Election means cuts and controversy ditched from Budget plans

Sarah Coles
Chancellor Philip Hammond
Chancellor Philip Hammond

Three of the most controversial announcements in the Spring Budget have been ditched from the Finance Bill, as a much-reduced version gets pushed through before the election. It's great news for anyone planning phased retirement and for business owners. However, simultaneously, those saving for a pension will lose two changes that would have been very welcome indeed.

See also: Over 50s wish they hadn't retired so young

See also: What the General Election means for pensioners

See also: Couples need to save £131 a month from age 20 for retirement, says Which?

The Finance Bill has been drastically cut in an effort to rush it through parliament during the legislation wash up before the general election. Traditionally, anything that is considered likely to slow up a bill like this will be jettisoned - which means some of the more controversial things have gone.

Tom McPhail, Head of policy at Hargreaves Lansdown, is not surprised to see tricky tax measures bite the dust. He says: "Politically, it makes sense to ditch unpopular policies during an election campaign, in order to avoid upsetting voters."

Phased retirement
There's good news for anyone planning to take advantage of pension freedoms in order to take cash from their pension - while they simultaneously work (and contribute to a pension). During his Budget speech Philip Hammond announced big cuts to the amount that people in this position could contribute to their pension (called the Money Purchase Annual Allowance) - from £10,000 a year to £4,000 a year. This move has been dropped

Another measure that has gone was the plan to slash the dividend income allowance from £5,000 to £2,000. This would have hit business owners who tend to take a large portion of their income as dividends from their business rather than drawing a salary (to ease the tax burden).

Digital tax
The 'Making Tax Digital' plans have also come out of the legislation. These would have meant the self-employed filing their tax returns more frequently, and paying their tax more regularly. The industry was keen for this to be deferred for a while - so people could get used to it - however, David Truman, tax partner at accountancy firm, Menzies LLP, points out: "It is unclear if this is a temporary deferral pending a second finance bill after the election, or whether it will be more permanent. If this is a temporary deferral, those affected will have even less time to prepare for the legislation and will be left floundering in an information vacuum."

Unfortunately, Hammond has also dropped moves to outlaw pension investment cold calling - which would have given pensioners confidence that anyone contacting them out of the blue about pension investments was breaking the law and therefore not to be trusted.

Another irritating loss to the legislation is the move to allow employers to pay for £500 worth of pension advice for their employees without incurring a tax charge. This would have been a valuable change to the legislation - allowing employees to get much-needed advice on increasingly complicated pension arrangements. And it's hard to imagine why this would have been tricky to get through parliament.

What next?

Whether any or all of these things are eventually resurrected is in the hands of politics. Whoever is voted into number 11 Downing Street will take the lead on any changes to pensions and taxation. And the kind of majority that a party receives will then influence how radical the Chancellor is confident being - without the risk of being toppled by unhappy backbenchers.

McPhail expects that if the Conservatives return, the tax changes will be introduced. He says: "We do currently expect to see these changes reintroduced the other side of the election, in the event of a Tory victory."

With any luck, this isn't the last we will see of clampdowns on scams, and more support for advice - whoever ends up in Number 11 - but we will simply have to wait and see.