Budget 2014

Tomorrow we have the 2014 budget. There have been a few pre-budget polls, but they don’t really show us much we didn’t already know: the public are increasingly optimistic about the state of the economy as a whole, but remain pessimistic about their own personal finances (though less pessimistic than a year ago). The Conservatives have a lead on the economy that has grown as the economy has started to recover, but Labour retain a lead on cost of living issues.

The graph below shows the impact of past budgets on voting intention polls. Up until 2009 they are the government’s lead in the two YouGov polls before and after each budget, after 2010 and the advent of daily polling they are the average government lead in the daily polls in the two weeks before and after the budget.

Unlike most political events, budgets do actually have some cut through to the general public and do have the potential to change voting intention. You can see at least three budgets in the last decade that appear to have had a genuine effect on voting intention. In 2008 and 2009 Alistair Darling had to deliver grim news about the state of the economy and Labour’s poll position suffered, in 2012 was the “omnishambles” budget, with the granny tax, pasty tax and the 45p tax rate. All three of those were negative effects, it’s far rarer for a budget to have a positive effect (the apparent positive impact in 2003 was more likely the effect of the Iraq invasion).

The media often talk about budgets being an opportunity for fancy giveaways, a vote winning opportunity. The past data suggests that’s rarely the case. More generally they seem to be bullets to be dodged. In theory I’m sure it’s possible for a government to win support from a good news budget with popular policies, but in practice the general theme seems to be that a successful budget is one the government gets through without damaging their support.

Over the next few days we’ll get lots of polling on the budget. As ever, treat it with some caution. One point to note is that budgets are often more or less than the sum of their parts: you can get budgets where the public support all the little changes and announcements made, but it still goes down badly overall (and vice-versa). The things to really watch are whether there is any change to people’s economic optimism, to how well they think the government are doing on the economy, to which party people trust more on the economy and living standards, things like that… and, of course, voting intention itself.

99 Responses to “Budget 2014”

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  1. NickP
    I don’t know anything about this neo-whatever but acknowledge your expertise in the matter. It is only the hopeless cases that give cause for concern, but that concern is of course just as great nevertheless.

  2. @R Huckle (12.55)

    “I don’t watch the budget anymore. Cannot stand the squeaky voice droning on for over an hour.”

    I switched off after 10 min. It’s the GO smirk which turns me of (and subsequently the tele)

  3. Good news that he’s upping the Annual Investment Allowance substantially until 2015. Not really a vote mover, but potentially very good for the economy.

    The tragedy is that businesses appear to be starting to invest already, so perhaps don’t need such a big incentive. Quite why he cut the AIA in his first budget remains a mystery, and a big hit on the economy.

  4. of = off

  5. It sounds like he’s reducing the 40% threshold again, under the guise of a rise. He said it will go up by around 1% this year and next, which means a real terms cut. More people will still be caught by the higher rate.

  6. There seemed to be an awful lot of outgoings and precious few incomings. Presumably he’s forgotten to mention the bad news and we’ll have to wait for analysis of the red book.


  7. Alec

    “businesses appear to be starting to invest already”

    Not much evidence for that. ONS data is here: http://www.ons.gov.uk/ons/dcp171778_353961.pdf

    Fig 8 on page 12 is a clear picture which shows business investment falling off a bit of a cliff in 2007/8 and strolling along the undulating beach below ever since.

  8. Ha beer duty down 1p a pint again. The gift that just goes on giving. If last year’s anything to go by, my pint will be 3.69 tomorrow, 3.85 in May and 3.95 in December. GO I love you

  9. Mine was £2.90 the other day.

  10. “It sounds like he’s reducing the 40% threshold again, under the guise of a rise. He said it will go up by around 1% this year and next, which means a real terms cut. More people will still be caught by the higher rate”

    This is not correct. To calculate the increase in the 40% threshold you have to take into account changes on BOTH the tax free allowance and the 40% band threshold.

    To illustrate, if the tax free amount is £10,000 and the 40% threshold is £40,000 (I know it is not, but it makes the maths easy to follow), then earnings must reach £50,000 before a taxpayer has to pay 40%.

    Let’s assume inflation is 2%. Therefore, to be inflation neutral, the level at which earnings should attract higher rate tax should rise to £51,000.

    If the tax free allowance is raised to £10,500 (a 5% increase), then the higher rate threshold needs to increase from £40,000 to £40,500, a 1.25% increase.

    This 1.25% increase is therefore genuinely inflation neutral. Anything more would be lifting the boundary at which higher rate tax is paid by MORE than inflation.

