Budget 2014: Mostly Good?
20th March 2014
There are some clear-cut reasons for celebration in George Osborne's Budget. The doubling of the Annual Investment Allowance, allowing tax relief on 100% of a company's expenditure on capital equipment up to a maximum of £500,000 per annum, will be great news for manufacturing businesses. For those ground-breaking enterprises which abound here in Oxfordshire and elsewhere, the increase in the repayable tax credit for Research and Development available under the SME scheme will give yet another boost to an incentive that favours the kind of innovation which will, without doubt, continue to be key to the ongoing economic recovery. The continuing availablity of incentives for equity investment in these companies under the Seed Enterprise Investment Scheme is also welcome news. The increase to the tax-free Personal Allowance beyond the Coalition's targeted £10,000 certainly cannot be criticised; is there anyone out there who still thinks that individuals earning less than £10,000 should actually be paying tax?
The Budget has been hailed as a Budget for Savers, and, among other measures, the increase in the limits and in the flexibility of ISAs is another modest cause for celebration. This is also true for the reduction of the Savings Rate of income tax from 10% to that lovely, round number, zero!
However, listening to other commentators, I am glad to see that I am not the only one with some reservations about the proposed pension liberalisation. Part of me celebrates the change of direction; the last few Budgets have seen things get progressively worse for pension savers, and a change which favours them might appear to go some way to redress the balance. However, I have always believed that the varying, but nonetheless always quite generous, tax reliefs for pension contributions have been justifiable because pension savers have been obliged to commit in return to maintaining some value in their fund throughout their retirement. I have always understood that the aim of this was to ensure that the beneficiaries of the tax relief would not later be relying on the state - meaning the next generation of taxpayers - to provide for them in their later years.
Now, it appears, it will be possible to withdraw the entirety of one's "pension pot" one day after retirement, and, after paying tax on 75% of it, take the lot and blow it on a round-the-world cruise. Should I be worried? Only time will tell!