Budget endorses Green Investment

To be fair, I don’t think George was actually talking about me, but nice to be name-checked anyway!

On a more serious note, near the start, Mr Osborne announced this would be a fiscally neutral budget. Economically it may well be that but for financial planning it erred on the side of positive for me.

Nobody expected a give-away Budget, so we were not disappointed. The HM Treasury document totalling 101 pages provided a good summary of George Osborne's plans and the numbers behind it.

One of the headline grabbers was Income Tax and National Insurance to be merged (possibly, after lengthy consultation). Another was that the 50% tax rate is temporary. With apologies for having my cynicism to the fore but even if the 50% rate is scrapped, the next 40% band + 12% NI still equals a potential new rate of 52%!
As has already hit this morning’s front pages and cornerstone of the opposition response on the day was that the ‘Plan for Growth’ is anything but.
The newly appointed Office for Budget Responsibility (OBR) will in future provide “independent” forecasts on which the Budget will be set, rather than the figures being “fixed to suit the Budget”. Growth forecasts announced are:
2011 1.7%
2012 2.5%
2013 2.9%
2014 2.9%
2015 2.8%
Inflation (OBR figures) is expected to be in the range of 4% to 5% this year, 2.5% in 2012 and 2% in 2013. The target, based on CPI, remains and was reiterated at 2%. The debt figures remain mind bogglingly huge, at c. £146 billion this year, around £122 billion next year and falling to £29 billion in 2015/16. Oh yes, and our foreign currency reserves will be rebuilt, but not by buying gold!


The Chancellor stated four overarching ambitions for the British economy. These measures to aid the 'Plan for Growth' are:

• To create the most competitive tax system in the G20.
• Make the UK the best place in Europe to start, finance and grow a business.
• Encourage investment and exports as a route to a more balanced economy.
• Create a more educated workforce that is the most flexible in Europe.

In July last year, the Government set up the Office of Tax Simplification to provide independent advice on how to simplify the UK tax code – which recently overtook India’s to become the longest in the world. As a result of this review, the Budget abolished 43 tax reliefs.
He also said 100 pages would be removed from the tax book. My followers on Twitter will have noted I suggested this would simply be by printing it using a smaller font size, boom-boom.

HMRC and HM Treasury's "Overview of Tax Legislation and Rates" ran to some 240 pages and although in initial skim I have seen some tax reliefs abolished, in the main, there appears to be no major impact on core financial planning strategies (phew…!). But, as with any Budget, further analysis will be required once more detail is issued.

Some recent Government announcements were also referred to in the Budget, but not much more detail was provided. Of interest to me as a financial planner will be the forthcoming consultations on:

• Simplifying and merging the Income Tax and National Insurance Contribution regimes; not an easy task if Government revenues are to be protected.
• Moving towards a Universal Pension of £140 a week, which will include the abolition of contracting-out through defined benefit pension schemes.
• The abolition of Life Assurance Premium Relief (for those Green Financial clients with life insurance policies still running but started before 1984)
In line with the first stated key economic ambition, the Chancellor announced that he would reduce the rate of Corporation Tax by 2% from April this year with a further 1% reduction over the next three years, which will mean a corporate tax rate of 23% in four years time – lower than all of the current rates in the other G7 countries.

However, in recognition of the support received by the UK banking system over the last couple of the years, the bank levy will be increased to offset the reduction in the rate of Corporation Tax.

Moving onto the second ambition, George Osborne, as well as confirming an agreement with the banks to increase lending to smaller companies by 15%, announced changes for the provision of start-up capital, particularly to Enterprise Investment Schemes in which a number of my more risk and volatility accepting clients have previously invested (definitely NOT investment vehicles for the faint hearted or loss/risk averse!). From April this year, the income tax relief for investors will increase from 20% to 30%. From April 2012, the eligible investment amount will be doubled, the size of eligible companies will be increased and the limit on amount invested per company raised substantially.

