Few pass marks for Darling's 'big debt' Budget

HIGH earners reluctantly stole the Budget headlines, courtesy of a brutal combination of a new higher rate of tax, the removal of tax breaks and a reduction in personal allowances.

Most households breathed a sigh of relief on escaping the Chancellor's ire, even if he didn't offer much to get excited about. So, from savings and jobs to benefits and bills, what did Alistair Darling produce – and what do the experts think about it?

SAVERS
The tax-free allowance on individual savings accounts (Isas) rises from £7,200 (£3,600 maximum in cash) to £10,200 (£5,100), answering loud calls for more savings incentives. The new allowance comes into force with immediate effect for those aged 50 and over, although deposits exceeding the current limit cannot be made until October, giving providers time to update their systems.

Others savers will have to wait until next April to take advantage, however.

The increase will do more to boost contributions by existing savers than entice new savers. But Russell Hills, head of tax for KPMG in Scotland, said the increased limit would make little difference at current savings rates.

He said: "An extra £1,500 allowance from 6 October on a cash Isa paying 3 per cent will give extra income of £22.50 over the rest of the tax year, meaning a tax saving of just £9 for a 40 per cent tax-payer."

The Chancellor's failure to add more flexibility to Isas by removing the distinction between cash and equity Isas or by allowing funds to be moved from equities to cash (only the reverse is permitted) was criticised.

VERDICT – Well done – but ample room for improvement.

HOMEBUYERS
The stamp duty holiday, announced last September, exempted properties below £175,000 from the tax for a year. The Chancellor this week extended the increase until 31 December, after which the threshold will revert to £125,000.

But John Postlethwaite, consultant at Punter Southall Financial Management in Edinburgh, said the move would only have a minimal effect on the market.

"If the Chancellor wants to give things a real boost, this should have been extended until the end of the tax year, and increased for properties of up to £500,000 in value, or even abolished altogether," said Postlethwaite.

More significant could be the announcement that the government will guarantee £50 billion worth of mortgage-backed securities, which banks use to help fund new lending.

See pages 42 and 43 for more on first-time buyers.

VERDICT – Hit and miss. The stamp duty holiday is likely to prove ineffectual but the guarantee targets the problem of funding availability, the main obstacle hindering a market recovery.

PENSIONERS
The Chancellor confirmed that, while the retail prices index (RPI) could fall to -3 per cent in September, the rise in the basic state pension, based on the September RPI figure, will be no lower than 2.5 per cent. But Dot Gibson, general secretary of the National Pensioners Convention, described the Chancellor's promise as an insult.

"One in four pensioners still lives in poverty and rising costs of food and fuel, combined with record lows in savings returns and underperforming pensions, mean that pensioners are suffering a disproportionate increase in the cost of living," she said.

The other positive news for pensioners was that, from November, the first £10,000 of savings will not be taken into account when assessing entitlement to pension credit, up from £6,000 currently.

Darling claimed the move would add £4 a week to the average income of 540,000 pensioners.

But charities noted that with nearly two million pensioners failing to claim pension credit to which they are entitled, many would miss out.

VERDICT – Improvement, but can do better and a more generous state pension pledge was called for.

ENERGY BILLS
The winter fuel allowance will stay at the higher level introduced last year – £250 for those over 60 (previously £200) and £400 for households with someone aged over 80 (previously £300).

But there were no measures aimed at addressing unfair pricing – particularly households forced to pay by meter and paying more as a result – and campaigners said too little had been done to tackle fuel poverty (defined as when households spend more than 10 per cent of their income on energy bills).

Michelle Mitchell, charity director at Age Concern and Help the Aged, said: "Maintaining the winter fuel payment, measures to help grandparents and help for low-income savers will provide cheer to pensioners in an otherwise gloomy Budget, but the failure to do more to tackle fuel poverty will continue to leave many pensioners out in the cold."

VERDICT – Action was needed but nothing new was delivered. Recent fuel bill cuts have done little to ease the burden and the government continues to fudge the issue of pricing.

CHILDREN/GRANDCHILDREN

The child tax credit element will rise by £20 a year above indexation from next April, with an extra £100 a year added to disabled children's child trust funds. For severely disabled children, it will rise by up to £200 a year.

But Kate Green, the chief executive of the Child Poverty Action Group, said: "The money targeted on the children struggling most during the recession amounts to less each week than the cost of a pint of milk. It is disgraceful."

Grandparents and other adult family members who care for their grandchildren or other members of their family aged 12 or younger for 20 hours or more a week will be able to claim National Insurance credits towards the basic State Pension from April 2011.

VERDICT – Welcome flexibility for grandparents and recognised a growing need.

UNEMPLOYED
The Chancellor pledged an extra £1.7bn for the network of Job Centre Plus offices and its New Deal programme for the out-of-work, while he promised that everyone under 25 who has been out of work for more than a year will be offered a place in a training scheme.

Teresa Perchard, director of policy at Citizens Advice, said the move would help ease the pressure on job centres, but added that job seekers needed more immediate help. "The £3bn support package for job seekers, particularly younger people, is welcome though we are concerned that this extra support will only be available after they have been out of work for 12 months."

Statutory redundancy pay was increased to £380 a week, from £350.

VERDICT – Encouraging at first glance, but questions over how well targeted the measures are. Darling produced very little to address the growing unemployment problem on the day it was revealed that the jobless total had passed two million for the first time in 12 years.

Case study
Too little, too late for home-buying couple

THEY are looking to buy a home together and trying to save for the deposit needed, but 25-year old Louise Freedman and her boyfriend, Andrew, feel they were given little help in this week's Budget.

Louise, who works as a business development manager for her parents at Scotshirts, which supplies bespoke clothing and promotional products, believes the Chancellor could have made a positive difference not only to their savings, but to their chances of moving up the housing ladder.

A hike in the stamp duty threshold to, say, £250,000 – rather than the three month extension to the existing £175,000 "holiday" – would have made a big difference in an expensive city like Edinburgh, according to Louise. "The stamp duty measure will be good for some first-time buyers but it will not affect us because it does not go far enough in terms of property value. We want to buy this year and increasing the stamp duty threshold would have been a big help."

Their bid to raise the deposit that would get them a good mortgage deal would have been boosted by the rise in the Isa allowance to £10,200 (£5,100 in cash) – if it applied this year. In that sense, Darling missed a big opportunity to encourage people to increase their savings, said Louise. "Like a lot of people I am saving more than I used to," she explained. "If he had increased the limit from now I would have been encouraged to put more aside."