By ADRIAN LOWCOCK 10/12/2009
Alistair Darling’s Pre-Budget Report (PBR) had been labelled as a pre-election report by George Osborne. With the UK National debt peaking at £178bn this year, there should have been no room for election friendly give-aways, yet from somewhere the Chancellor has found the money to increase pensions by 2.5%, which will undoubtedly be a popular act.
The economy
Darling focused on the future growth of the UK economy and reconfirmed the predictions made in April. This papered over the fact that the UK economy shrank over 1% more than predicted. Despite this, Darling has kept to his numbers and plans for reducing public borrowing by half in four years.
Tax
The PBR was light on tax rises, with a popular round of ‘banker bashing’ being the main announcement in this area. None of the rumours about raising CGT or introducing a new higher rate of tax for those earning over £300,000 were announced. Before the inevitable tax rises do come, Investors should look to utilise any tax allowances they have.
Pensions
Darling decided to close a loophole created in his last Budget, to reduce tax relief on salary sacrifice schemes for those earning over £130,000. This effectively brings another 150,000 higher earners into the relevant income limit. Pension simplification seems to be a thing of the past and with these new rules, those affected will need to get appropriate advice.
Summary
On the whole, the PBR did have the flavour of a pre-election report. There was little time spent on how the national debt will be reduced and a lot of tinkering with tax legislation, which deters investors from making any long term plans. By delaying the tough decisions to until after the election means there is now a greater likelihood that the UK Sovereign debt is downgraded.
Our view
Most agree that taxes will rise after a general election and that some of the benefits previously enjoyed will inevitably disappear. Investors should make sure they use their full ISA allowances and consider using the lower rate of Capital Gains Tax (18%) to rebalance portfolios and lock in any gains. Pensions have become more complicated so financial advice is going to become more important for those earning £130,000 or more.
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