Ahead of the Spring Budget, which Jeremy Hunt is set to deliver on March 15, advisers and industry experts have shared the areas they would like to see the government focus on.
Hargreaves Lansdown outlined 10 key policy areas it would like to see the chancellor address, but Susannah Streeter, head of money and markets at the firm said coming to an agreement with striking workers needs to be top of the agenda.
“Improving literacy and numeracy won’t be easy when mass teachers’ strikes are planned over pay and conditions, while clearing NHS backlogs will prove increasingly difficult if health care workers stage fresh walkouts,” Streeter said.
“The surprise £5.4bn surplus in government finances in January should give more room for manoeuvre when it comes to finding a compromise on public sector pay demands.”
Some of Hargreaves Lansdown's recommendations included removing the money purchase annual allowance as part of a wider review of pension tax relief, introducing a number of changes to ISAs, introducing a social tariff for energy bills and taking steps to reunite 18-year olds with child trust funds.
Child trust funds
Hargreaves Lansdown head of personal finance, Sarah Coles outlined why the firm wants to see the government take steps to reunite 18-year-olds with lost child trust funds.
“In the first seven months after accounts started maturing, there was £394mn sitting untouched in them. In the 22 months since then, the cash mountain will have continued to pile up.
“The government needs to take steps to reunite people with their lost cash,” Coles said.
She acknowledged that it is difficult for the government to target those with forgotten accounts but said it is easy for them to know who has had an anoint by their age.
“There should be nudges built into every contact with this cohort, from when they receive their NI number to when they start work, to let them know there’s free money with their name on it – and directing them to the Government Gateway to track it down,” she added.
Isas
In relation to Isas, Hargreaves Lansdown said it would like to see the government make five key changes.
- Permanently reduce the Lifetime Isa penalty
- Increase the £450,000 cap for a first home bought in the Lisa
- Streamline and reduce the range of Isas
- Allow people to subscribe to as many Isas in a year as they like
- Completely separate the Isa allowances
Head of retirement analysis at the firm, Helen Morrissey explained that Hargreaves Lansdown wants to see the Lifetime Isa penalty be reduced from 25 per cent to 20 per cent on a permanent basis.
“The 25 per cent penalty not only claws back the government bonus to save, but also applies an additional penalty based on the net amount invested,” Morrissey said.
She added: “It is unfair that people who are trying to do the right thing by building savings are being penalised this way, particularly now when difficult circumstances mean many people may need to access their savings to meet day-to-day living costs.”
Financial adviser Tim Morris of Russell & Co Financial Advisers agreed that Lifetime Isa simplification would be a benefit to savers.
He added that the Lifetime Isa is in need of reform and that the government should even look at scrapping it altogether.
“The popularity of Isas has mainly been down to their simplicity,” Morris said.
Child benefit tax charge
Others in the profession raised a variety of other issues that they would like to see the government address in the Spring Budget, including around gifting laws, child benefit, and tax thresholds.
Financial Adviser, Natasha Percy-Baxter, principal of PercyBaxter Wealth Management, a partner practice of St. James’s Place, said she would like to see the high income child benefit tax charge removed.
“The UK is already one of the most expensive countries for childcare according to the most recent OECD figures. Parents should be given more support when it comes to childcare costs, not penalised because of their higher income,” Percy-Baxter said.
Tax and financial planning expert at Quilter, Rachael Griffin agreed that changes need to be made to the “irrational way child benefit works”.
“It is completely wrong that a couple both earning £49,999 will have no reduction in their child benefit but a single parent earning over £50,000 will start to lose part of the payment. This penalises single parents who already have significant struggles to contend with without the government making it even harder,” Griffin said.
“Secondly, child benefit is not means tested and if one earner in a family makes more than £50,000 a year, they must pay back 1 per cent of the child benefit they receive for every £100 over the threshold.
"However, a basic rate taxpayer can earn £50,270 before falling into the higher rate band, meaning basic rate taxpayers are currently in scope for a tax charge aimed at higher earners.
“Over the past few years wage growth has pushed salaries up but this wage growth has been in response to significant inflation so many people even on higher salaries in real terms don’t feel richer.”
Because of this, Griffin said the government should as a priority “at the very least” move the threshold at which point people start to pay the higher income child benefit charge to £50,271 - the rate at which a person becomes a higher rate taxpayer.
Other changes
Another change Percy-Baxter said she would like to see is an increase in the personal allowance.
“This has only increased by £70 since the 2019-2020 tax year,” Percy-Baxter explained.
“Raising it would benefit those on lower incomes as it would mean they would be able to take home more of their earnings before they start paying tax on it.”
Meanwhile, Morris said he would like to see the government make the UK “more business friendly again”.
He added: “I'd like to see the dividend allowance cut reversed, yet appreciate that's unlikely.”
Streeter noted that the chancellor will need to flesh out the details of his growth plan announced in January and said a lot more information is needed on where the funding is coming from.
“He has said he wants a low tax economy to incentivise companies to invest, but underlines this can only be done if spending is curtailed, and he seems glued to debt reduction plans,” she said.
“Yet his other goals to improve education and employment will require significant new funding to really move the dial on the issues holding back productivity.”
Streeter said a good example of this was the new ideas and re-training programmes that will be required to get the 6.6mn people who are economically inactive back to work.
Another area Streeter said she would like to see Hunt address is around attracting international investment for UK industries.
“Competition for inward investment is heating up with subsidies being dangled by nations across the world. It is crucial that the gleaming nuggets of potential in innovative industries like renewables, AI and life sciences are nurtured,” she said.
“With the EU and the US introducing big subsidy packages for clean tech, Jeremy Hunt will need to step up with fresh new incentives to ensure the UK can take competitive advantage of its leading positions in such fields."
jane.matthews@ft.com
