Time to rejig your finances

HE had promised us a tough Budget and on Tuesday, chancellor George Osborne gave us one – most households will be worse off as a result of the measures announced. But it’s not like we weren’t warned – ever since the coalition government gained power last month, it has been austerity, austerity, austerity.

It should not come as a surprise then that 44 per cent of people surveyed by TNS Finance ahead of the Budget were expecting their household incomes to worsen as a result of initiatives taken by the coalition government. Another survey published today by uSwitch.com, the comparison website, shows that the Budget has left 67 per cent of consumers – potentially 33m – feeling worse off. With accountants warning that the hike in VAT is likely to knock £500 a year off the average family’s disposable income, it’s worth giving your finances a hard look to see whether they could do with as much of a squeeze as a Whitehall department’s budget.

Paul Griffiths, head of finance at TNS, said that 41 per cent of respondents to the survey said they were more likely to use price comparison websites. Ann Robinson, director of consumer policy at uSwitch.com, says: “Consumers should look at combating the impact of the Budget by cutting back painlessly on household bills.” She adds that you can easily claw back the impact of the VAT hike by ensuring you are paying the lowest possible price for the basics.

But while cutting back on bills will help your disposable income, the Budget has also affected how you will be able to save for your retirement. One of the major changes announced was a likely reduction next year in the annual pensions saving allowance, perhaps to £30,000-£45,000. Don’t think you can push as much money as possible into your pension fund before the level is set – it is likely to be backdated to the date of the Budget. At least it removed some restrictions on how you deal with your pension after retirement. Previously, every pensioner aged 75 was obliged to take out an annuity. This will now be abolished and before this comes into effect, the age has been raised to 77. The abolition of compulsory annuitisation makes it likely that other options will arise. Julie Patterson of the Investment Management Association says: “There is no reason why you won’t have funds to help you do the draw-down phase of capital. That sort of thing at the moment is available elsewhere in the world but (because of the annuitisation requirement) there’s been this dominance of annuities here.” So as you approach retirement, it is worth looking around for a range of options to help you manage your income.

Investors will certainly be relieved by the lack of an across-the-board jump in capital gains tax (CGT) to 40 or even 50 per cent. In the event, it was instead raised only to 28 per cent and only for top-rate taxpayers – others will continue to pay at 18 per cent. Because the jump is relatively modest and because most authorised funds are, at any rate, not subject to CGT until you dispose of your investment, the tax hike does not make a huge difference to private investment opportunities. HSBC reckons that advisors will focus on onshore bonds, which continue to benefit from indexation relief on capital gains.

Now we know the full detail of the Budget, we can start planning properly