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Pre-Budget report
A round up of the key tax and benefit changes
More home buyers to benefit from shared equity scheme
Brown puts green credentials to the test
ISAs become simpler
Question mark hangs over future of pension term assurance
Alternatively secured pensions 'rendered useless'
A round up of the key tax and benefit changes
Parents
The working tax credit will increase by £65 to £1,730 a year and the child tax credit will increase by £80 to £1,845 a year.
Child benefit will increase by 65p to £18.10 a week for the eldest child, and for other children there will be a rise of 40p to £12.10. Gordon Brown has scrapped the extra allowance for lone parents, who used to get 10p a week extra.
Expectant mothers will be able to claim child benefit from the 29th week of pregnancy.
Pensioners
The state pension will increase by 3.6% in April 2007.
Pension credit will rise by £5 a week for single pensioners and £7.65 for couples in April 2007.
The Chancellor said there would be free central heating for low-income pensioners and extra help for all pensioners. The 300,000 households most at risk from fuel poverty will be offered free insulation and central heating.
Income tax
The personal allowance on income tax will increase by £190 in 2007-08 to £5,225, for all people up to the age of 64. Between the ages of 65-74 and above the age of 75 the allowance will rise by £270 to £7,550 and £7,690 respectively.
Transport
From 1 February air passenger duty will double from £5 to £10 for budget flights and from £10 to £20 for all other classes, while tax on long-haul flights will increase from £20 to £40, and from £40 to £80 for all other classes.
From midnight tonight, fuel duty will increase by 1.25p per litre. There will be a duty discount on cleaner fuels.
More home buyers to benefit from shared equity scheme
The Chancellor has responded to the continued rise in house prices - which is pushing home-ownership out of reach for many - by saying he wants to double the number of shared-ownership properties from 80,000 to 160,000 by 2010.
Following a report published today by the Shared Equity Task Force, the Chancellor has set a target of 120,000 lower income households to be assisted through the Open Market HomeBuy Scheme - where the Government provides an equity contribution in a public-private partnership.
The scheme has been hampered so far by reluctance from lenders to get involved. Nonetheless the Chancellor is optimistic and has announced plans to launch a competition in spring 2007 for lenders to joint in the next round of the scheme.
The Chancellor, however, seemed to contradict his commitment to helping first-time buyers onto the property ladder - by not announcing any changes to the thresholds for stamp duty. Research from Alliance and Leicester found 61% of first-time buyers are looking for homes over the current stamp duty threshold of £125,000 - rising to 91% in London.
"This is an additional burden on those first-time buyers already struggling with the continuing rise in house prices," said Stephen Leonard, director of mortgages at Alliance & Leicester. "The current average house price for a first-time buyer stands at £151,535, and the limit needs to be at least this amount to have any effect."
Brown puts green credentials to the test
Gordon Brown has given his pre-Budget speech a strong green tinge, but has been criticised by environmental groups for failing to go far enough.
In his speech, Brown pledged to tackle climate change by introducing a raft of new policies geared towards green housing development and sustainable fuels. The most significant measure is the target of making all new homes carbon-free within the next 10 years, which will initially manifest itself in an exemption of stamp duty for zero-carbon homes for an unspecified period.
According to Brown, carbon emission from houses is responsible for around 30% of total emissions.
The measure was welcomed by the World Wildlife Fund group, which said it "sends a clear signal to the house-building industry and homebuyers that energy-efficient homes are a great investment in terms of upfront savings and long-term reduced running costs".
There was also a cautiously positive response from the industry. "By explicitly linking carbon neutral homes to the stamp duty regime, Brown has provided the incentive to build greener homes. This is something building societies will be examining carefully," said the Building Societies Association.
Some transport costs have been increased as part of the green agenda. An increase in fuel duty by 1.25p with immediate effect - the first rise since 2003 - sparked an angry response from hauliers and drivers organisations, while air passenger duty is doubled to £10 on most short-haul flights and to £40 on long-haul flights (£80 for business class).
This prompted British Airways to accuse the Chancellor of using the green agenda as a revenue cloak. "Air passenger duty is an extremely blunt instrument that provides the Treasury with extra funds for general public expenditure without any benefit to the environment," a spokesman claimed, although airline groups said passenger numbers wouldn't be affected.
