Last week George Osborne delivered a Budget that he said was for the “makers, doers and savers”, aimed at ensuring a “resilient” economy. Others suggested it was more about appealing to the “grey vote”, with pension overhaul a major focus. Restrictions on pension drawdowns have been scrapped, allowing people to fully withdraw their pension at retirement age. Concerns have been raised that this may subsequently leave some without a stream of income, although one government Minister stated that he was comfortable with the idea of the money being spent on a Lamborghini. Young people received only one mention: the removal of employer contributions to National Insurance for under-25s, ostensibly in an effort to curb high levels of youth unemployment.
Increasing the lower rate of the personal tax allowance by 5% to £10,500 in 2015 will save money for all taxpayers earning more than £10,000. However, the saving is unlikely to compensate for the decline in real wages (that is, accounting for inflation) which have been on a downward path since 2009 and are now at 2002 levels (though falling CPI and RPI inflation figures out yesterday should help). Notably, in Northern Ireland there are around 74,000 taxpayers who earn too little to benefit from this higher threshold.
Savers were targeted too, with the annual limit that can be invested in tax-free Individual Savings Accounts (ISAs) almost trebled to £15,000. But with real wages down many workers are dipping into their savings or borrowing more to keep afloat, rather than saving.
Fuel duty was frozen for another year, and this will be welcomed by motorists in Northern Ireland, who pay the highest petrol prices in the UK. Beer duty was reduced by 1p, and bingo duty halved to 10% - the questionable manner in which the Conservative Party promoted this move attracted much criticism.
There was news for investors too. Northern Ireland’s first Enterprise Zone to be created in Coleraine was announced: this follows the recent announcement that 300 jobs would be lost in the area as DVA services move to Wales. These zones are a bit of an 80s-revival: tax rebates and other incentives will be made available to businesses and investors in the hope that jobs will be created, and a US company has already confirmed that it will build a data centre in the Zone. However, the evidence on these Zones suggests that they often displace jobs from other areas (such as town centres) and the temporary incentives offered do little to provide longer-term prosperity, often at a great deal of expense to Treasury finances with revenue forgone.
Overall, the best news out of this Budget was for those who already earn well. The Treasury’s own analysis of the cumulative changes to taxes, benefits and public services shows that the poorest fifth of households will be hit the hardest (as with the top fifth of earners). As shown in a report published yesterday by the Joseph Rowntree Foundation and New Policy Institute, this is the very group which has experienced the greatest fall in its income since the recession.
The opinions, views or comments in this blog do not necessarily reflect any views or policies of NICVA.