George Osborne pledged to share the benefits of economic recovery with pensioners and savers today as he delivered his penultimate Budget before the general election.
The Chancellor unveiled radical reforms to tax rules on retirement pots and new-style flexibile ISAs where people can save up to £15,000 without the Treasury taking a cut, and he pushed up the personal income tax allowance to £10,500 next year.
Loading article content
Hailing the success of the coalition's austerity programme, Mr Osborne said UK plc would grow by a better than forecast 2.7% in 2014 and the government would be back in surplus by 2018-19.
He also offered some crowd-pleasing items including scrapping the duty escalator on wine and spirits, a penny off a pint of beer, and freezing the "carbon floor" price in a bid to take £15 off consumers' energy bills.
"The message from this Budget is: you have earned it; you have saved it; and this government is on your side, whether you're on a low or middle income, whether you're saving for your home, for your family or for your retirement," Mr Osborne told MPs.
"The forecasts I've presented show: growth up; jobs up; and the deficit down.
"With the help of the British people we're turning our country around. We're building a resilient economy.
"This is a Budget for the makers, the doers, and the savers."
But Labour leader Ed Miliband responded: "The Chancellor spoke for nearly an hour but he did not mention one central fact: the working people of Britain are worse off under the Tories."
There was disappointment for Tories who have been urging an increase in the higher tax rate threshold, after millions more people were dragged into paying 40p.
The level at which the rate kicks in will rise below inflation next month to £41,865 - and then to £42,285 in 2015-16.
The uplift in the personal allowance was in line with expectations, despite speculation that the Chancellor could opt to go further.
Mr Osborne said duty on bingo halls would be cut by more than anticipated - from 20p to 10p. But fixed odds betting terminals will be hit with 25% rates in recognition of their addictiveness to gamblers.
Duty on Scotch Whisky and cider will be frozen, and inheritance tax will be waived when members of the emergency services die in the line of duty.
Investment allowances for small and medium sized businesses are being doubled to £500,000, one of a host of breaks for exporters and manufacturers.
But Mr Osborne targeted most of his big measures at savers pensioners, with fundamental reforms of rules.
Mr Osborne said people would be "trusted" with far more control over their pension pots, and no longer obliged to buy an annuity at low rates.
Those approaching retirement will get free financial advice, and they will be able to draw down as much of their defined contribution fund as they want even if they are in line for relatively small incomes.
Instead of being hit with punitive 55% tax on sums they extract from funds, they will instead pay normal tax rates.
"What I am proposing is the most far-reaching reform to the taxation of pensions since the regime was introduced in 1921," Mr Osborne said. "Most people still have little option but to take out an annuity, even though annuity rates have fallen by a half over the last 15 years...
"People who have worked hard and saved hard all their lives, and done the right thing, should be trusted with their own finances."
A new state-backed Pensioner Bond will also be launched to help people who have suffered low returns since interest rates were slashed to keep the wider economy afloat.
Up to £10 billion of the bonds will be issued, with individuals able to save up to £10,000 with interest likely to be 2.8% on the one-year version and 4% if they lock in for three years.
"That's much better than anything equivalent in the market today," he added.
The cash and stocks elements of Isas will be merged into a larger tax-free vehicle, with savers now allowed to stash up to £15,000 in whatever form they want.
The cap on Premium Bonds will also be lifted from £30,000 to £40,000 in June, and to £50,000 next year.
In a final flourish, the Chancellor declared that the 10p starting rate for income from savings would be abolished.
"It is complex to levy and it penalises low-income savers," he said. "We will almost double this zero-pence band to cover £5,000 of saving income.
"One-and-a-half million low-income savers of all ages will benefit. Two-thirds of a million pensioners will be helped."
Among measures to crack down on abuse of the tax system, the 15% rate of stamp duty for people who buy houses through a company will be extended to property worth between £500,000 and £2 million.
Mr Osborne moved to counter Labour's attack that the coalition focuses on helping the wealthy, insisting the "rich are making the biggest contribution to the reduction of the deficit - because we are all in this together".
"The independent statistics show that under this Government income inequality is at its lowest level for 28 years," he insisted.
The Chancellor also eased a series of "green" measures, signalling that he believed such levies had gone too far.
"We are going to have a £7 billion package to cut energy bills for British manufacturers - with benefits for families and other businesses too," Mr Osborne said.
"First, I am capping the Carbon Price Support rate at £18 per ton of CO2 from 2016-17 for the rest of the decade.
"This will save a mid-sized manufacturer almost £50,000 on their annual energy bill.
"And it will save families £15 a year on their bills too - over and above the £50 we've already taken off."
He also said the compensation scheme for energy intensive industries would be extended for four more years to 2019-20.
"Our steel makers, chemical plants, paper mills and other heavy energy users make up 35% of our manufacturing exports and employ half a million people. This scheme helps the companies most at risk of leaving to remain in the UK," he said.
"Third, I'm introducing new compensation worth almost a billion pounds to protect these energy intensive manufacturers from the rising costs of the Renewable Obligation and the Feed-In Tariffs.
"Otherwise green levies and taxes will make up over a third of their energy bills by the end of the decade."