The third stated ambition was for a more balanced economy and the Chancellor touched upon a number of changes to legislation to broaden out the contributions of different industries within the UK economy such as the one year extension of the current rate relief holiday for small businesses until October 2012 at a cost of £370 million to the Exchequer.

To assist first time buyers, the Chancellor announced that £250 million raised from the bank levy will be used to fund a new shared equity scheme, First Buy.

21 new Enterprise Zones are to be created, and the currently interesting Business Premises Renovation Allowance, due to end, has been extended.

As regular readers of my output will be aware, the State Pension Age is due to rise to 66 by 2020 but the Chancellor has announced plans to set up an automatic mechanism for future increases in the State Pension Age based on regular, independent reviews of longevity. In addition, following the completion of John Hutton’s report on pension benefits, the Pensions Minister, Pensions Secretary and the Chancellor will be working towards a new simplified single tier pension. It is anticipated that this will result, in future years for future pensioners, in a c. £140 per week state pension but that it won’t apply to existing pensioners.


I recently wrote to many longer term clients with a letter regarding elements of the ‘Retail Distribution Review’ (RDR)

In a separate announcement issued by HMRC to the "Financial Services sector" they identify and note again that the RDR will introduce a new regulatory framework into the retail financial services market.

HM Treasury and HMRC have been working closely with the FSA and industry bodies to understand the changes required to deliver the RDR and to provide clarity on areas of concern for advisers and providers around charging structures and the tax implications the new environment creates. HMRC are exploring their options and will be updating their technical guidance on:

• The HMRC VAT Guidance and Registered Pension Schemes Manual.
• Technical Advice on CGT
• Products written in trust.

Once further guidance is issued I will provide more detailed analysis on this and implications for clients if applicable.

Personal taxation and duties
Amongst changes (improvements in my opinion) to Gift Aid, a big announcement on Inheritance Tax (IHT). In future (where death occurs on or after 6th April 2012) if one donates (leaves, gifts) 10% of the net estate to charity, the Government will provide a 10% discount on IHT – no beneficiaries will be better off, he says. We think this should encourage charitable giving and has the effect of reducing the well-known 40% rate to only 36%, though expect more after consultation.

Tax evasion AND avoidance are to be targeted (surely that raises the question, “aren’t they anyway?”) and Capital Gains Tax schemes seem sure to be in the firing line. As ever, I will restate my oft used phrase that “no client of mine will ever be an HMRC test case”. It remains that I do not get involved in schemes that are untried or untested. All my financial planning is sensible, tried & tested and well within the established rules

Personal allowances will, as expected, rise by £1,000 on 6th April, to £7,475, rising again in April 2012 to £8,105 as the Coalition keeps its promise to take this up to £10,000 in this Parliament.
As regards excise duties, no changes on alcohol, tobacco up by 2% above inflation (from 6pm), vehicle excise duty by inflation except on commercial vehicles where it is frozen, and mileage allowances up to 45p per mile.

However, the BIG news was saved to last as regards personal finances for anyone with a car (OK, not those of you with electric cars!!)

The “Fair Fuel Stabiliser” is introduced, whereby the oil companies will be taxed (to the tune, the Chancellor calculates, of £2 billion), thereby paying for:
The immediate cancellation of the escalator
A deferment of the 2011 inflation-linked fuel duty rise (to April 2012 and the April 2012 one to 2013)
A cut of 1p per litre off fuel duty from 6pm on the evening of the budget
This will apply whilst, subject to clarification after consultation, the oil price is above $75 a barrel – at that point the oil company tax will be reduced and the escalator re-instated.

And to return to where I started this correspondence, a further £2 billion was added to the Green Investment Bank (no relation!) which will now have £3 billion for use in green projects from 2012, starting a year ahead of schedule.

So in summary, a neutral Budget as regards the nation’s finances, but certainly not for my clients where, on balance, I see positives and as usual, much more will come out in the coming days…