Budget 2017: the Moneywise verdict

Philip Hammond failed to address the issue of high inflation eating away at Britain’s £700bn cash savings pot. With inflation on the rise and interest rates at rock-bottom, the purchasing power of savings held in most cash individual savings account (Isas) is rapidly declining.

The Chancellor only delivered a teeny tiny bit of help for savers, by confirming the new NS&I three year bond will pay 2.2%. It’s not going to solve your income problems. In fact, investing in the new bond is probably a dilemma in itself.

It’s time to consider investing at least some of your savings for better returns, if you haven’t already. Calculations by Fidelity International show if you had invested £15,000 into the FTSE All Share index 20 years ago you would now be left with £53,974. If, however, you had invested £15,000 into the average UK savings account over the same period, you would be left with a paltry £19,877. That’s a difference of £34,097 – too big for any sensible saver to ignore.

The main surprise of the Budget was the announcement of a cut to the dividend allowance – from £5,000 to £2,000, which makes holding your investments in a stocks and shares Isa more important than ever.

Any dividend income above £2,000 will now be subject to income tax. You don’t need a massive portfolio to have a dividend income of over £2,000 - only around £50,000.

However, there were few other rabbits pulled out of the hat in today’s Budget as pensions tax relief was left untouched and no new social care Isa was announced.

Most notable were the omissions: No help for first-time buyers, for example.

As the tax experts at Rutherford Wilkinson point out, what is often overlooked is what hasn’t been changed, which results in a gradual ‘stealthy’ increase in taxes.

The Chancellor could have increased the gifting threshold, to help more people pass on modest sums without concerns over inheritance tax. The £3,000 annual limit on gifts has not increased since 1981. Had it increased with inflation, this allowance would be closer to £11,000 by now.

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