PERSONAL ALLOWANCE

Mr Deputy Speaker, it is a central part of our long term economic plan that people keep more of the money they have earned.

When we came to office, the personal tax allowance was just £6,500.

In less than three weeks time, it will reach £10,000.

That’s an income tax cut for 25 million people.

Today, because we are working through our plan, we can afford to go further.

Next year there will be no income tax at all on the first £10,500 of your salary.

Ten and a half thousand pounds tax free.

£800 less in tax every year for the typical taxpayer.

Our increases in the personal allowance will have lifted over 3 million of the lowest paid out of income tax altogether.

And I am incredibly proud we have achieved that.

I can also confirm today that the higher rate threshold will rise for the first time this Parliament, from £41,450 to £41,865 next month, and then by a further 1% to £42,285 next year.

And because I am also passing the full benefit of today’s personal allowance increase on to higher rate taxpayers – people earning 42,000, 43, 50, 60, all the way up to £100,000 will be paying less income tax because of this Budget.

Tax cuts for those on low incomes – and those on middle incomes too.

Help for hardworking people as part of a long term economic plan

And I am linking the rate of the transferable tax allowance for married couples to the personal allowance, so it will also rise to £1,050.

Help for 4 million families that they would take away and we are proud to provide.

SAVINGS

Our tax changes will help people who work. But there is a large group who have had a particularly hard time in recent years: and that is savers.

And this matters not just because these are people who have made sacrifices to provide for their own economic security in retirement.

It matters too because one of the biggest weaknesses of the British economy is that it borrows too much and saves too little.

This has been a problem for decades and we can’t fix it overnight.

It’s no surprise that the OBR forecast the saving ratio falling.

So today we put in place policies for savers that stand alongside deficit reduction as a centrepiece of our long term economic plan.

The reforms I am about to announce are only possible because, thanks to this government:

- we have a triple lock on the state pension;

- more people are saving through auto enrolment;

- and we’re introducing a single tier pension that will lift most people above the means test.

That secure basic income for pensioners means we can make far reaching changes to the tax regime to reward those who save.

Here’s how.

First, I want to help savers by dramatically increasing the simplicity, flexibility and generosity of ISAs.

Twenty four million people in this country have an ISA.

And yet millions of them would like to save more than the annual limits of around five and a half thousand pounds on cash ISAs, and eleven and a half thousand pounds on stocks and shares ISAs.

Three quarters of those who hit the cash ISA limit are basic rate taxpayers.

So we will make ISAs simpler by merging the cash and stocks ISAs to create a single New ISA.

We will make them more flexible by allowing savers to transfer all of the ISAs they already have from stocks and shares into cash, or the other way around.

And we are going to make the New ISA more generous by increasing the annual limit to £15,000.

£15,000 of savings a year tax free – available from the first of July.

And I’m raising the limits for Junior ISAs to £4,000 a year too.

But the £15,000 New ISA is just the first thing we are doing for savers.

Second, many pensioners have seen their incomes fall as a consequence of the low interest rates that Britain has deliberately pursued to support the economy.

It’s time Britain helped them out in return.

So we will launch the new Pensioner Bond paying market leading rates.

It will be issued by National Savings and Investments, open to everyone aged 65 or over, and available from January next year.

The exact rates will be set in the autumn, to ensure the best possible offer - but our assumption is 2.8% for a one year bond and 4% on a three year bond.

That’s much better than anything equivalent in the market today.

Up to £10 billion of these bonds will be issued. A maximum of £10,000 can be saved in each bond.

That’s at least a million pensioner bonds.

And because 21 million people also invest in Premium Bonds I am lifting the cap for the first time in a decade from £30,000 to £40,000 this June, and to £50,000 next year – and I will double the number of million pound winners.

But I still want to do more to support saving.

And so, third, we will completely change the tax treatment of defined contribution pensions to bring it into line with the modern world.

There will be consequential implications for defined benefit pensions upon which we will consult and proceed cautiously.

So the changes we announce will not today apply to them.

But 13 million people have defined contribution schemes, and the number continues to grow.

We’ve introduced flexibilities.

But 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.

The tax rules around these pensions are a manifestation of a patronising view that pensioners can’t be trusted with their own pension pots.

I reject that.

People who have worked hard and saved hard all their lives, and done the right thing, should be trusted with their own finances.

And that’s precisely what we will now do. Trust the people.