    The whole debate about higher rate tax thresholds is middle class special pleading IMHO – the Indy had a graph of the proportion of all taxpayers that pay higher rate tax, and it had fallen quite a bit since Lawson’s time.

  11. Well until any government deal s with the. Anomalies of national insurance the tax system will never quite do what it says on the bottle.

  12. @john Murphy

    Totally agree

  13. This budget seems at first glance completely uneventful, and I’m sure it will be overshadowed by the new pound coin. Throws a couple of bones to the elderly and almost nothing to me, but that’s my generation’s fault for not voting.

    GO seems to be playing it reasonably safe.

  14. £2.30 here in God’s Own City

  15. @bigfatron – thanks for the correction, but I’ll need to look into that. I think you are wrong.

    The 40% threshold is going up by 0.77%, and then 1%, about half the current rate of earnings. This means a ‘loss’ of £130, more than the gain on the £500 rise in the tax free allowance. More people will be caught by the 40% rate as a result, and more people will be worse off.

    There is another debate on whether this is a good thing or not, but as far as I can make out, these are the facts.

  16. @ Mr. Nameless,

    The changes in pension rules are actually pretty huge, it’s just that no one understands them. (Hence Miliband’s decision to, er, not respond to the Budget.)

    It’s meant to be revenue neutral, which means there must be a kicker in there somewhere. The fact that Osborne brought in the changes without a consultation suggests it might be a massive one. I’d say the odds are 50/50 the whole thing blows up in his face once Labour or the papers can figure out what he actually did.

    Still, big props to the Government for managing not to leak this in advance. That was a reassuring display of competence.

  17. Actually, ignore my comment above – it appears they have switched this year from reporting the change in the taxable earnings threshold (which is actually £32,010 this year) to reporting the total earnings threshold (which is £41,450 this year).

    That means someone earning at the total earnings threshold is effectively experiencing a small real tax increase:

    Earnings 2012/13 £41,450
    Tax 2012/13 £ 6,402 = 15.45%
    Earnings 2013/14 £42,279 (based on 2% RPI)
    Tax 2013/14 £ 6,538 = 15.46%
    Earnings 2014/15 £43,125 (based on 2% RPI)
    Tax 2014/15 £ 6,693 = 15.52%

    It’s an equivalent increase of about £32 per year from 2012 – 2014.

  18. One other point on personal taxation to bear in mind as well. Employees will continue to pay tax at earnings below £8000, and by the time they reach the Income Tax threshold, they will already have paid £305 of NI, with their employers adding another £339.

    Once again, the gap between the NI and the IT starting thresholds has widened, although at least this year the NI threshold has increased by 3.3%. That’s a 0.3% real terms rise, once we account for the minimum wage increase for low earners.

    I do wish they would stop claiming to have lifted low earners out of tax.

  19. @Alec
    Apologies – I was fooled by the change in presentation from previous years…you are right.

  20. @Spearmint – It’s extremely surprising that this pension move wasn’t consulted on. I think it could well turn out to be something of a boomerang. Commentators immediately picked up on the fact that people would face a big tax bill. If they don’t, then this would become the biggest tax giveaway to the wealthy imaginable.

    My guess is that there are two things to watch for.

    1) Will the 25% allowance remain, and if so, will it be capped.
    2) What arrangements are in place to ensure people take out proper pension cover. I can see the next miss selling [fraud] scandal looming here, and the entire point of the Tory led switch to private pensions was to encourage people to not be dependent on state hand outs in their old age. This blows this consensus apart, and is bound to have substantial long term consequences.

    If annuities are such poor value, I would have thought dealing with them would have been a much better move. The Post Office used to offer excellent value annuities back in Gladstone’s day, but were forced to withdraw after excessive pressure from the banks, who didn’t like the competition.

    That would have been the smarter long term move [snip]

  21. What they’ve done with pensions is to take away the punitive 55% rate if yiou choose not to buy an annuity. So if you’ve got a pot of (pension) money saved you can take 25% of it tax free and then pay your marginal rate on the rest and take it all up to a maximum of (? dunno yet)

    This will mean MORE money for the Treasury as most people would rather have all the meney and pay normal rate tax than buy an annuity (at miserly rates) and then pay marginal rate on the income.

    Is it good or bad? Neither! F*cks up the annuity industry though!

    But what’s to stop people piling in money into a pension svheme and getting tax back (i.e. avoiding tax on contributions and at 55 9the next day?) taking it all out again and paying lower rate of tax on only 75% of it?

  22. Tim Shipman from the DM tweets “The Budget in summary: Not so much a major rabbit, more a series of tadpoles.”

    That’s an interesting reaction. I was wondering last night about the briefings that ‘something big’ was coming, thinking that if there isn’t something big, the sense of disappointment might overtake generally fair sentiment for a modest package.

