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a consumer&#39s view

The Chancellor&#39s pre-Budget statement is a masterpiece of making lots of people feel good without it costing too much money and worrying the City.

IFAs are no doubt pleased to see that the higher £7,000 annual limit on Isas is to remain for a further five years. At the end of that period, those who have invested the maximum every year will be almost up against the overall limit of £50,000. What happens after that is still undecided.

With an estimated nine million Isa accounts in existence, this concession is likely to make nine million middle-class, middle-England floating voters much more inclined to vote Tony and Gordon back into office next spring, which is, without doubt the object of the exercise.

The Chancellor has been very clever, giving all 10.7 million pensioners an increase in the basic state pension of £5 a week for a single person and £8 a week for a couple in April of next year, with a further £3 a week for a single person and £4.80 a week for a couple in the following spring 2002.

That should be good for a few votes. No doubt there will be some who will moan that he has not restored the link with earnings but some people are never satisfied.

Wealthier pensioners will benefit too from higher age allowances, due to rise from the current level of £5,790 to £6,560 by April 2003.

These pensioner age tax allowances will from 2003 be linked to the rate of wage inflation rather than the RPI. There was no mention of any such link for the under-65s, however.

This should make it much more worthwhile saving for retirement if pensioners are allowed to keep more of their income without paying tax on it.

More important, he is putting in place a root and branch reform of the tax and social security system which will eventually result in a merger of the Inland Revenue and social security.

Individuals will pay tax when they are earning. The introduction of the children&#39s tax credit and a new pensioners&#39 tax credit in 2003 will be the first step in this radical reform.

Pensioners&#39 tax credit will guarantee that a single pensioner can keep up to £135 of income without paying tax and a couple can keep £200 a week before tax.

These tax credits will also be linked to earnings rather than inflation, which means those who make provision for their retirement should not be penalised for their thriftiness. This will provide a big incentive for individuals to save for retirement.

One of the major criticisms of stakeholders and the minimum income guarantee is that the higher the Chancellor raises the MIG and income support through which the MIG is administered, the less reason there is for the lower paid to save in a stakeholder.

Why save today in a pension when the accumulated fund will not necessarily provide you with anything more than the MIG, which is free?

Until the new pensioner tax credit come into being in 2003, the MIG is to be inc reased to £92.15 a week in April, rising to £100 a week by 2003. This threshold will also be raised in line with earnings and an estimated two million pensioners will ben-efit from these higher social sec urity payments.

Because benefits have been targeted at lower-income groups – in particular, pensioners – the total costs are estimated at an affordable £2.6bn a year. Keeping the annual threshold for Isa inv estment at £7,000 has simply brought forward revenue losses which would have occurred in later years if the limit had gone down to £5,000 in 2001, as originally planned.

Overall, it is a clever budget spreading the maximum amount of feelgood factor at the minimum cost. Whether it gets Blair and Brown back into office next spring, only time will tell.


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