Budget 2013: the disappointments

In a incredibly tough climate with very little funds to spare, the Chancellor delivered a Budget scattered with welcome measures to help working families.

But what areas did he overlook amid the headline-grabbing announcements on childcare, property and beer?%VIRTUAL-SkimlinksPromo%

No help for highstreet
The Chancellor overlooked our floundering highstreets in his Budget statement today, offering no help to boost the retail sector.

"This was the Chancellor's opportunity to maximise retailers' contribution to re-establishing growth by keeping more money in customers' pockets and leaving retailers with more money they can invest," said Helen Dickinson, director general of the British Retail Consortium.

"But, pressing on with a third-successive substantial business rates rise is very disappointing. Freezing rates would have made a real difference to our troubled high streets and the communities that rely on them."

Growth forecast down
The Chancellor was forced to backtrack on growth, making a forecast of just 0.6% for 2014 - 2% lower than the forecast made two years ago. Surely signs that his deficit reduction strategy needs a rethink.

"Chancellor George Osborne described the UK government's economic strategy as one of monetary activism and fiscal responsibility but the world is coming round to realise that a loose monetary, tight fiscal policy mix is unlikely to lead to a recovery in growth when interest rates are close to zero and consumers are intent on paying down debt," explains Trevor Greetham, director of asset allocation at Fidelity Worldwide Investment. "The UK should follow the successful US lead and ease back on austerity until a recovery is well under way."

Delay in Corporation Tax cut
The announcement to bring Corporation Tax down in line with the small business rate of 20% is welcome for a much-needed boost to British business, but why the delay until 2015?

"We are disappointed that it will be two years before this comes into effect," said Martin Hook, managing director of research and development tax specialists, Alma Consulting Group. "We would prefer for Corporation Tax to be reduced sooner to deliver immediate benefits to businesses and speed up the economic recovery."

Savers shut out
Anyone with cash in savings continues to see their pot eroded by inflation as the rate hits 3%, while average interest rates wallow at less than 1%. The Chancellor failed to address the issue, as well as ignoring industry calls to equalise the cash and equity limits of ISAs in order to boost savings.

"We're disappointed ISAs parity was overlooked in today's Budget," said Graham Beale, CEO of Nationwide."Parity would make ISAs fairer and simpler to understand, whilst raising the cash ISA limit would benefit pensioners, first time homebuyers and ordinary savers."

However, one nugget for savers is the Government's decision to consult on allowing parents to switch their Child Trust Fund savings into Junior ISAs (JISA) – a step in the right direction to boost saving for children.

Blow for pensions
Between the grand gestures today, the Chancellor slipped in that the Bank of England's controversial quantitative easing programme would remain in place.

This is a crushing blow for anyone who is nearing retirement, says Nigel Green of the deVere Group: "Further quantitative easing will keep gilt yields down which in turn are highly likely to keep annuity rates, on which future retirement incomes are based, near historic lows.

"Since it was initiated, QE has already made millions permanently poorer and many thousands more each week will now also receive a reduced retirement income as the programme is extended."

Green says the move could result in an even greater number of Brits transferring their pension funds out of the UK as they seek to "safeguard their hard-earned money from QE's adverse effects."

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Budget 2013: the disappointments

The Chancellor has cut the price of beer. He said a planned 3p rise in beer duty tax was being scrapped and replaced by a 1p cut on a pint of beer.

While lower interest rates are intended to boost borrowing for business and keep costs down for mortgage customers, the Chancellor brings another Budget devoid of encouragement for savers. Faced with near 0% interest rates and 3% inflation, there is no help for those who need to save for the future, or those that already live on their savings in retirement.

"Low interest rates are making life ever harder for people reliant on their savings. Their spending power is being reduced and their standard of living eroded on a daily basis," said Simon Rose of Save Our Savers. "The attack on savers is short-sighted and undermines the country's prospects for investment, growth and retirement."