    Never overplay your hand in politics.

  23. Form an HMRC doc today:

    “As announced at Autumn Statement 2012, for 2014-15 and 2015-16, ‘the higher rate threshold’, the level of income after which taxpayers begin to pay the 40 per cent higher rate of tax, will increase by 1 per cent to £41,865 and £42,285 respectively. The higher rate threshold is the sum of the personal allowance and the basic rate limit. The higher rate threshold of £41,865 for 2014-15 will be made up of a personal allowance of £10,000 and a basic rate limit of £31,865. For 2015-16, the higher rate threshold of £42,285 will be made up of a personal allowance of £10,500 and a basic rate limit of £31,785.”

  24. @Alec
    Agreed, lots of unanswered questions here, and – depending on the answers – potentially a lot of additional risk.
    I guess this is trying to address the frustrations of smaller pension pot holders (£20-50,000) who are forced to take out minimal annuities?

  25. @bigfatron

    “It’s an equivalent increase of about £32 per year from 2012 – 2014.”

    So if earning at the 40K or more level, £16 per year is not a massive issue in the “we’re all in this together”, is it?

  26. Typo: £32 per year. No idea where £16 came from.

  27. NICKP

    @” F*cks up the annuity industry though!”

    That may be a bit overstated, but the share prices of
    Legal and General,. Standard Life ,Aviva ,& Prudential have certainly concured with your general sentiment this afternoon !

    This only applies to smaller pension pots as I understand it-but ABI stats indicate that 25% of annuity sales are with pots of less than £10k.

    I think this reform has to be seen with the increase in the ISA limit & the removal of that daft cash/shares split. I think ISAs will be the home for many of these smaller pots.
    Bear in mind he has also introduced a new savings accounts with NSI paying a better than market rate .
    This is also part of the package I think.

    ie-money into ISAS & the new NSI savings account, more tax for HMRC , but at the lower rate-less money into the annuity market.-for those smaller pots.

  28. Anyone willing to enlighten us on the affect this budget might have on the daily polls ?

    Is it a potential “Rabbit” for the Tories or should we expect the Polldrums to carry on as normal. Nothing before today has caused much movement. Is today going to be any different ?

  29. £5bn now wiped off five biggest Annuity providers.

    Hargreaves Lansdown biggest gainer.

    ie-small pots away from the clutches of annuity providers & into cash/share ISAS at the higher limits.

  30. Ladbrokes shares hammered- increased taxes on bookies’ fixed odds betting terminals (FOBTs).

  31. Ros Altmann – a lady who knows something about the pensions industry & who has not been shy of lambasting policy effect on savers :-

    “There are so many good news aspects for pension savings in this Budget that it is hard to know what to pick out. The overall message is, pension savings are going to be more flexible at the point of retirement. You will be able to save more into pensions knowing that there will be less restriction on what you can do with “the money.”

    Electorally though-presumably a Conservative voting demographic already ………..perhaps some UKIP defectors in there too ?

  32. That new NSI Account is a “Pensioner Bond”:-

    “Launching in January 2015, National Savings & Investments will be offering a one-year bond that is expected to pay 2.8 per cent and a three-year bond that will be paying four per cent.
    Precise details will be confirmed at Autumn Statement 2014, to take account of prevailing market conditions at that time.”

    This is Money.

    So this whole area of the Budget is targeted at the Retired.

  33. “So this whole area of the Budget is targeted at the Retired.”

    Colour me shocked……

    On the ISA £15,000 – there are plenty of people with some savings [most earning very low interest at the moment], who don’t pay tax because their overall incomes are low. I bet they are really looking forward to benefiting by £00.00

  34. Colin
    I think you are right and I just wonder if much of this is not targeted at better-off kippers. By better off, I mean those who actually have savings about which to be concerned.

    As AW has written above, the best guide to Budget reception is (are) the polls in a few days time when there will or will not be holes found by the anoraks and subsequently blazoned across the news media.

  35. “Colour me shocked……”


    Me too!! Cut tax on savings too. Boomer heaven…

  36. Shares in Partnership, the specialist pensions provider have slumped by 55% !


  37. After having an hour or two to ponder, I’ve come back with a positive thought on the annuity idea. I still think there may be longer term problems, with the temptation to strip out pension savings to fund ‘before we die’ big ticket treats, but on the plus side – and this really could be a big plus – by removing the stranglehold that annuity providers have on 75% of the nations private pension pots, they are really going to have to start working much harder to keep custom.

