Treasury abandons plans to allow pensioners to sell annuities

The Treasury has announced that it is shelving George Osborne’s plan to allow pensioners to sell their annuities for cash.

The former Chancellor mooted the idea in March 2015 as part of his plan for wide-ranging ‘pension freedoms’.

The scheme would have given people who already hold an annuity similar freedoms to those approaching retirement, who are no longer required to buy an annuity with their pension pot. Individuals would have been able to sell their annuity income without the current tax restrictions, providing their annuity provider agreed.

However, the idea has been dogged by controversy, with many experts predicting that those who sold their annuities would be likely to get a poor deal.

The Association of British Insurers (ABI) said the abandonment of the plan was the ‘right decision’. Rob Yuille, Head of Retirement Policy at the ABI, said: ‘The industry has consistently supported the freedom and choice reforms, but we agree with the Government that the secondary annuity market came with considerable risks for customers, including from unregulated buyers.’

Explaining the decision, Simon Kirby, Economic Secretary to the Treasury, said: ‘Allowing consumers to sell on their annuity income was always dependent on balancing the creation of an effective market with making sure consumers are properly protected.

‘It has become clear that we cannot guarantee consumers will get good value for money in a market that is likely to be small and limited.’

Small business confidence ‘reaches four-year low’

Confidence has fallen among the UK’s small businesses, a recent survey from the Federation of Small Businesses (FSB) has revealed.

The report suggests that small business confidence has reached its lowest level in four years, sparking fears over a possible recession.

More than half of the respondents reported that their operating costs had increased in the past three months, while taxation was also a key factor contributing to increased costs.

Commenting on the report, FSB chairman Mike Cherry said: ‘To head this off, we need to do everything we can to support small firms to grow, create jobs and weather the harsh economic headwinds’.

‘Even before the EU referendum result, our members were reporting tough business conditions right across the country. The referendum result has settled the question of UK membership of the EU but there are many questions left unanswered.’

Meanwhile, a separate survey has suggested that business pessimism doubled in the week following the Brexit vote.

Chancellor George Osborne recently announced plans to cut corporation tax below 15%, in a bid to demonstrate that the UK remains ‘open for business’.

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Chancellor claims Brexit threat is ‘weighing on the economy’ as UK growth slows

Britain’s Gross Domestic Product (GDP) grew by 0.4% between January and March, down from 0.6% in the last quarter of 2015, according to figures from the Office for National Statistics (ONS).

Although the three months of 2016 showed slower growth than the previous quarter, the 0.4% rate was in line with expectations, and marks the 13th consecutive quarter of positive growth for the UK. On an annual basis, growth was 2.1%.

Chancellor George Osborne said that the fact that Britain was still growing was ‘good news’, but added that ‘there are warnings . . . that the threat of leaving the EU is weighing on our economy. Investments and building are being delayed, and another group of international experts, the Organisation for Economic Co-operation and Development (OECD) confirms British families would be worse off if we leave the EU’.

The OECD had earlier claimed that Britain leaving the EU would be the equivalent of imposing an additional ‘tax’ of one month’s income on UK workers, and that economic growth would be lower outside the EU. It suggested that leaving the EU would result in 3% lower economic growth than would otherwise be the case by 2020, rising to 5% in 2030 and costing households, on average, £3,200.

These claims were heavily criticised by Leave campaigners. Economist and Brexit campaigner, Andrew Lillico, said that the figures implausibly assumed that the UK would be unable to agree a trade deal of any kind with the EU before 2020, or preferential deals with other countries before 2023. He said: ‘One of the main reasons we would leave the EU is in order to do new trade deals with the rest of the world, with Japan, Australia and other countries’.

The ONS attributed the economic slowdown to a drop in manufacturing and construction output, but said it had no evidence for it being linked to the forthcoming EU referendum – and many economists expect growth to accelerate again this year.

Ruth Miller, UK economist at Capital Economics, said: ‘Many of the factors likely to be to blame for the first quarter’s weakness should prove short-lived. We would not be surprised if growth were to subsequently accelerate in the second half of the year, putting the economy back on track’.

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Chancellor defends Treasury’s gloomy Brexit forecasts

Chancellor George Osborne has defended an analysis of how the British economy would fare in the event of a referendum decision to leave the EU, after Leave campaigners branded it as ‘spurious’.

The analysis, carried out by HM Treasury, claimed to consider three alternative arrangements for international trade, post-Brexit:

• membership of the European Economic Area (EEA), like Norway
• a negotiated bilateral agreement, such as that between the EU and Switzerland, Turkey or Canada
• World Trade Organization (WTO) membership, without any form of specific agreement with the EU – like Russia or Brazil.

It estimated that the annual loss of Gross Domestic Product (GDP) per household under the three alternative arrangements after 15 years would be: £2,600 in the case of membership of the EEA; £4,300 in the case of a negotiated bilateral agreement; or £5,200 in the case of membership of the WTO.