A major headline-grabbing measure to help struggling first-time buyers is the new Help-to-Buy scheme. Made up of two parts, the first commits £1.3bn to shared equity loans that enable first-time buyers to borrow up to 20% of the value of a new build home towards a deposit, providing they can contribute 5% themselves. The loans will be interest free for five years and be repayable on house sale. The scheme will cover all new properties up to £600,000 in value – around 90% of all new homes in the UK.

The second is a Mortgage Guarantee for lenders, intended to help all families who are struggling with deposits. The scheme will make £130bn worth of mortgages available from 2014 and enable lenders to offer loans at higher-to-loan value, which will Mr Osborne said will "dramatically increase" the availability of mortgages. The guarantee will run for three years and apply to bold old and new property. Stephen Noakes, Mortgage Director at Lloyds Banking Group, commented: "We are very supportive of innovation in the housing market and believe that the mortgage guarantee scheme, will give a much needed boost to the housing market and most importantly address the issue of accessibility. "Crucially, this scheme will not only help first time buyers but also second steppers, a key segment of the housing market that is also in need of more support and attention. Whilst the property market is likely to continue to be challenging, the fresh support announced today will have a real knock on effect across the whole of the housing market and we expect it could help around 50,000 people a year."

Payment of taxes is the "glue that holds the economy together" the Chancellor said as he reaffirmed his commitment to crackdown on evasion and the professional services that advise on it. "With more measures to rein in Corporate Tax avoiders, the Chancellor has sent a clear message that aggressive avoidance is no longer acceptable," said Martin Hook, Managing Director of research and development tax specialists, Alma Consulting Group. "This will have a significant impact on the Big 4 and other firms who market tax avoidance schemes and will need to consider the morality of the schemes that they sell and the spirit of the tax legislation."

As was widely predicted, Osborne froze the fuel duty hike due in September 2013. He announced that his repeated scrapping of this duty has saved the average Ford Focus owner £7 on every tank of petrol.

Stating his commitment to helping entrepreneurs get ahead and recognising that the cost of employing people is a huge burden to small firms, the Chancellor announced a surprise move with National Insurance relief of £2,000. Called the Employment Allowance, he said the new measure means than 450,000 small businesses – which account for one third of all companies in the UK - can employ one person earning £22,000 or four people earning the minimum wage, without paying National Insurance.

"The Employment Allowance will certainly be a massive boon for small businesses. Not least because most weren't really expecting it," said Jonathan Elliott, managing director of MakeItCheaper.com. "Put it another way, a £2,000 saving for a typical small business is the equivalent of cutting their annual energy bill in half or putting 1,250 litres of free fuel in its fleet of vehicles." Yet the Government fell short on support for new enterprises, explains John Williams from Kuber: "Noticeably absent from the Chancellor's speech was any news of extending or enhancing the Enterprise Investment Scheme (EIS). Many were hoping to see the Government offer more help to start-up companies looking for second round finances, but nothing materialised."

There was bad news for public sector workers, who will see pay increases limited to 1% in 2015/2016. The government will also revisit 'progressive pay' which sees pay increase automatically each year which he said was 'difficult to justify' given that private sector pay has been frozen or cut. The armed forces, however, will be exempt from this.

Feeling the pressure on help working families, the Chancellor made a welcome announcement that working parents will receive a contribution from the Government towards the cost of childcare. Working parents will receive 20% - equivalent to the basic rate of tax - of their yearly childcare costs, up to a total of £6,000 per child. He said the move will save a typical working family with two children under 12 up to £2,400 a year.

Also, leaked this morning was the news that the Chancellor will raise the income tax threshold to £10,000 from April 2014 – a move he said will give 2.4million people at tax cut of over £200 each a year, as well as lifting two million people out of income tax altogether.
Yet while both moves are widely welcomed, they do little to counter the austere measures of previous Budgets, explains Clare Francis, editor-in-chief at MoneySupermarket.com:"Giving with one hand may be a positive, but taking away with the other through other tax increases and benefit cuts means that people are no better off. "In fact, the cumulative effect of this and previous budget changes, combined with wage stagnation and rising living costs means millions are worse off and an increasing number of families are on the breadline, struggling to make ends meet every month."
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