DESPITE a few crumbs, this wasn’t a Budget for savers. There was no acknowledgement of the value of saving, or of the suffering savers have endured during the crisis. Quite the opposite – the chancellor wants people to borrow more. Through the Help to Buy scheme, he aims to encourage people to take out higher loan-to-value mortgages. This will inflate house prices, and push up rents for anyone who either can’t afford or is too frightened to take out a big loan.
The few bits of good news were quite specific. Stamp duty will be removed from Aim-listed and other junior shares at a cost of £170m a year – not peanuts. The scheme compensating victims of the Equitable Life scandal is being beefed up, bringing in those who bought policies before 1992. It will cost £45m, and shows the government will help some groups who’ve lost out in the private sector due to ineffective regulation. Some pension investors may be allowed to convert commercial property to residential within their self-invested personal pension (Sipp), and parents with money stuck in uncompetitive closed Child Trust Funds may be allowed to transfer their children’s nest-eggs into Junior Isas.
Elsewhere, the news is mixed. The introduction of the flat rate state pension has been brought forward to April 2016, which is good as it will reduce the means-testing penalties for private pension savers. Bringing forward the cap on long-term care costs to April 2016, with a cap of £72,000 and a means-testing threshold of £118,000, will also help people better understand what they’ll have to pay, and will hopefully encourage more saving for care costs. But no new incentives are being offered.
The rest is pretty bad. There’s no improvement to the overall Isa framework. Those saving for a house, or people in retirement who can’t afford to gamble their tax-free savings, would have welcomed greater flexibility, but you can still only put half your annual allowance in cash, and you can’t transfer out of stocks and shares Isas into cash. There’s also no suggestion of improving dreadful returns. With Budget inflation forecasts revised upwards, real returns are even worse than savers would’ve expected last year. Monetary activism will be moved on further, suggesting interest rates will stay exceptionally low for longer and a higher overshoot of the inflation target may be tolerated. This extends the pain, as negative real returns persist.
This Budget didn’t seem to recognise the importance of saving. We certainly don’t want people suddenly saving huge sums. But we do want them seeing a value in saving for later life, and there comes a point when you destroy the incentive to save altogether. We also should recognise the value of people’s past savings, and help them feel confident that these won’t be whittled away. There are mixed messages. On the one hand, the chancellor wants us to save for retirement through auto-enrolment, but you’re then seeing people who saved in the past becoming poorer.
There is also a broader economic benefit to saving. I would’ve liked to see more emphasis on using pension assets to get growth going through direct lending to businesses and building infrastructure, with a contingent government guarantee. But this Budget was about borrowing, not saving.
Dr Ros Altmann is a pensions expert. www.rosaltmann.com @rosaltmann