The Treasury then estimated that the resulting total reduction in UK tax receipts under each scenario would be: £20 billion in the case of EEA membership; £36 billion in the case of a negotiated bilateral agreement; or £45 billion in the case of WTO membership. It also claimed that the UK would be between 4.6% and 7.8% of GDP better off inside the EU than with a negotiated bilateral agreement like Canada, Turkey or Switzerland.

Leave campaigners have been heavily critical of the Treasury forecasts. Former Conservative Chancellor, Lord Lamont, said: ‘The Chancellor has endorsed a forecast which looks 14 years ahead and predicts a fall in GDP of less than 0.5% a year – well within the margin of error.

‘Few forecasts are right for 14 months, let alone 14 years. Such precision is spurious, and entirely unbelievable.’

The Conservative supporter of Brexit, John Redwood MP, said that the Treasury had ‘failed to forecast the huge damage membership of the European Exchange Rate Mechanism inflicted on us’.

Defending the Treasury analysis, Mr Osborne told the BBC: ‘The conclusions could not be clearer. Britain would be permanently poorer if we left the EU, to the tune of £4,300 for every household in the country. That’s a fact everyone should think about.’

Record current account deficit figures described as ‘truly horrible’ for UK economy

The UK’s current account deficit in the three months to December 2015 was a record high of £32.7 billion – a figure that was described as ‘truly horrible’ by one economist.

Howard Archer, chief UK and European economist at IHS Global Insight, also said that the news was ‘a particularly uncomfortable development for the UK economy’.

Unlike the Government’s budget deficit, the current account deficit refers to the country as a whole, both private and public, and takes the trade deficit into account. A current account deficit means that the value of exports is exceeded by the value of imports of goods, services and investment income.

Figures from the Office for National Statistics (ONS) showed that, in the final quarter of last year, the current account deficit was the equivalent of 7% of Gross Domestic Product (GDP), while for all of 2015 it was £96.2 billion, or 5.2% of GDP. Both figures were the highest since records began in 1948.

Mr Archer said: ‘While the markets have so far taken a relatively relaxed view of the UK’s elevated current account deficits, it could become an increasing problem if the markets lose confidence in the UK economy for any reason – especially given the size of the fourth-quarter 2015 shortfall.

‘This would make it harder for the UK to attract the investment inflows that it needs to finance the current account deficit and could weigh heavily down on sterling.’

Chancellor George Osborne said that the figures ‘expose the real danger of economic uncertainty and show that now is precisely not the time to put our economic security at risk by leaving the EU’.

Despite this, ONS figures also showed that the UK economy grew by 0.6% in the fourth quarter of 2015, higher than previous estimates of 0.5%, and that for the whole of 2015 it grew by 2.3%, rather than 2.2% as previously thought.

The ONS attributed the upward revision in GDP in part to a stronger performance in the services sector.

Rate of inflation remains unchanged

The UK’s inflation rate as measured by the Consumer Price Index (CPI) remained unchanged at a level of 0.3% during February, the Office for National Statistics (ONS) has revealed.

The CPI rate was expected to rise to 0.4% this February.

Transport costs fell, but food prices experienced a rise, according to ONS data. Inflation is expected to remain below 1% this year.

The Bank of England’s target is for annual inflation to rise no higher than 2%.

The Bank has stated that inflation levels must rise before it will consider raising interest rates. At a meeting earlier in the year, the Monetary Policy Committee (MPC) voted to keep these rates at 0.5% – a record-low figure at which interest rates have now remained for the last seven years.

Additionally, core inflation also remained at its rate of 1.2%, the ONS reported. This type of inflation excludes energy, food, alcohol and tobacco costs.

Within its fiscal outlook published alongside Chancellor George Osborne’s Budget, the Office for Budget Responsibility (OBR) downgraded UK economic growth for 2016 to a level of 2.0% from an anticipated rate of 2.4%.

Growth for the next two years has also been reduced by 0.3 percentage points.

2016 Budget: Chancellor’s deficit target to be examined by IFS

Chancellor George Osborne’s plan to clear the UK’s deficit by 2019/20 is to be examined by the Institute for Fiscal Studies (IFS).

Mr Osborne has stated that economic forecasts suggest that his target will be achievable, despite his warning of a ‘dangerous cocktail of risks’.

However, in response to the Budget speech, Labour leader Jeremy Corbyn proclaimed that the Chancellor has ‘failed on the budget deficit’.

The IFS has predicted that the Chancellor has a 50% chance of succeeding in his plans to deliver a £10 billion surplus on public finances by 2020.

The Institute’s announcement of a review of Mr Osborne’s deficit plan comes after the Office for Budget Responsibility (OBR) revealed that it expects the UK economy to grow at a significantly slower rate over the next five years than previously anticipated.

