Budget 2015: what it means for savers

Updated
Budget 2015
Budget 2015



Savings reforms are like buses: you wait ages for one to come along, and then suddenly, in a rush at the end of the Budget Speech, George Osborne unveils not just one, but three of them. They include some radical changes that could make a real different for savers. There's just one hitch.

Tax

Perhaps the most jaw-dropping of the reforms announced today was that 95% of people will no longer be taxed at all on the interest on their savings. Osborne said that in future the first £1,000 of interest you make will be free of tax - although in the interest of fairness, higher-rate taxpayers will have a smaller £500 allowance and those earning more than £150,000 will pay tax on all of their interest.

The reaction to this announcement has been swift and positive. Paul Whitlock, Director of Savings at Charter Savings Bank, said: "It's fantastic to hear tax has been slashed from savings for up to 17 million people in today's Budget. The news is especially sweet for those on lower incomes, and pensioners, who look set to benefit the most. Overall the announcement should help encourage people to save more."

ISAs

Osborne also had two announcements on ISAs. The first is that they will become more flexible. Osborne already has a track record of reforming ISAs in this way: last year he scrapped the bureaucratic distinctions between cash and stocks and shares ISAs. This year he changed the way the tax-efficiency works.

At the moment, if you put money into an ISA and then withdraw some of it, you lose that bit of your annual tax-free allowance. From the autumn, you will be able to take the money out and as long as you top it up again before the end of the tax year, you get to keep that portion of your allowance. Osborne positioned this getting rid of the barriers stopping people from using their savings as they see fit.

First Time Buyers

His second ISA announcement was more striking: the introduction of a new Help to Buy ISA - where the government will top up savings to help first time buyers save for a deposit. The idea is that for every £200 they squirrel away, the government will add another £50. So if you need a deposit of £15,000, you can use the ISA to save £12,000 and the government will top it up with the other £3,000 (the maximum top-up available). This will be launched in the autumn, although Osborne has said he will take steps to ensure people can start saving for it right now.

Founder and CEO of eMoov.co.uk, and Brentwood Councillor, Russell Quirk, believes this won't just help buyers, it will also boost the housing market. He says: "Interest rates that given long term inflation forecasts are set to stay low, the November's Stamp Duty boost and today's 25% First Time Buyer ISA bonus, will all help to contribute. All in all things are certainly looking buoyant for the UK housing market."

There's no doubt that move will help first time buyers to save, but you have to wonder whether this is the area where the dearth of savings is felt most keenly. If Osborne can do this for buyers, then why not for those saving for children, for university, or for long term care?

A savings culture?

Yvonne Braun, Director of Long Term Savings Policy at the ABI was particularly pleased with the changes, and optimistic they would have a far-reaching effect. She said: "These measures should help rebuild a savings culture in the UK, which is critical for people's financial wellbeing."

Of course, there is one small hitch.

All these reforms - including the ground-breaking tax-free interest - are rendered far less impressive when the interest itself is at rock-bottom. Whitlock points out: "Historically low interest rates remain a not so subtle elephant in the room. So while the Chancellor's cut in tax on savings can be seen as a short term crowd pleaser, only long term changes to interest rates will truly shape up our nation's savings culture."

"As it stands, consumers are still not receiving the returns they crave on their cash, especially from the big six who continue to offer poor returns for their customers. Osborne's heart is in the right place when he says he wants to build the economy on savings, but in reality this can't happen until interest rates rise."

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