Savers, motorists and beer drinkers all have reasons to be cheerful after the final budget before the general election. But not everyone is happy with the chancellor.
The biggest tax giveaway of the budget sees the chancellor increase the personal tax-free allowance to £10,800 in 2016-17 and to £11,000 in 2017-18, with full gains going to higher rate taxpayers.
The move will cost nearly £2.5bn over the next two years, making the typical working taxpayer £900 a year better off and cutting taxes for 27 million people.
Charities have criticised the policy.
Barnado’s chief executive Javed Khan said: “We’re disappointed that the chancellor has chosen to combat in-work poverty with tax changes that benefit higher earners three times more than the poor. Struggling working families will see precious little from the tax change.”
Matthew Reed, Chief Executive of The Children’s Society, said the plan was “simply not the best way to help low-income working families”.
He added: “While raising the personal allowance may appear to help, hundreds of thousands of working families will be hit by cuts to their benefits, cancelling any advantage that increased tax allowances would bring. It’s vital that benefits keep pace with the cost of living to protect the most vulnerable.”
These are the latest Treasury estimates of the cumulative effect of government welfare and tax policies since Mr Osborne’s first budget in June 2010. They model the effect of some of the changes announced today.
The Treasury analysis suggest that the richest 10 per cent have seen their incomes fall the most as a percentage, but the lowest earners have also been hit harder than middle-income households.
Under the new personal savings allowance, the first £1,000 earned in interest will be tax-free, abolishing savings tax for 17 million people, the chancellor said.
First time buyers will benefit from a new subsidised help-to-buy ISA, which will allow the government to add £50 to every £200 saved towards a deposit on a property.
There will also be a “fully flexible” ISA, where savers have complete freedom to transfer money in and out throughout the year without losing their tax free entitlement.
The annual savings limit for an ISA is increased to £15,240.
He said the new help-to-buy ISA would be accompanied by a new “fully flexible ISA” giving savers complete freedom to take money out, and put it back in later in the year, without losing any of their tax-free entitlement.
The law will change from 2016 to allow pensioners to access their annuities, with the existing 55 per cent tax charge removed and tax applied at the marginal rate instead.
The chancellor extended the freeze on fuel duty into the autumn, cancelling a rise due in September.
RAC Foundation director Professor Stephen Glaister said: “With fuel duty revenue making up about 5 per cent of the Treasury’s tax income there was never going to be a huge giveaway as the Chancellor still desperately needs motorists’ money.
“But with the latest figures showing that almost a million of the poorest households see a quarter of what they spend go on buying and running a car the continued freeze is very welcome.”
The chancellor took 1p off a pint of beer and cut duty on cider, Scotch whisky and other spirits 2 per cent. Duties on wine, tobacco and gambling remain unchanged.
Camra welcomed the news, saying previous cuts in beer duty had already saved over 1,000 pubs from closure.
Although falling oil prices have helped the chancellor announce more optimistic growth and borrowing forecasts, they are hurting the North Sea oil and gas industry.
Mr Osborne is offering the sector a £1.3bn package, reducing charges on oil companies’ profits and cutting petroleum revenue tax from 50 per cent to 30 per cent.
A scheme to help energy-intensive companies like steelmakers, chemical and cement manufacturers will also be brought forward at a cost to the exchequer of £25 million.
Although the chancellor announced a number of tax cuts today, overall the government will rake in about £750m more than it pays out in 2015/16 as a result of this year’s budget policies.
The biggest contribution to Treasury coffers comes from an increase in the bank levy to 0.21 per cent, which is expected to bring in £685m in 2015/16 and more than £900m a year over the next parliament.
Banks will be also be prevented from deducting PPI compensation payments from their corporation tax bill.
The richest pensioners will be hit thanks to plans to limit the lifetime tax-free pension allowance to £1m. The allowance had already been cut from £1.5m to £1.25m.
The move is expected to raise around £2bn over five years, although the government says only the richest 4 per cent of pensioners will be affected.