This was a blue budget for George Osborne, one that promised much, and delivered little rather less than planned.
Things started going wrong three weeks before Budget Day when the Treasury announced that it would not be pressing ahead with its radical plans for pension reform, at least not for now. The official reason given was that the market was too turbulent but most commentators read this as a signal to backbenchers that so long as they kept the faith on Europe, their core voters would not lose pension tax reliefs.
If the plan was to quell dissent, the plan didn’t work. To plug the fiscal gap that opened up when Osborne dropped his pension tax-raid, a new tax on disabled people was announced shortly before the budget. If this wasn’t enough to annoy Ian Duncan-Smith, the budget announced “gratuitous” hand-outs on income and capital taxes for the wealthy which tipped the Secretary of State for Work and Pensions over the edge.
Duncan Smith’s resignation revealed deep splits in the DWP ministerial team, evidenced by open attacks which were likened to a circular firing squad. Though none of the participants has subsequently resigned, the DWP now appears the weaker. Politically the wounds between Treasury and DWP are damaging, financially, the dropping of the PIP cuts and the promise of no immediate cuts to replace them, all announced by Stephen Crabbe (IDS’ successor) have left the job of balancing the budget only half done.
It makes you wonder if the Chancellor wouldn’t have been better pressing through the pension changes as originally intended.
Politically this budget went badly wrong, but it will be remembered for many new initiatives which have generally been well received.
For those involved in providing pay and benefits to staff there were 5 key changes
- The Lifetime ISA looked like stage one of a shift from tax relief on pension contributions
- A technical change in valuation methodology looks likely to increase employer contributions to public sector pension contributions by 2% of salary.
- Following the FCA’s publication of the Financial Advice Market Review, new limits have been set and easements made which will make it easier for employers to offer advice to staff in the workplace.
- A raft of income tax and CGT changes improved the finances of the well off and extended auto-enrolment band earnings
- The Government announced a winding down of its debt advisory service (MAS) and a new pension guidance service which will hopefully make Pension Wise more effective.
For those weary of having to administer new policy through payroll the budget was a breath of fresh air
- No change in pension tax relief
- A reprieve for salary sacrifice and reassurance that pension tax-relief was not under threat
- A neutral budget for payroll
- A neutral budget for auto-enrolment
- No significant reductions in people’s take home
Payroll has been spared the jobs of implementing change and explaining it to staff. The new rules surrounding financial advice coupled with the strengthening of the Government’s pension support should be welcomed by payroll officers; both should make it easier to off-load tricky pension issues onto pension experts .And though the costs of Government Pensions may put the squeeze on benefits there is nothing in this budget that looks to increase the burden on payroll.
For pensions there is the nagging doubt in the Treasury’s explanation for not implementing tax changes “now is not the right time’. The consensus is that whatever rabbit was left in the hat, will be making a re-appearance in the autumn statement.
But the smart money is that if pension taxation is to change, the administration of the change will fall to pension managers and the administration functions of the insurance companies.
Which is just as well. The CBIs, FSB’s and CIPPs warnings before the budget that payroll have quite enough on their hands, seems to have been heard. Perhaps the success of auto-enrolment so far and the adoption of RTI has shown the Treasury who their friends are.