Susannah Streeter, head of money and markets, at Hargreaves Lansdown, is the first to outline what she hopes to see from Jeremy Hunt’s upcoming budget announcement:
“Jeremy Hunt laid out the bare bones of a plan for growth in January, but this needs to be fleshed out with a lot more detail about where the funding will come 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. 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. For example, getting the 6.6 million people who are economically inactive back to work will require fresh new ideas and re-training programmes.”
- Strike agreements with unions
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. The surprise £5.4 billion surplus in government finances in January should give more room for manoeuvre when it comes to finding a compromise on public sector pay demands. The announcement of deals in the budget would certainly grab the headlines.’
- Targeted incentives to bolster investment and innovation.
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. 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.’’
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, adds:
- Remove the Money Purchase Annual Allowance
Jeremy Hunt is urging older people who have left the workforce to return, and rising costs in retirement may mean a return to work is attractive for some. However, if they’ve accessed their pension, they may face restrictions on how much they can contribute to rebuild it and this needs to be looked at. The Money Purchase Annual Allowance (MPAA) restricts those who have already accessed their pension to contributions of just £4,000 per year. This is way lower than the £40,000 annual allowance and if you break it, you get clobbered with a tax bill.
The MPAA needs to be removed as part of a wider review of pension tax relief. This means people who have taken a career break and return to work have a better chance of rebuilding their pensions. The MPAA was introduced to stop ‘recycling’, where people access their pension and then re-invest contributions for another round of tax relief, but the same thing could be achieved with anti-recycling rules, which only kick in when someone has accessed their pension with the express intent to recycle the cash.
- Permanently reduce the Lifetime ISA penalty
Reform also needs to be considered for Lifetime ISAs. The 25% bonus is hugely attractive and really helps build savings but if money is withdrawn for a reason other than to buy a first home or for retirement then you face a 25% penalty. We believe the Lifetime ISA penalty should be reduced to 20% on a permanent basis. The 25% penalty not only claws back the Government bonus to save, but also applies an additional penalty based on the net amount invested. For instance, someone paying £4,000 into a Lifetime ISA receives a government bonus of £1,000. If their work dries up and they need to access the money before age 60 they pay a penalty of £1,250 which means they lose both the government bonus and an additional £250.
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.
- Revisit the 450,000 cap for a first home bought in the LISA
The £450,000 cap on the value of a first home to be bought with a LISA has not changed since the product was introduced six years ago. However, property prices have risen exponentially since then up £75,687, just over a third, and it’s fair to say someone living in London would struggle to find a first home for less than this amount. If the home bought exceeds this amount you get hit with a 25% penalty charge. We would like to see the cap increased in line with house price growth.
Sarah Coles, head of personal finance at Hargreaves Lansdown, adds:
- Streamline the range of ISAs
We need a balance between offering enough choice for people to find an ISA that suits them and providing so many options that it’s difficult to choose. If Jeremy Hunt was to roll Child Trust Funds into Junior ISAs; bring Help to Buy ISAs into the Lifetime ISA; and combine Innovative Finance ISAs with Stocks and Shares ISAs, it would keep people’s options open while striking a better balance.
Running Child Trust Funds separately to JISAs means an awful lot of people are still paying into them – adding £412 million in the year to April 2021. They may think it’s easier than transferring to a Junior ISA but given that the rates on cash tend to be lower than the equivalent Junior ISA, and the charges are usually higher than the equivalent tracker fund in a JISA, they’re missing out. Rolling CTFs into JISAs overcomes the friction in the transfer process.
Bringing Help to Buy ISAs into the Lifetime ISA would ensure people were in the product with a higher limit on property values, a bigger allowance for contributions and a bigger overall potential bonus, without anyone with a larger balance having to eat up their annual LISA allowance with a transfer.
In the case of IFISAs, one reason they’re separate is because you can’t have more than one ISA of each type per tax year. It means you can use the IFISA for a small peer-to-peer investment and get a separate stocks and shares ISA for the rest of your ISA allowance. If you rolled them in together, under the current rules you’d need to pick one or the other. This could be solved with another ISA tweak.
- Allow people to subscribe to as many ISAs in a year as they like
There are no restrictions on the number of different pensions you can contribute to each year (as long as you stay within the annual allowance) so why restrict the number of ISAs? This would also iron out needless confusion – such as the fact you can’t currently put money in a Help to Buy ISA and a separate cash ISA in the same year.
- Completely separate the ISA allowances
At the moment, you can put up to £20,000 into ISAs this year, including £4,000 into a LISA. It means anyone taking advantage of the full LISA allowance would be left with £16,000 to save and invest in other types of ISA. The sharing of the LISA and ISA allowance is the single biggest cause of confusion among people considering a LISA and creates administrative complexity for savers and providers. Separating the two allowances would solve this at a stroke.
- Reunite 18-year-olds with Child Trust Funds
In the first seven months after accounts started maturing, there was £394 million siting 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. It’s difficult for them to target those with forgotten accounts, but it’s very easy for them to know who has had an account 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.
- A social tariff for energy bills
Almost half of us (47%) are finding it difficult to pay our energy bills, but for 6% of people things have become even worse – and they’ve fallen behind. In January around 9,500 people approached Citizens Advice for help with fuel debts – a number that has doubled in three years. A fifth of people asking the charity for help with debt are behind on fuel bills- making it the most common form of debt problem.
The government has rejected a higher level of support with bills across the board – increasing the energy price guarantee to £3,000 and effectively upping bills by a fifth in April. It has also stopped universal lump sums which had supported everyone with their bills through the winter. However, more targeted help is clearly needed, and one sensible option would be to introduce a social tariff for those who need it most.”