Media Release

PRESS RELEASE: SMF Budget 2015 reaction

Osborne resists big pre-election giveaways but Budget 2015 has election campaign firmly in its sights.

Responding to the Chancellor’s Budget speech, Social Market Foundation (SMF) Director Emran Mian said:

“While this Budget didn’t contain the expected pre-election giveaways, it was most certainly aimed at the voting public. After the Autumn Statement the Chancellor was vulnerable to the criticism that he was taking government spending back to the 1930s. His final Budget is an attempt to deal with that with a one-off boost to spending plans, though not until 2019-20.”

The previous measures for savers were targeted at older people. Now there is an incentive for younger savers in the form of the Help to Buy ISA. If the Conservatives risked looking soft on tax avoidance and the banks, there are anti-avoidance measures designed to capture an additional £1bn in 2015-16 with the promise of £5bn more through further measures during the following two years.”

Assessing the Budget and OBR economic outlook, SMF Chief Economist, Nida Broughton said:

“The biggest change since December’s Autumn Statement is to allow spending to grow in line with GDP in 2019-20. This means that austerity continues into 2018-19, before a sharp reversal in 2019-20, in time for the next election.  Day to day spending on public services falls by around £41 billion from 2015-16 to 2018-19, but then sees an increase in spending of around £13 billion just before the 2020 election. Overall, the total cut to day to day departmental spending is around £28 billion, down from over £50 billion in December. This brings the three parties’ deficit reduction plans closer together, although there are still substantial differences because Labour and the Liberal Democrats have said they would not include investment in their main deficit reduction targets.”

“Low oil prices have boosted the outlook for economic growth. But digging beneath this, the OBR says that underlying productivity growth is “disappointing”, with output per hour actually falling at the end of 2014. It expects that without the oil price effect, productivity would be even worse. This is worrying: as we show in our briefing A Deficit of Growth II, productivity growth is vital to growth in tax revenues, and could change the amount of austerity required in the next Parliament by tens of billions.”

On the eye catching Help to Buy ISA, SMF Chief Economist, Nida Broughton said:

“Our analysis on wealth and assets shows that whilst the average deposit put down by first time buyers has been rising, the amount 26-35 year olds have in savings is falling. Around 37% have no savings at all. Among those that do, the median amount is just over £2,000. The Help to Buy ISA is aimed at this group of people struggling to get on the housing ladder. The cost is expected to come to £2.2 billion, but the OBR says this estimate is highly uncertain.”

On changes to Personal Savings Allowance, SMF Research Director, Nigel Keohane said:

“The proposal to make income from savings tax free for those earning below the higher rate tax threshold is eye-catching but the benefits are illusory. A large proportion of the population have no savings (29%). At a household level, for those that do have savings, the average in non-ISA savings accounts is £4,000. If this amount was saved in a typical instant access account, the new tax allowance would save someone less than £5 a year.

The problem with this reform is not so much that they make ISAs entirely redundant, but that they appear to do so. This reform could damage the ISA and the positive effect the product has on savings levels. As recent research from the SMF showed, the ISA wrapper acts as a way of encouraging saving because it is highly visible, widely marketed and because the annual deadline acts as a trigger to encourage saving.”

Responding to measures to increase competition in financial services, SMF Director, Emran Mian said:

“While the Government waits for the Competition and Markets Authority inquiry into personal and current accounts, it is taking a range of measures to promote more competition. The Budget document confirms that consumers will be able to access their own current account data through the Midata initiative. It promises that the first current account comparison tool – offered by gocompare – will be live by the end of this month.

We have argued previously, in our report Branching Out, that innovation in how we manage our money will create the next wave of competition. The Government seems to agree. There is a commitment of £10m to research into digital currency technology; as well as plans to work with the industry on a new open standard for bank data. Perhaps most significantly, the Budget document suggests a ‘regulatory sandbox’. This means relaxing regulatory requirements while new rules are being consulted on, in order not to slow down the entry of new providers and services.”


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