At first glance a good budget for private investors

Is the Chancellor’s budget good for private investors? At first glance it appears to be so, although more analysis of the detail will be needed in due course because like all Chancellors Mr Osborne’s hand outs might be taken away elsewhere in the small print. But there are some very positive things:

– The ISA investment limit will be raised to £15,000 with cash and stocks/shares ISAs merged. There is no obvious cap on ISA contributions which was rumoured as a possibility.

– Defined contribution pension rules will be relaxed and there will be no necessity to ever buy an annuity. Indeed those using drawdown will apparently be able to draw down as much or little as they like, effectively allowing one to completely cash in a pension. Is this right one wonders or will there be tax implications? Perhaps the Chancellor is hoping that all that money stuck in pension schemes will be freed up and spent, thus stimulating the economy and raising tax revenue?  As a result the share prices of insurance firms who provide annuities such as Legal & General, Aviva and Standard Life dropped substantially on this news but asset managers and platform operators might benefit. The Chancellor does not seem worried that pensioners will blow their savings but wants them to take responsibility for their own financial decisions.

– Pensioners over 65 will be provided with new bonds from NS&I that will apparently provide a more real rate of interest than they can obtain from banks or building societies at present. Let us hope that does not create difficulties for the latter institutions and inhibit their lending. It should encourage pensioners to save rather than spend, and help offset the impact of “financial repression” on small savers – surely a morally sound move.

– The Personal Allowance will be raised from £10,000 to £10,500 (i.e. more than inflation), but the 40% income tax threshold will only rise by 1%, thus dragging more people into the higher tax bracket.

– The housing boom will likely continue with the Help to Buy Scheme extended to 2020 as signposted, and a strong commitment to a new “garden city” at Ebbsfleet. The Chancellor made some jibes at Labour for announcing this ten years ago but in practice minimal development arrived. With major development probably dependent on improved road links and a new Thames Crossing (the Dartford Crossing is already severely congested) it may be another ten years before we will see the result.

– Companies using high levels of energy (cement works, chemical companies, brickmakers for example), will get some relief from energy costs which may help them to compete more effectively on the world scene.

– Betting companies will be hit by raised duties on fixed odds terminals, but bingo duty will be cut to 10%.

– Acohol duty will rise in line with inflation except for Scotch and Cider where it is frozen and Beer where it is cut by 1p. Diageo shares, which you might expect to benefit from that did not move, perhaps because international business is of more importance to them.

– As predicted Venture Capital Trust (VCT) rules are to be changed to prevent “Enhanced Buy Backs” but it is disappointing that investment platforms will be allowed to sell those products (the risks of which are not obvious to many). VCT companies and EIS schemes won’t be able to invest in companies which receive renewable subsidies in future which will put a damper on this hot area.

Some commentators point out that to finance some of these give-aways there will need to be further cuts in Government expenditure. That might be good for business and for investors but may not please everyone – here’s where the detail starts to be important.

It’s generally an investor and business friendly budget, and the changes to pension rules (which are surely overcomplicated and unnecessary at present) are really revolutionary. One can imagine the ire of some city directors at these changes though.

Roger Lawson

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