The Budget Breakdown - Episode 4

In this episode, Mark Morton dives into the pre-budget speculation surrounding savings policies, tax reforms, and the political balancing act of keeping voters, especially pensioners on side. He explores potential changes to cash ISAs, the implications of shifting National Insurance to income tax, and the complexities of winter fuel payments. With a mix of personal anecdotes and sharp analysis, Mark unpacks what might be coming and what it could mean for everyday savers.

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Transcript

Hello, everybody. Mark Morton here with this little series of podcasts leading up to the next budget, looking at things that have been dripped out through the press by the politicians over the last few months. Maybe if we look at savings and look at that side to see some of the things that have been dripped out. One of the things where a lot of messaging has been given is individual savings accounts. There was a statement made in the last budget that the limits would remain as they were until twenty thirty. The messaging that has come from the Chancellor more than once, though, is that she would like the money that is invested in cash ISAs to go into UK stocks and shares. Now, as somebody who is of a certain age, when I first started investing in stocks and shares, I was told by financial advisers don't worry if it goes up and down in the short term, don't worry. Over time, the value will always go up more than interest and therefore you'll always, you know it's a long term investment. Don't worry about it. That's all well and good when you're young. As I've got slightly older and live through a recession in the early nineteen nineties, a financial global meltdown in two thousand and eight when people were queuing outside banks, a pandemic, a Donald Trump, a Donald Trump's there you go a Donald Trump tariffs up and down. You know, maybe I don't want volatility at my time of life. And therefore, if I've got a spare twenty thousand quid at four percent that's quite nice. Thank you very much. Tax free. Now, what you get wrapped up in with ISAs is the history of it as well. I think it is legitimate to say not that many people have a spare twenty grand a year and therefore should the government give them tax relief if they invest it, when of course, if you haven't got twenty grand, you get no tax relief ultimately. I can understand that logic. I can understand maybe you saying I'm going to reduce the cash element. I what I do not see in any of this because the Chancellor talked about, you know, there is three hundred billion quid in historic cash ISAs. What that's got to do with anything. I don't know, because personally, the politics of it, if you were to suddenly say retrospectively, all of those cash ISAs that particular individuals have invested in, on the interest on those are now tax free from next year. I think that would be such a vote loser that, you know, it's not feasible. I can understand and I think personally, quite clearly, the cash Isa limit for next year is going to be somewhat lower than twenty thousand quid. But again, I don't see that necessarily equates to, you know, I'll put it in stocks and shares instead. Then you know you either like stocks and shares. You've got the money to possibly lose through the stock market and you're prepared to speculate a little or you don't. And if you don't, then the fact that you can't put your money in cash ISAs means that actually, I'll keep it in a bank account and pay twenty percent tax on the interest if need be. But at least I know you know it's twenty thousand quid plus four percent as opposed to tomorrow. It could be worth nothing. But that's something that seems, as far as you can tell, a reasonably certain thing that seems to be coming is that the limit on cash ISAs going forward is going to be somewhat lower than it currently is. Is it is it going to be retrospective? I would be frankly amazed, but who knows. Ultimately, in terms of other things that we've been talked about, there is a suggestion that actually I mean, I'm not sure I would necessarily do this because we've done it before, but actually reduce National Insurance for employees and increase income tax for employees, which for some people may be a straight swap. But of course, potentially what that would drag in is pensioners into taxation and wealthy in inverted commas, pensioners what that means. Having said that, there are a lot of pensioners and a lot of them vote. And you have to bear in mind, ultimately the politics of it having upset pensioners tremendously with the winter fuel chaos And it's interesting with winter fuel. I've been trying to explain this to my parents. My father, a retired chartered accountant but retired some years, my mother at the other end of the scale. I merely say it like that with tax. They are in a couple where the Winter Fuel Payment would have gone to my dad. They're now both going to get one hundred and fifty quid. That's going to come. You will then look at their income. And although there's no law on this, as far as I know at the moment, it will be their gross income. So nothing related to tax necessarily. And if it's more than a set figure then it will be withdrawn. So if I had to guess it would be withdrawn from my dad, not my mum, and then be recovered through the tax system, whether by coding out, can you believe for eighty five year olds or through the self-assessment system. I can't imagine what chaos is going to ensue by collecting mine amounts of money through the tax system. Can you? And now it may well be that one of my parents ends up with it. The other one doesn't. My dad has had the opportunity to disclaim it, of course, up front, whether he knew about that he has no access to the internet on his phone, so who knows what he may or may not have seen. Of course, as a retired chartered accountant, why would he disclaim it? He may as well take the one hundred and fifty quid this year, wait for the revenue to catch up with him, and take the vast amount of four percent on one hundred and fifty quid in the meantime. You know, again, it would be quite interesting if you did switch Nie to income tax. What the effect of that would be because it's a redirection. What you could just do instead. Of course, instead of doing that is say I'm afraid pensioners pay tax on income. Sorry. Pay National insurance on income even if they are working you know. So if they're employed then they pay Nie like everybody else. But again you would upset a certain demographic ultimately. Other things to do with savings. There has been some suggestion about changes in savings rates, some suggesting you could get rid of the dividend allowance, the personal savings allowance. Personally, I would get rid of both of them and go back to the old system of tax credits and tax deduction at source. Make life easier for everybody in the current world. Also, National insurance on landlords have been floated as well. It's interesting if you go back not that many years. The revenue had a little go at trying to levy class two on some landlords. Some of you may have seen those letters. Essentially the issue there was class two historically applied to trades or businesses. So some bright spark in the revenue at one stage saying if you've got five rental properties, it must be a business. Therefore you owe us six years of class two. And they had a little project right into a few people, never really got anywhere. And then the law was changed to say no, class two is just about trades like class four is. If I'm honest, if I go back thirty five years, I don't remember it being particularly prevalent, that you had people that owned multiple properties and lived off the income of those properties. And if you did, you were fairly wealthy, obviously, in the last thirty five years, we now have lots and lots of people who essentially live off their income from rent. So, you know, things do change. I can kind of understand that maybe you should contribute in the same way that a self-employed business contributes. Of course, the flip side of that is if you're going to do that, that will give you entitlement to state pension, which you currently don't have, you know. So there's a short term income upside. But there's a downside longer term with state pension. And of course, depending on your age as a landlord, if somebody does that to you, it may well be you don't get to ten magical years of contribution and hence end up with no state pension anyway. So there would be transitional rules. But I could sort of. Again, I'm not saying I agree, but I could understand that there are a lot more people who do that sort of thing now, and maybe times have changed. So you'll see all sorts of things floating around to do with savings. And again, it is part and parcel of that. We need some money. Where can we get it from? We're going to upset people. But let's not upset too many people. You know, a lot of this is to do with ultimately, how much the Chancellor believes she has got defined to fund a gap between spending and costs, which she has overseen. That will dictate how much money you need, will dictate ultimately what policy is taken or not taken. So again, we will see. But again, please bear in mind none of these things are concrete. They are merely things that the government have dripped through the press to test the water. The trouble is, as we all know, it influences behaviour. It frightens people. And you have people trying to take action when they don't really know what's happening. Not a great place for any of us to be anyway. Take care everybody and I may be in touch with you again with another little podcast before Budget Day. Thank you for listening to the Mercia Podcast. For more information on this topic, please visit mercia-goup.com.