Dave Timms, economics campaigner at Friends of the Earth, said the report fell woefully short of introducing meaningful green policies. "The environmental measures we need haven't materialised, such as a return to the fuel tax escalator and higher duty on gas guzzlers, because the Chancellor doesn't have the courage to face down the transport lobbies. Given that we now know that climate change will have a massive impact on the economy, this is very short sighted," he said.
Timms did welcome incentives to increase the use of more environmentally-friendly fuels, such as a 20% discount on biodiesel duty, but described this as fiddling, rather than the change required.
ISAs become simpler, but no plans to increase allowances
The Chancellor has announced proposals to make individual savings accounts (ISAs) a permanent fixture in the savings and investment market. Personal Equity Plans (PEPs) will also come within the ISA wrapper and the distinction between Mini and Maxi ISAs will be removed.
Brown said Child Trust Fund accounts will be able to roll over into ISAs on maturity, and Cash ISAs may be transferred into Equity ISAs - but crucially, not vice versa. Investment broker, Bestinvest, welcomed the announcements, but says it won't undo the damage caused to Equity ISAs when the Chancellor reduced the tax benefits of receiving dividends in 1999; and removed the tax saving altogether in 2004.
"It is disappointing that Equity ISAs cannot be moved into Cash ISAs," said Justin Modray, head of communications at Bestinvest. "This has serious implications for long-term savers as it's natural to move away from equities and into cash later in life. I suspect Brown is not allowing this because the tax relief on Cash ISAs costs the Treasury more than those on Equity ISAs."
Despite industry pressure, Brown said annual limits for ISAs will remain the same - a total of £7,000, yet only £3,000 of this can be invested in a Cash ISA. "We will be urging the Chancellor to reconsider his decision and raise the Cash ISA limit to £5,000, showing savers the Government's commitment to this product," said Adrian Coles, director general of the Building Societies Association.
Question mark hangs over future of pension term assurance
Gordon Brown has announced that the Government is to review a loophole in the new pension regime that enables people to claim tax relief on life assurance policies.
Pension term assurance allows basic rate tax payers tax relief on premiums worth 22% while higher-rate tax payers get relief worth up to 40%. Since the introduction of the new pension regime last April an estimated 100,000 pension term assurance policies have been sold.
The Government has confirmed that people with existing policies will not be hit. However, it's unclear at this stage whether that simply means their insurance policy will continue with the loss of tax relief on premiums or whether they will be able to continue claiming tax relief and benefit from reduced premiums.
Kevin Carr, head of protection strategy at LifeSearch, said he was not surprised by Brown's decision. "The Treasury has said it's out of line with its principles so the signs are that it will close. It's tax relief for the rich and it's not Labour policy."
The Treasury will confirm the future shape of pension term assurance in next year's Budget following consultation with the pensions industry.
Alternatively secured pensions 'rendered useless'
Changes to the rules surrounding alternatively secured pensions will mean more retirees will be forced into buying an annuity at age 75, according to pension experts.
Ian Oliver, head of pensions at Norwich Union, said: "Gordon Brown has taken a wrecking ball to ASP and rendered it useless."
The appeal of ASP was that it enabled wealthier retirees to defer drawing on their pension fund and gave them the ability to leave a lump sum in the pension funds of other members of the scheme.
However, under the new rules retirees will be forced to take a minimum income every year, equal to 65% of the sum they would receive from an annuity. Payments into other members' pension schemes will also be classified as an 'unauthorised payment', and be subject to a 70% tax charge. The remainder would then be paid into the deceased's estate and become subject to inheritance tax, resulting in a total hit on the remaining pension fund of 82% according to Hargreaves Lansdown.
Steve Latto, pension development manager at Alliance Trust, added that the move wouldn't only limit options for those planning their retirement income, but could also hit those with ASP plans already in place. "They could be forced to buy an annuity to avoid the tax charge," he said.
The Treasury claims that ASP was originally intended to provide an alternative to annuities for those who are opposed to annuities on religious grounds, such as members of the Plymouth Brethren. It now believes it has been jumped upon by wealthy retirees as a means of avoiding tax.
Tom McPhail, head of pensions research at Hargreaves Lansdown, added that the Treasury's concerns could have been addressed without being quite so punitive.
Rachel Vahey, head of pensions development at Aegon, added that Brown's u-turn would dent confidence in pension saving.
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