Productivity growth has been revised downwards, with the OBR predicting that the economy will grow by a rate of 2.0% this year – down from a predicted figure of 2.4%.

Chancellor presents a ‘next-generation Budget’ as the storm clouds gather

Chancellor George Osborne delivered his eighth Budget to the House of Commons, dubbing it a ‘Budget for the long term’ but warning that ‘the storm clouds are gathering again’.

Having proclaimed that the British economy is ‘fit for the future’ and that the Government remains on course to achieve a budget surplus of £10.4bn in 2019/20, the Chancellor warned that growing global economic gloom threatens the UK.

With low productivity growth and a weak global outlook continuing to present a ‘dangerous cocktail of risks’, the Chancellor revealed that the Office for Budget Responsibility (OBR) has significantly revised down its economic forecasts for the next five years, with UK economic growth forecast to be just 2% in 2016.

Official figures also revealed that the Chancellor has missed his target to reduce debt as a share of GDP. Borrowing forecasts have been revised upwards to £55.5bn for 2016/17, and the Chancellor announced the need for deeper spending cuts, with £3.5bn of additional savings to be made by 2019/20.

With an EU referendum fast approaching, the Chancellor was keen to point out that the OBR’s forecasts were predicated on there being no Brexit, and claimed that leaving the EU could usher in a ‘period of uncertainty’ for the UK.

The Chancellor revealed a package of business tax measures, announcing that in England the Small Business Rate Relief threshold will rise from £6,000 to £12,000 from April 2017 and promising further radical changes, with the uprating of business rates set to change from RPI to CPI. Greater London will see the complete devolution of business rates from next April.

Meanwhile, for individuals, building on the recent announcement of a new Help to Save scheme, the Chancellor unveiled a new Lifetime ISA, which is intended to allow adults aged under 40 the opportunity to save up to £4,000 a year towards buying their first home (up to a limit of £450,000) or to save towards their retirement, and which the Government will top up by 25%.

Other key announcements on personal taxation included the next step in the Government’s drive to increase the income tax personal allowance, which will rise to £11,500 from April 2017, at which time the threshold for higher rate tax will also rise to £45,000.

Capital gains tax rates will also be cut, with the headline rate falling from 28% to 20% and the basic rate from 18% to 10% with effect from 6 April 2016.

Fuel duty will remain frozen for the sixth consecutive year, while tobacco duties will rise above inflation, and from 2018 a new sugar levy on the soft drinks industry will aim to combat the problem of childhood obesity.

Other significant announcements include additional investment in the nation’s infrastructure, further measures towards the ‘devolution revolution’ and plans to turn every school in England into an academy.

2016 Budget: UK growth revised down

The Office for Budget Responsibility (OBR) has published its latest fiscal outlook, outlining its forecasts for the UK economy.

The OBR has stated that it expects the economy to grow at a slower rate over the next five years than it had previously anticipated.

Additionally, Robert Chote, Chairman of the OBR, has stated that productivity growth has been revised downwards, meaning that the cash size of the UK economy is now 3% smaller than had been forecast in November.

Previously, the OBR had predicted the economy to grow by 2.4% during this year, but now anticipates a growth rate of 2.0%.

Furthermore, growth over the next two years has been reduced by 0.3 percentage points, whilst figures for 2019 and 2020 are down from 2.3% to 2.1%.

Chancellor George Osborne explained that the cuts had been made due to a stall in growth in other parts of the world.

Within its report, the OBR stated: ‘In the short time since our November forecast, economic developments have disappointed and the outlook for the economy and the public finances looks materially weaker’.

Chancellor drops pension tax relief reform from Budget plans

Chancellor George Osborne has abandoned Budget plans to implement a radical reform of the tax relief system for pension contributions.

One of Mr Osborne’s proposed changes would have resulted in the abolishment of upfront relief, but would have made withdrawals from individuals’ pension pots tax-free.

Another adjustment that had been under consideration was the introduction of a flat-rate system of tax relief, which could have potentially benefitted basic rate taxpayers.

Additionally, many had speculated over the Chancellor’s plans to introduce a ‘pensions ISA’ within the upcoming Budget on 16 March.

However, some had expressed concerns that any alterations to pension tax relief could have resulted in savers being left worse off, whilst raising significant amounts for the Treasury.

A Treasury official revealed that it was ‘not the right time’ to implement any changes to the relief, stating that Mr Osborne had altered his stance as he ‘has always been clear that he wouldn’t do anything to damage saving’.

The source continued: ‘He’s listened to what people have said and concluded that now isn’t the right time, with uncertainty in the global economy and reforms such as auto-enrolment still bedding in, to turn things on their head’.

The Chancellor will present the 2016 Budget on Wednesday 16 March. Coverage of the key announcements will be available on our website, so please visit regularly.