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Six of the most unpopular Budget policies

We look at some of the most unpopular Budget announcements for advisers over the past few years.

Pensions tinkering

In recent years there has been so much tinkering with pensions the day of the chancellor’s Budget has become a day of dread for some advisers and those in the pensions industry.

Although chancellor George Osborne has now swapped Whitehall for Fleet Street (well the Evening Standard is not based there anymore, but you know what we mean) his successor Philip Hammond has also done some pensions tinkering of his own since taking office.

Ahead of next week’s Budget, we take a look at some of the most unpopular Budget announcements over the past few years. 

Pensions tinkering

In recent years there has been so much tinkering with pensions the day of the chancellor’s Budget has become a day of dread for some advisers and those in the pensions industry.

Although chancellor George Osborne has now swapped Whitehall for Fleet Street (well the Evening Standard is not based there anymore, but you know what we mean) his successor Philip Hammond has also done some pensions tinkering of his own since taking office.

Ahead of next week’s Budget, we take a look at some of the most unpopular Budget announcements over the past few years. 

A taper too far

Announced in the 2015 Budget, the tapered annual allowance cuts the annual allowance by £1 for every £2 earned by people with income of over £150,000, with a maximum reduction of £30,000.

This means for those people with incomes of over £210,000 their annual allowance will be £10,000.

But this is only half the picture. Advisers also have to work out exactly what a client will earn in that year, calculate how much carry forward they are entitled to, make sure they know the difference between ‘threshold’ and ‘adjusted income’ and also do an incredibly complicated calculation to work out what defined benefit (DB) contributions clients might make.

Not surprisingly then this announcement has caused a huge amount of disquiet from IFAs up and down the country. Nick Lincoln, managing director of Vision Financial Planning, recently called it a ‘ludicrous piece of legislation’.

 

A lifetime ISA is born

In the 2016 Budget Osborne made the popular decision not to radically reform pensions tax relief. In the end he was unable to find consensus for radical reform.

However he did pick one pensions-tax shaped rabbit out of his hat in the shape of the lifetime ISA. The new product, designed to help the young generation save, provides a 25% government bonus for maximum annual contributions of £4,000.

Now with two competing retirement saving vehicles on the go many advisers feel unsure as to the actual director of travel for the government’s saving policy.

But the early indications are this policy is not actually attracting the young people it was meant to; according to figures from AJ Bell almost a fifth of those taking out the lifetime ISA are 39, the last year eligible.

 

The LTA jar

The lifetime allowance (LTA) is the cookie jar which the chancellor (namely George Osborne) has been unable to keep his hands out of.

Since 2011 LTA cuts have become an annual ritual as normal as receiving socks at Christmas; it has dropped from £1.8 million to its current level of £1 million over the period.

In April then pensions minister Richard Harrington defended the £1 million LTA in an interview with New Model Adviser®.

‘The way some of the IFAs speak is as if [they have] it has been completely cut off. But I am afraid it is just the sort of decisions governments have to take,’ he said.

But with the £1 million level now hitting many middle management positions and being particularly bad for those using freedoms to do defined benefit (DB) transfers some IFAs are understandably annoyed.

Perhaps a reason why politicians and civil servants are so happy to cut the LTA is their DB pensions are only subject to a normal 20 times factoring ratio meaning they must enjoy a very large DB pension before they get hit.

 

Dividend delve

This year’s Spring Budget did not feature much pensions meddling but it did include a nasty shock for advisers who use dividends to pay themselves part of their income.

Hammond announced in March the tax-free dividend allowance would be cut from £5,000 to £2,000 from April 2018.

IFAs, many of which have self-employed client and who themselves use the dividend allowance, reacted badly.

Darren Lloyd Thomas, managing director of Thomas and Thomas Financial, said the policy was unfair on small firms.

'I think it is terrible and more of the Conservative government killing small businesses. A lot of smaller IFAs will be limited companies and will have already paid corporation tax on those profits,' he said.

 

Granny tax

No delve into Budgets gone by could be complete without bringing up the ‘omnishambles’ Budget of 2012.

First of all was the so-called 'granny tax', which phased out age-related personal tax allowances that currently permit pensioners to earn at least £2,000 per year more than younger taxpayers before they pay income tax. 

The plan moved the allowances in line with the personal allowance, prompting backlash from Labour, newspapers and even some Tory MPs. 

Labour leader Ed Miliband accused chancellor George Osborne of 'sneaking in' tax rises for the elderly, and polls at the time put the opposition party in an eight-point lead. That didn't last too long...

 

 

 

Pasty Tax

Even more unpopular than the granny tax was the infamous pasty tax.

This would have led to VAT of 20% being charged on all hot takeaway food. 

The policy led to a fully fledged pasty war as fears grew that the likes of Greggs would have to increase prices on their baked goods. 

Plans were eventually scrapped, but not before David Cameron was forced to backtrack on claims that he last ate a pasty at Leeds station from the West Cornwall Pasty Company when it emerged that the branch in question closed in 2009.

The chief executive of Greggs also accused Osborne of being 'out of touch' with the common man, while Miliband and his shadow chancellor Ed Balls were videoed going into a Greggs to buy a pasty while travelling round the country.

It was, in many ways, a simpler time. 

 

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