Compared to the two previous (damaging) tax raising Budgets orchestrated by the now banished Rachel Reeves, today’s Budget was somewhat gentler on our household finances and our long-term wealth.
It was also kind to many small businesses as the Chancellor John Healey seeks to boost the country’s flagging high streets.
Thank the Lord, I hear you cry. No more horrible changes to pensions, no more attacks on our ability to pass down wealth through the generations.
Yet, sadly, the Budget wasn’t without its personal finance nasties, with the biggest inflicted on savers and landlords. Indeed, Rachel Reeves, I am sure, would have been mighty proud of her successor as he announced yet another spiteful attack on the prudent.
When he touched on savings interest in his Budget speech, I thought the Chancellor was merely reiterating what we knew already: namely that taxes on savings interest and income from second homes and buy-to-let properties would be rising two percentage points from April next year. It’s a measure Reeves gleefully announced in last year’s Budget.
Yet digging through the voluminous Budget documentation afterwards, it became clear what Healey had actually done: pave the way for a further two percentage point increase in the taxes on top of those put into play by Reeves.
The result is that from April, tax on savings interest will rise from 20 to 24 per cent for basic rate taxpayers and from 40 to 44 per cent for higher rate taxpayers. For additional rate taxpayers, the jump will be from 45 per cent to 49 per cent.
Why Healey chose to go after savers and landlords is bewildering.
'Why Healey chose to go after savers and landlords is bewildering,' writes Jeff Prestridge. 'Maybe it’s because Healey thought it was fully justified in light of his much smarter move to unwind the crazy changes to cash Isas that Rachel Reeves had set in train'
Maybe it’s because Labour chancellors can’t help themselves. They despise the prudent.
Or maybe it’s because Healey thought it was fully justified in light of his much smarter move to unwind the crazy changes to cash Isas that Reeves had set in train.
It means that the cut to the annual cash Isa allowance from £20,000 to £12,000 for all bar the over 65s will no longer be introduced next April. As of now, all adults will still be able to save up to £20,000 every year in a cash Isa.
Whatever the reasoning, it seems spiteful (I will come back to the Chancellor’s restoration of the £20,000 cash Isa allowance for all – and the part that This is Money and the Daily Mail played in getting it back).
> Victory for our last ditch call to save the cash Isa
As far as our household finances are concerned, it’s fair to say that Healey has adopted a far more sensitive approach than his hard-nosed predecessor ever did.
Maybe, this is because the threats to our finances are greater than ever as a result of the unresolved Middle East conflict. The price of both the petrol we put in our cars and the energy we consume in our homes are going nowhere but up – and the same goes for inflation.
Although the measures he introduced to combat the cost-of-living crisis were small in splendid isolation, they shouldn’t be scoffed at.
An extension of the freezing of fuel duty until next July was absolutely the right thing to do, although some experts believe he should have gone further by cutting VAT on fuel.
Healey must also be commended for helping many of us with our energy bills, extending the suspension of VAT on electricity bills until next July – and providing a one-off payment of £100 to 20 million households living in council tax bands A to D.
It won’t stop annual household energy bills shooting through the £2,000 mark come next year (the current price cap is £1,723), but these measures are better than nothing – and should be applauded.
John Healey with his ministerial team ahead of the Budget. Although the measures he introduced were small in splendid isolation, they shouldn’t be scoffed at, writes Jeff Prestridge
After today's U-turn, Sarah Harrison, chief executive of the Building Societies Association (BSA), emailed Jeff to say: ‘This is a real victory for savers and for the Daily Mail’s brilliant Save Our Cash Isas campaign' (pictured in the newspaper earlier this month)
The removal of standing charges on gas bills – likely to kick in next year – will also help many households, especially financially challenged pensioners who are often low gas users.
The Chancellor’s decision to ensure low-income pensioners are given a personal tax allowance top-up to ensure they don’t have to pay tax on any of their state pension is also to be welcomed.
Two final thoughts on the Budget: one positive, one negative.
First, the positive. Healey’s decision not to go ahead with a trimming of the cash Isa allowance for all bar the over-65s makes great commonsense.
As soon as we heard that Rachel Reeves was contemplating such a move early last year, we launched a ‘Hands Off Our Cash Isas’ campaign.
We argued at the time that cash Isas are a key part of many people’s savings, whether in terms of providing a financial buffer, saving towards a dream holiday, or protecting some of their wealth from changes in the stock market. In other words, they should not be tinkered with.
Reeves listened, resulting in a smaller than anticipated reduction in the cash Isa allowance (down to £12,000 rather than £4,000) plus retention of the full allowance for the over 65s. For us, it was a pyrrhic victory.
Yet it turned to a full-blown victory in the Budget today. As soon as Healey announced the full U-turn, I received an email from Sarah Harrison, chief executive of the Building Societies Association (BSA), an organisation which had lobbied the Treasury to abandon the cash Isa changes.
She said: ‘This is a real victory for savers and for the Daily Mail’s brilliant Save Our Cash Isas campaign. You kept a strong public spotlight on an issue affecting millions of people while we kept the pressure on the Treasury.
‘Cash Isas help people build financial security and save for their futures, while also providing an important source of funding for mortgage lending.
‘Today’s decision shows those voices have been heard. Retaining the current Isa limit is a great outcome for UK savers, homebuyers, and the economy.’
I will say no more.
As for the negative. For all the benign nature of Healey’s Budget (the savings and second property tax increase notwithstanding), don’t be lulled into a false sense of security.
Lots of new taxes are coming down the road in the next couple of years; for example, inheritance tax on unused pensions (April 2027) and a crackdown on the amount that workers can pay into their pensions via popular salary sacrifice schemes (April 2029).
In addition, there is no end in sight to the freeze in tax thresholds which is dragging more of our income every year into higher tax bands.
My belief is that this Budget is indeed the ‘breathing space’ that Healey has claimed it is. But only in the sense that it is the calm before the storm.
If Burnham’s Labour were to win a snap General Election next year, I am 100 per cent certain that Healey would clobber us (Middle Englanders, that is) with another round of tax rises. You have been warned.