George Osborne has unveiled measures to boost the income of pensioners and savers hit by low interest rates.
The amount people can save tax-free in Isas is to rise, while pensioners also get a higher interest savings option.
People will also no longer have to use their pension pot to buy annuities.
The chancellor froze petrol duty, cut bingo tax from 20% to 10%, froze spirits and cider duty and cut a further 1p from a pint of beer – but put the price of cigarettes up.
Labour leader Ed Miliband dismissed the Budget as full of the “same old Tory tricks” and said millions of people were worse off under the coalition government.
Measures announced in Mr Osborne’s fifth Budget speech include:
- The amount workers earn before income tax to go up by £500 to £10,500
- Extending the Help to Buy scheme for aspiring home owners to 2020
- A five-year cap on structural welfare spending from 2015, starting at £119bn and rising in line with inflation. It excludes pensions and Job Seekers Allowance
- Cigarettes to go up by 2% above inflation
- Freezing the “carbon floor” price paid by businesses
- Stamp duty on homes worth more £500,000 to rise to 15% for those bought by companies
- A scheme to boost exports – doubling the amount of finance available to £3bn
- An extra £140m for repairs and maintenance to flood defences and £200m for potholes
- Scrapping inheritance tax for members of the emergency services who “give their lives protecting us”
- Reform of air passenger duty so all long haul flights carry the same tax rate as currently charged for flights to USA
The “surprise” which was the focus of speculation ahead of the 55-minute speech came at the end as Mr Osborne said cash and share Isas were to be merged into a single New Isa with an annual tax-free savings limit of £15,000 from 1 July. The limit for Junior Isas will be raised to £4,000.
Pensioners will have the freedom to cash in as much or as little of their pension pot as they want, removing the need to buy an annuity (an annuity is effectively a bond which pays out a fixed income for the rest of your life).
Mr Osborne also outlined a new Pensioner Bond savings scheme to be available from January to all people over 65, paying interest rates of 2.8% for one-year bonds and 4% for three-year bonds.
He said the changes – due to come into law by April next year – were “the most far-reaching reform to the taxation of pensions since the regime was introduced in 1921”.
The cap on the amount of Premium Bonds a person can own will rise from £30,000 to £40,000 in June and £50,000 in 2015. The number of £1m winners will also be doubled.
There was disappointment for those wanting to see a big rise in the starting point for the higher rate of tax – Mr Osborne said the threshold would rise from £41,450 to £41,865 next month, and then by another below-inflation 1% to £42,285 next year.
During his speech, which comes two months before the European elections and 14 months before the next General Election, Mr Osborne unveiled plans to support economic recovery – including tax breaks to boost productivity, exports and manufacturing.
He said Britain was growing at a faster rate than any other advanced economy – revising growth forecasts up to 2.7% in 2014 – but he warned the job of recovery was “far from done”.
He told MPs: “The message from this Budget is: you have earned it, you have saved it, and this government is on your side, whether you’re on a low or middle income, whether you’re saving for your home, for your family or for your retirement.
“The forecasts I’ve presented show: growth up; jobs up; and the deficit down.
“With the help of the British people we’re turning our country around. We’re building a resilient economy.
“This is a Budget for the makers, the doers, and the savers.”
He said the Office for Budget Responsibility was forecasting that the economy would overtake its pre-crisis peak later this year.
The deficit – the difference between the government’s spending and the money it collects from things such as taxes – would be lower than expected this year at 6.6%, he said.
And he said the government was on track to balance the books in 2018/19.
Labour leader Ed Miliband – in his Budget response – said: “The chancellor spoke for nearly an hour but he did not mention one central fact – the working people of Britain are worse off under the Tories.”
He added: “Whose recovery is it under the Tories? Under them it is a recovery for the few, not the many.
“We know what their long term plan is, tax cuts for the richest whilst everyone else gets squeezed.”
Labour has pledged that if it wins the next election, it will reinstate the 10p tax rate for low earners and raise the top rate of tax to 50p for those earning more than £150,000 a year.
Lib Dem leader Nick Clegg said he was “very pleased” with the Budget – particularly the pension and income tax changes.
On plans to raise the point at which income tax starts to above £10,000, the deputy PM said: “I am especially pleased that we have over-delivered on that particular Lib Dem manifesto pledge.”
John Cridland, director general of business group the CBI, said the Budget would “put wind in the sails of business investment, especially for manufacturers”.
But TUC general secretary Frances O’Grady described it as a “highly political short-term Budget that continued the Chancellor’s project to shrink the state and help the rich”.
SNP Treasury spokesman at Westminster, Stewart Hosie, said the Budget – the last before September’s Scottish independence referendum – proved George Osborne had “failed on every single one of the tests which he set for himself” in 2010.
“The Tory/Liberal coalition are still trying to balance the books on the back of the poor,” he added.
Plaid Cymru’s leader at Westminster, Elfyn Llwyd, welcomed plans to boost capital investment but said there was “little cheer” for small firms.
UKIP leader Nigel Farage said: “I don’t think this government has unleashed the full potential of British business.
“We will finish up at the end of the five years of this coalition government with our national debt having risen by 40%, and that must mean, the original objective of the coalition has failed.”