Key announcements from the budget and how they affect your pocket

Hargreaves and Lansdown comments on the key announcements from the Chancellor’s budget yesterday (3 March) and how they affect your pocket.

Key budget points:

A green bond savings product will be offered by NS&I.
The stamp duty holiday has been extended for three months, and after that the nil rate band will be doubled to £250,000 until the end of September.
The furlough scheme is extended until September – Initially at 80%.
The self-employment grant is confirmed at 80% for the fourth grant. The fifth grant will offer people whose turnover has fallen by 30%, 80% of average profits. Those whose turnover has fallen less than 30% will receive a 30% grant.
The Universal Credit £20 weekly Covid uplift will be extended for six months.
The government will freeze the personal allowance until 2026 – after next year’s rise to £12,570 and the higher rate tax threshold until 2026 – after next year’s rise to £50,270.
It will also freeze the lifetime allowance for pensions; the inheritance tax nil rate band; and the capital gains tax exempt amount to 2026. This offers a level of certainty that we haven’t had for a number of years.
The government will offer guarantees for 95% mortgages.
National Living Wage will rise to £8.91 per hour.
Alcohol duties will be frozen for the second year in a row.
Fuel duty will be frozen.
The contactless card limit will rise from £45 to £100.

Sarah Coles, personal finance analyst and Nathan Long, senior analyst, at Hargreaves Lansdown, comment on the changes arising in the Budget.

Sarah:

“At this stage in the pandemic, we needed a budget offering people and businesses the support they need to get them through the last miserable months of the crisis – and in many instances, this is exactly what we got. However, this is only half the story, because Rishi Sunak made it crystal clear that at some point, all of this will have to be paid for.

“We had a few revenue-raising announcements. On top of the rise in council tax we already knew about, he announced a range of tax thresholds will be frozen. But that isn’t going to make a major dent in the hundreds of billions of pounds of covid spending that has been racked up. This year we’ll borrow £355 billion – a peacetime record.

“Instead we will have to wait for clues as to future tax rises on 23 March, when tax publications are likely to give us some idea as to the chancellor’s plans. So while we can breathe a sigh of relief for now, we can’t lose sight of the potential for tax rises further down the track.

“It’s why it’s vital we plan ahead, and take advantage of our tax-efficient allowances while we can, to protect our savings and investments from whatever the future holds.”

Green bonds – Sarah:

“The government is hoping to cash in on the demand for sustainable savings, with the launch of a green savings bond through NS&I.

“From the government’s perspective, funding is so cheap at the moment, and savers have so much money sloshing around right now, that it doesn’t make sense to pay over-the-odds. Meanwhile, demand for savings products that help fund planet-protecting projects could be high enough that even an average savings rate draws significant cash, so it’s not going to have to work too hard to attract savings.

“However, this is not the only green savings option in town. Recently we’ve seen a number of new launches, so we will have to wait to see how it compares to the Gatehouse green savings bond offering 0.55% for one year, 0.75% for two years and 1.4% for five years.

“It’s also worth noting that NS&I’s financing target for next year is far lower than this year – at just £6 billion. The green bond isn’t included in this target, but it’s a strong indication that aside from the new bond, we’re highly unlikely to see any strong rates from NS&I in the coming year.”

Stamp duty – Sarah:

“The stamp duty holiday extension will come as a significant relief to people who were stuck in the middle of the buying and selling process, watching time tick down towards the deadline. They’d been inspired to crack on with purchases by the stamp duty holiday, and then caught in backlogs in the overwhelmed system, so it was only fair to give them time to finish what they had been encouraged to start.

“The temporary doubling of the nil rate band from £125,000 to £250,000 from the end of the holiday to the end of September is designed to soften the blow for those who just miss the new deadline. It means they won’t face the full force of the tax hike. There’s a good chance this will boost enthusiasm for buying and selling again, particularly as we head into the key spring months.”

The furlough scheme and self-emplyment grant – Sarah:

“Much of this was announced this morning, but the Chancellor clarified that the fifth self-employment grant would offer people whose turnover has fallen by 30% or more, 80% of average profits, while those whose turnover has fallen less than 30% will receive a 30% grant.

“The government has learned how much damage can be done by prioritising hope over experience. After the tapering of the furlough scheme in the autumn sparked record redundancies, it’s being much more cautious this time round. It needs to be flexible too. When the government announced its roadmap, it made it clear that none of the dates were set in stone, so it’s vital the Chancellor adopts a similar level of flexibility, and doesn’t leave any changes to the last minute.

“The announcement will come as a huge relief to the millions of people still utterly reliant on these schemes to make ends meet. It’s also a shot on the arm for self-employed people who’ve just submitted their first tax return and may qualify for a grant for the first time.”

Freezing tax thresholds – Sarah:

“The personal allowance and higher rate tax thresholds will be frozen after April’s inflationary rise until the end of the next parliament. It’s a relatively stealthy way to suck an expected 800,000 people into paying income tax and another 800,000 into paying the higher rate, while simultaneously technically being able to say they haven’t raised tax.

“The more you earn, and the bigger your pay rise over the next few years, the harder this will hit you. If you’re set for a pay rise, it means it’s well worth considering salary sacrifice. These schemes let you give up a portion of your salary and spend it on certain things free of tax (and sometimes national insurance). This includes pensions, childcare vouchers, bike-to-work schemes, and technology schemes.”

Freezing Lifetime Allowance – Nathan:

“With Treasury pennies stretched, it’s understandable all angles are being explored, but this won’t just hit very high earners: committed and consistent pension savers risk running into the limit too, and being punished for their efforts to save for the future.”

Mortgages – Sarah:

“The government will offer lenders guarantees on 95% mortgages on homes costing up to £600,000, in a move that looks much like the former help to buy mortgage scheme. It’s not an excuse for people to over-stretch themselves, because buyers will still have to pass the same affordability checks. However, there’s still a risk it will inflate prices further: Shelter says the previous scheme pushed prices up 1.4%.”

Universal Credit – Sarah:

“There were 4.9 million households on Universal Credit in November 2020 – which has shot up by 2.2 million since March. Most of these 2.2 million have faced huge cuts to their income since the onset of the pandemic, and had to cope with major changes in their circumstances. Until the economy begins opening up again, there’s little hope of a change in sight. Cutting the £20-a-week Coronavirus boost at this stage would have added insult to injury, so the extension is very welcome.”

Kindly shared by Hargreaves Lansdown

Main article photo courtesy of Pixabay