20 March 2014
Unpacking the 2014 budget
George Osborne delivered the spring budget this week with a promise to "build for Britain" amid an economy that is showing positive signs of recovery and growth.
Employment is rising, inflation is falling and this year's economic growth is expected to be one of the strongest internationally. However we are relying heavily on consumer-driven growth and business investment has yet to recover.
Osborne's plan for building a "resilient economy" sees a focus on supporting savers and encouraging business growth.
For years savers have suffered due to low interest rates and measures introduced to address our struggling economy. Now the economy is recovering Osborne announced reforms to help, "people who have made sacrifices to provide for their economic security in retirement".
The ISA limit will increase to £15,000, the 10p tax rate for savers will be abolished, £10 billion of new fixed rate bonds for those over 65 will be introduced and the requirement to invest in low-yielding annuities for those saving for retirement in defined contribution schemes will be removed.
In an acknowledgement that business growth, export and investment is crucial for continued economic growth, Osborne announced corporate tax would decrease to 21 per cent this year and to 20 per cent next year, interest rates to exporters would be cut by a third and available government credit to exporters would be increased.
Plans to help lower and middle income earners include increasing the amount people earn before tax by £500 to £10,500 and iChildcare subsidies have been increased with up to 1.9 million benefiting however one-earner households will not be eligible. Parents paying 80 per cent of childcare costs up to £10,000 per child to a registered provider will get the remaining 20 per cent tax-free. This equates to up to £2,000 in support per child each year.
Parents are best placed to decide the optimal child care arrangements for their families, whether that includes childcare or a parent staying at home. The government should support parents in their freedom to decide. This scheme instead places an onus on using childcare and financially penalises parents who choose to stay home with their children. CARE has said that it, "compounds the sense of assault on one-earner families". The Children's Society is positive about childcare subsidies for those on universal credit with the government meeting 85 per cent of bills, saying it will make a huge difference for the poorest families.
The transferable tax allowance allows married couples to share their
tax-free allowances. The amount has been increased in this year's budget with
promises to continue doing so in the future. CARE sees this as a step in the
right direction, "levelling the playing field for one-earner families" who have
until now been penalised by the tax system for not earning two incomes. However
the Christian Institute does not believe it goes far enough because it does not
include all married couples.
The welfare budget is set to be capped at £119 billion for 2015/16, excluding state pensions and unemployment benefits. The Children's Society has raised concerns this will put vulnerable families at risk. The NCVO has said that long term investment in prevention and early action should be looked at rather than punishing families with a cap.
The National Council for Voluntary Organisations has welcomed the social investment tax relief and Opposition leader, Ed Miliband was quick to criticise the Government. He pointed to the 350,000 people using food banks, the 1 million more people paying the 40p tax rate, the 400,000 disabled people paying the 'bedroom tax' and the 4.6 million people facing cuts to tax credits.
The Budget reforms to saving and business are intended to incentivise long term saving and hopefully see an increase in business investment and growth which will ensure continued growth for our economy. The Government has also maintained their focus on decreasing the deficit. However more could have been done to support our most vulnerable. It is disappointing to see families, particularly one-earner families continue to be penalised with little in the budget to reflect the important role marriage and families play in society.
Amelia Abplanalp, public policy officer.