    This move could actually have a much better impact on pension provision than the better regulation I keep banging on about. There were already some concerns about the proposed cap on fees for pension schemes, as some providers were going to round up to the statutory limit – always a risk with direct regulation. The same would probably have happened with annuities.

    Now, annuity providers have an entirely voluntary market to sell into. They are really going to have to work hard to retain any business, and this is probably great news for future pensioners.

    The big caveat of course, is miss selling. There will almost certainly be boatloads of this. New products, complex offers, hidden fees, submerged risks etc. But at least there is now a much stronger market emphasis for providing better value.

    Affect on polls? Not too sure. There really isn’t much for working families now, and the squeezed middle stays squeezed. This is a retreat to Tory heartlands in many ways, but it’s very difficult at this point to call the numbers on this one.

  38. @Alec

    Agree – very hard to call.
    Is it really for the retired – haven’t they already had to submit to the annuities racket? And might they not now be resentful?
    I would have said more for those coming up to retirement, especially those currently wrestling with what to do with their pots. Most younger people neither understand nor care much about the pensions thing.
    Does this actually just amount to a tax cut for the ‘better off’?
    And if Labour had done it would it have been an irresponsible attack on the city, causing share prices to be decimated etc etc?

  39. HOWARD

    Yes , I think that’s his target.

    Whether he hits it we will see.

    The odds are on Zero VI effect aren’t they?

  40. Osborne’s done the pension thing to prop up house prices & free up money for mortgages.
    1. People will take out their pension money to pay for the deposit on their child(ren’s) mortgage(s); or
    2. They’ll put their pension money into a bank or building society ISA-type scheme. This will give the banks & building societies money to lend for new mortgages; or
    3. Money to settle their own mortgage, if they have one. Again freeing up cash for mortgage lending.

    Furthermore, annuity companies generally hold a high % of their assets in government gilts. QE isn’t going to reverse & consequently UK gilts’ interest rates are not going to rise, therefore the annuity companies would buy non-UK government gilts with higher interest rates – which isn’t what’s desired by the UK government.

    IMO, Mark Carney’s hallmark is stamped all through this policy. He didn’t like help-to-buy propping up the housing market. This could well be his alternative. It is broadly similar to a controversial change to pensions & annuities which he made in Canada. The jury is still out regarding who eventually benefitted from that change but it seemed to give a boost to Canada’s economy. Maybe he’s learned from that experience & made improvements. I’m looking forward to analysis of what the impact is – both politically & economically.
    It’s exciting. :-)

  41. Colin
    If he could get UKIP down to a consistent 9% I would think he would pour a ‘what he likes’. Con would clearly be the beneficiary.

  42. HOWARD

    Yes .

    I don’t suggest that he was entirely politically motivated-he has been lobbied hard about savers-and the annuities market for small pots has been a scandal for ages. ISAs have needed reform for yonks-so a package was clearly there to be worked up.

    But like GB, I don’t think GO’s political antennae leave him just because he is at his Treasury desk.

    Well we will see after………..how many polls do you suggest these days ?

    I think the answer will probably be a lemon though-which , after one of his previous budgets might be seen as a plus !!

  43. Aren’t all Budgets political?

    The question is whether GO has done enough to encourage a few more Kippers and undecideds into the Tory column.

    If it doesn’t work, he still has the Autumn Statement and Budget 2015 to fall back on.

    However, by appealing to his ideological base he may also have further alienated lower income earners who do not have any real savings of note due to the cost of living.

  44. Everyone seems to the think the budget is good/neutral, in that there are no massive hits for people in general.

    So…poll predictions over the next 3-5 polls?

    If the budget is seen as a good one, I’ll go for an average poll of:

    Lab 38
    Con 35
    Lib 9
    UKIP 10

    …and the lead will open, a bit after the Euro elections, and then the Summer weather / Ukraine developments will decide which direction it goes from there.

  45. @Statgeek

    The same people will suffer. The lower paid and the public sector.

  46. Can’t see it attracting any new converts to the Tory cause but might help retain a few waverers.

  47. @RAF

    It’s the rich wot get the pleasure,
    It’s the poor wot get the blame;
    It’s the same the whole world over;
    Ain’t it all a bleedin’ shame?

  48. It may win over some of the UKIP vote.

    It also allows for the building of a narrative around rebalancing the economy, since the need to boost saving is widely acknowledged.

    Other than that, I imagine that if there are any important details in the budget, they haven’t been found yet.

  49. On the BBC summary of the Budget, it mentions “Support for building of more than 200,000 new homes”. Which sounds promising but is rather vague. Anyone know over what timeframe they are to be built, is it in addition to existing housebuilding, and what is meant by “support”? Is there a catch?…

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