Simon Morris on the Budget 2014
This week UK Chancellor of the Exchequer, George Osborne, delivered the annual national budget to Parliament. What comprised this year’s budget and how could it affect national economic growth?
Before the budget was delivered, economists widely expected Osborne to announce a raft of measures that would aid the spending power of middle class families, a key voter group for the Conservative Party’s 2015 re-election bid.
The actual budget, apart from targeting the middle class, also held provisions to attract the ‘grey vote,’ with what experts are calling ‘the biggest pensions revolution for almost a century.’ Savings measures also figured prominently in the annual national financial plan.
Osborne announced major liberalisations to the rules that regulate the withdrawal of money from pension funds. The most significant pensions policy upheaval since 1921, the plans allow people a greater degree of freedom in what they choose to do with the money in their pensions savings.
Notably, Osborne detailed plans to change the rules that currently effectively force people to buy an annuity at retirement, which guaranteed a lifetime income. This means that the significant amount of the UK population that retire each year, will now be able to take savings that they have built up in a defined distribution pension as a lump sum in cash, subject to the marginal tax rate they are obligated to.
This major change has already had an effect on the national economy, as more than £3 billion was shaved off shares in the insurance sector.
The effect of the announcement of pension overhauls had a swift reaction on leading annuities providers such as Aviva, Standard Life, Legal and General and Prudential, as shares took a stiff tumble. Special pensions provider Partnership took the news particularly hard, as they fell by more than 40%.
In other budget news, Osborne announced that the government would seek to tackle other “historic weaknesses” in export, manufacturing and business investment, to further boost the British economy. Savings was also a particular theme of the budget, as Osborne unveiled a series of popular saving measures such as a rise to the income tax threshold and cuts to beer duty and bingo tax, that experts have widely labelled ‘populist policy.’
It’s clear that these policies, most notably the pension policy overhaul, have been put into place to promote spending power; a key driver of economic growth. Whether they do, Simon Morris readers, and whether they drive UK economic growth throughout 2014, remains to be seen.