Budget offers little to encourage savers
Although Alistair Darling did announce plans to extend the Savings Gateway in 2010 - a savings scheme for those claiming benefits and tax credits where the government makes a contribution for each pound saved - there was little to encourage the nation as a whole to put their money away for the future.
Martyn Laverick, marketing director of AWD Chase De Vere said: "In many areas the government has increased the disincentive for saving. By scrapping the 10p tax rate and reducing the basic rate by 2p has done next to nothing to increase people’s take home pay and has reduced the amount of tax relief they get on their pension savings."
He added: "The chancellor was happy to maintain the higher level tax relief [of 22%] on gifts for charities, so why not for pensions?"
In his budget speech the chancellor also took the opportunity to confirm previously announced changes to ISA rules from April 2008. This will see the overall ISA allowance rise from £7,000 to £7,200, of which £3,600 can be held in cash. The mini and maxi ISA distinction will disappear and ISAs will simply be cash or stocks and shares.
For the first time, it will also be able to switch existing cash ISAs into stocks and shares ISA without losing the tax relief. But again the industry has expressed concern that savers who do take advantage of this additional flexibility won't be able to switch back into cash if their risk profile changes or the markets take a turn for the worst.
Cliff Husband, research director at AWD Chase De Vere said: "The new ISA rules raise the spectre of another ghastly financial scandal. People could switch their ISA cash savings into investments, unaware that they can't switch back. It would be far fairer to all taxpayers if the switch between cash and investment within an ISA could be easily reversed."
Alistair Darling did, at least, welcome Otto Thoreson's report into the provision of free, generic financial advice, which was published on 3 March, and commit to launching a £12 million Money Guidance scheme in partnership with the FSA.
That's not all! For the rest of our Budget 2008 coverage, click here
There are limits to how much you can invest in any tax year. For 2011/12, the limit is £10,680. Of that, the maximum you can invest in cash is £5,340 and the balance of £5,340 can be invested in shares (individual company shares or investment funds). If you don’t take the cash ISA allowance, you can invest up to £10,680 into a stocks and shares ISA.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
The Financial Services Authority is an independent non-governmental body, given a wide range of rule-making, investigatory and enforcement powers in order to meet its four statutory objectives: market confidence (maintaining confidence in the UK financial system), financial stability, consumer protection and the reduction of financial crime. The FSA receives no government funding and is funded entirely by the firms it regulates, but is accountable to the Treasury and, ultimately, parliament.