Reactions to the Budget 2016

Budget 2016: Reactions

The Maven reports on reactions to the chancellors budget announcement which included a reduction in capital gains tax rates, news of lifetime ISA accounts and a freeze on fuel duty.

Pensions 

Mark Rowlands, head of DC services, said: “We welcome the announcement by the chancellor of further choice for younger savers, through the introduction of new Lifetime ISA accounts. The government bonus and flexibility to use the savings to fund house purchase will encourage younger employees to save."

He added: "Employers will need to revisit their savings offering for all staff, young and old, to make sure that they can cater for this new option now available. With five generations in the workforce, the future for retirement savings in the workplace (including auto-enrolment) has just got even more interesting for employees.”

Public sector pensions

Paul Middleman, partner and head of public sector actuarial and benefits at Mercer, said: “The chancellor announced that the SCAPE discount rate used to assess the cost of public sector pension provision will reduce by 0.2% per annum. The estimated increase in employer contributions for the main unfunded public sector schemes from 2019/20 is around £2bn p.a., or approximately 2% of pay which in the chancellors words “will be affordable within spending plans that are benefitting from the fiscal windfall of lower inflation.”

He added: "In a climate where financial resources continue to be stretched the employers contributing to these pension schemes may not necessarily agree. The impact on the employers contributing to the LGPS is less clear as the change in discount rate does not have any direct effect on contributions payable which are set locally. However it may affect the structure of the LGPS National Cost Management framework and the very hot topic of benchmarking comparison between LGPS Funds which uses the SCAPE discount rate. Once we have further details we will provide an update on the possible impact for our clients.”

Income and capital gains tax

Roger Breeden, consumer savings product leader at Mercer, said: “The increases to income tax thresholds and allowances and reduction in capital gains tax rates together with limited increases to indirect taxation and excise duties is welcome news for many consumers.

He added: "The introduction of new tax allowances for money earned from the sharing economy should encourage more entrepreneurship. Increasing ISA allowances and new Lifetime ISA should really resonate with individual consumers and encourage a savings habit. We welcome the increase on the tax relief on employer paid pension advice and it’s a big step forward to help employees get the practical advice they need to plan for the longer term.”

Simon Bashorun, financial planning team leader at Investec Wealth and Investment, said: “The increase in the distance between income tax rates and CGT rates will make drawing on capital each year as a form of ‘income’ even more attractive than it currently is."

He added: "This reinforces the need for individuals to build up portfolios which can provide gains to draw down on tax efficiently in the future. Alongside the changes to the taxation of dividends and the normal annual capital gains allowance, the reduction in CGT rates makes directly held stocks and share investments very attractive indeed in certain situations.”

Productivity action plan

Andrew Ninian, director of corporate governance at the Investment Association, said: "Productivity can drive economic growth and encourage UK businesses to invest for the long term. The Action Plan the Investment Association is launching next week, referenced by the chancellor, will outline how we as investors can play a fundamental role to help improve UK productivity and support long-term investment."

He added: "The Action Plan seeks to deliver ambitious and achievable remedies to the ills of some of the most serious causes of short-term thinking in the British economy. The investment industry remains steadfast in its commitment to play its part in fixing the UK productivity puzzle and help fix the challenge of our generation."

Fuel duty

James Hookham, Freight Transport Association (FTA) managing director of policy and communications said: “A further freeze of duties is welcome but the chancellor missed a chance to give a boost to the stuttering economy by reducing the tax on an essential business input.”