WHAT A FLOP!
Budget small print reveals failure of Osborne’s plans to boost incomes of parents and pensioners
TORY policies to help retirees, parents and young savers have flopped, small print in the Budget reveals.
Damning figures show several pledges made by former Chancellor George Osborne have fallen flat, with few people taking advantage.
Around 415,000 families were expected to sign up to a new tax-free childcare scheme by October this year. Yet just 30,000 have claimed, according to figures from tax watchdog the Office for Budget Responsibility (OBR).
The figures also showed just 13,000 retirees took advantage of a state pension top-up scheme that ran between October 2015 and April this year. That was just 5 pc of the 265,000 the Government had expected to sign up.
The OBR also revealed that the popularity of a series of new tax-free savings deals — including the Lifetime Isa, Help to Buy Isa and Innovative Finance Isa — had been poor.
Officials have lowered how much they expect these schemes to cost the Government. In a further embarrassment, the Treasury has delayed plans to make the self-employed and small business owners file tax returns online several times a year.
It hoped to roll out its Making Tax Digital scheme by 2019, but has put it back to 2020 ‘at the earliest’ for the self-employed. Only small firms turning over more than £85,000 a year will have to take part until then.
Steve Webb, former pensions minister and director of policy at insurer Royal London, said: ‘Every year, the Chancellor announces new schemes and initiatives with the best of intentions, designed to tackle specific problems. But, all too often, they are not properly thought through and create bewildering complexity for consumers, who end up sticking with what they know.’
Here, we run through the failing schemes — and explain how you can still take advantage. TAX-FREE CHILDCARE UNDER a new tax-free childcare scheme, parents can claim a £2 topup for every £8 they save towards nursery care.
When the policy was first announced in the 2013 Budget, then-Chancellor George Osborne said it would help ‘working parents struggling with the costs of childcare, and the mother wondering whether it makes financial sense to get a job’.
But the scheme suffered delays and only launched in April this year. It has also been available only to parents with children aged three or four. As of last week, it was extended to those with children aged six or under, but the start date for older children has been delayed again until March 2018.
The online system set up to offer the scheme has suffered technical problems, leaving families unable to open an account or access their money.
Parents calling the Childcare Service helpline also complained of delays.
The scheme was supposed to replace the existing childcare voucher scheme, due to close to new applicants next year. But many parents have yet to switch.
According to OBR analysis, the tax-free childcare scheme was expected to cost the Government £800 million in March 2014. The latest forecast is just £37 million.
Purnima Tanuku, chief executive of the National Day Nurseries Association (NDNA), says: ‘The reason for the poor take-up is a combination of a lack of parental awareness, along with the technical issues.’
STATE PENSION
IN March 2014, pensioners were given the chance to buy extra state pension by making lump-sum National Insurance Class 3A voluntary contributions. The offer was available for 18 months from October 2015 to April 2017. It was a boost for retirees who had missed out on the new state pension, particularly women and the self-employed.
Many had seen their incomes plummet along with interest rates, and the top-up scheme offered a return that lasted for life.
However, just 13,000 people took advantage of the scheme, paying £225million. The Government had expected 265,000 pensioners to make £870 million of contributions.
Jon Greer, head of retirement policy at investment firm Old Mutual Wealth, said: ‘Unfortunately, the National Insurance system is a complete mystery to most people and few seem to have been aware of the option.’ NEW ISAS WHEN Mr Osborne unveiled the Lifetime Isa in last year’s Budget, he hailed it as ‘a completely new flexible way for the next generation to save’. Savers aged between 18 and 40 can invest up to £4,000 a year for a 25 pc top-up from the Government.
They can use the money to buy a house or for their retirement after the age of 60.
But the OBR says take-up has been ‘sluggish, with very few accounts available to savers’. The expected cost of the new deal to the Government has been cut by around 40 pc. HMRC says it expects demand to increase.
The report said take-up of the Help to Buy Isa, announced in the 2015 Budget, has also been ‘well below expectations’. This gives first-time buyers a 25 pc top-up on their savings, up to a maximum of £3,000. You must be buying a house worth under £250,000 (£450,000 in London).
The scheme was expected to cost the Government nearly £700million by the end of the 2017/2018 tax year. But payments made in the first 20 months to June 2017 were just £77 million. The Treasury, however, says that with more than one million accounts opened, the scheme is a success.
In the 2014 Budget, George Osborne announced plans to create a new type of Isa to include so-called peer-to-peer investments, where savers lend their money to others through websites and get interest in return. But just £20million has been deposited in so-called Innovative Finance Isas, compared to the £800 million expected. Many peer-to-peer firms have struggled to get authorisation from the City watchdog.
An HMRC spokesman says: ‘We expect usage of tax-free childcare to continue to rise as we gradually open up the service to more parents. Now the service has improved, we will undertake activity to raise awareness among parents.’
A spokesman for the Department for Work and Pensions says: ‘We promoted the state pension top-up through an extensive media campaign over two years.’