue in 2016/17, £395 million in 2017/18 and £565 million in 2018/19.

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#2

The government plans one of the most significant pensions liberalisation reforms in living memory, greatly freeing up the options available for savers approaching retirement.

This of course is not free, but the bulk of the approximate £200 million annual cost is projected to fall after 2030, according to the Treasury: safely punted deep into the political long grass

Pensioners receiving defined-contribution pots will no longer have to buy an annuity at retirement. Income drawdown will be taxed at the marginal, rather than a 55% rate.

In addition to those approaching pension age, this was dramatically good news for businesses such as Hargreaves Lansdown, which saw its shares soar more than 5%.

Less good news for life companies which until now have had a near-lock on pensions income: shares in Legal and General were off more than 6% at 14.00 while Aviva was off more than 4%.



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#3

Pensioners received a further boost with the announcement of a new range of saving bonds by National Savings & Investment, with a central assumption that it will yield 2.8% annually over a one-year term and 4% over a three-year term, with an investment limit of £10,000 per bond.

That base assumption will be tweaked alongside market rates, to be finalised in the Autumn Statement this year, before being launched in January 2015. NS&I Premium Bond limits will also rise from £30,000 to £40,000 a year from June 2014.

The pricing was set in the expectation it would draw £10 billion a year. The costs of that to the public purse have been calculated as front-loaded, presumably in the expectation that normalising rates would remove some demand, with a £35 million hit in 2014/15, rising to £170 million in 2015/16.

That very rapidly tapers off to £5 million by 2019/19, however.



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#4

The ‘green crap’ has now been cleared out. The previous commitment to voters than they should ‘vote blue to go green’ has apparently been judged an unaffordable luxury.

The chancellor froze the Carbon Price Floor, which was introduced last year and was designed to backstop current carbon levies on heavy polluters. Oil and gas extractors will also receive targeted incentives.

The tax was widely loathed by manufacturers, but others said it acted as key incentive to the promotion of cleaner energy providers and industries. Heavy polluters will also get specific help with energy costs.

British business will save £4 billion in 2018-19 versus the original planned increase, estimated the Treasury, and will save the average household £15, and cost the exchequer £755 million of anticipated revenues in 2017/18 and £1.01 billion in 2018/19.

The ultimate impact on a series of clean-energy trusts launched in the last year remains unclear.

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#5

While the chancellor dug deep to help out pensioners, overseas property investors – widely blamed for runaway price inflation in the London residential markets – will face a big increase in stamp duty.

Buyers who purchase residential property worth more than £500,000 via company wrappers, typically used to structure ownership for non-UK taxpayers who wish to reduce their local liabilities, will face an onerous 15% stamp duty.

The revenue is clearly not expecting this to be a big curb on activity however, raising an initial £180 million in 2014/15 and steadily rising over ensuing years to £300 million in 2018/19.   

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#6

The Office for Budgetary Responsibility has detected the green shoots of recovery. Estimated growth for this year was upgraded from 2.4% to 2.7% - inline with mainstream economic forecasts.

The unexpected strength of recent growth is expected to happen at the expense of medium term figures however, with 2016 growth of 2.6% matching the autumn statement prediction and 2017 downgraded from 2.7% to 2.6%, while 2018 figures were downgraded from 2.7% to 2.5%.

That an attendant downward estimate of the deficit for every year up to 2018 has left the chancellor a bit more room to play around with offers to the taxpayers, although the lack of any major tax announcements suggests a big store of powder is being kept dry for the election year of 2015.

Briefings about no unfunded giveaways and an emphasis on fiscal neutrality, a big feature of recent budgets and autumn statements, were notable by their absence.   


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#7

The Liberal Democrats only got a single significant bone flung to them, but it was a major one: an increase in basic tax allowances to £10,500. This has been reported as a coalition red line.

Equally however, Conservative back benchers who have noisily agitated for changes to the upper tax band to remove higher-earners from the 40p top tax band left the chamber disappointed.

Judging by the raucous reaction of the conservative benches, most will contain their disappointment so long as they feel that the economy has put the wind in the government sails, and Osborne avoids any major pasty tax-style snafu.

Overall the budget reinforced the lines the government has drawn along the division of deserving and undeserving, with significant help for middle-income savers and pensioners.  That means a significant transfer from those without the earning power to have much in savings, of course.

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