The devil will be in the Budget detail

April 22, 2009

fay— Fay Goddard is chief executive of The Personal Finance Society. Any opinions expressed are her own. —

Though it’s a cliche to say that a budget is eagerly awaited you can be forgiven for saying so this time around. This year all eyes and ears will be focused on the Chancellor’s economic figures and forecasts. The big question is how will he balance the books – cut public spending or raise taxes? In the run up to an election cuts are ideal but needs must. What will it mean for personal finances?

One of the big questions being asked is whether Chancellor Alistair Darling will do anything to help the plight of savers. Some of the hardest hit by the drop in interest rates have been pensioners relying on savings generated income. It seems likely they will receive some support with whispers suggesting an increase in the pensioners’ tax allowance but this will do little for the majority affected. There is also speculation that the ISA limit of £7,200 will be raised in an effort to attract more savers. Action savings is a delicate balancing act as the Chancellor is understood not to want to reduce consumer spending in such a way that it slows the recovery.

A new top rate of income tax, as announced in the pre-Budget report, is expected – though whether it remains the same as the 45 percent rate for incomes over £150,000 (effective from 2011) remains to be seen. There are rumours that the threshold could be lower (perhaps £100,000), whereas others have suggested the rate will be higher (50 percent).

Of concern to many financial advisers and their clients is the threatened removal of higher rate tax relief on pensions or any change in policy to the availability of tax free lump sums. We will be watching closely for any amendments in this area.

It is also expected that VAT will be raised once the temporary cut of 2.5 percent ends in December. Some estimates have the new rate between 18 percent and 20 percent.

Other measures almost certainly will include a stimulus to revive the housing market including a continuation of the stamp duty holiday for properties under £175,000 and a mortgage interest deferral scheme.

Historically with budget tax amendments, the devil has been in the detail. The headlines rarely accurately reflect the combined impact on an individual’s personal financial position.

This will certainly not be a Budget of giveaways – more the first step towards further belt tightening…for us all.

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