The Budget confirmed that National Savings & Investments (NS&I) money-raising target for 2013/14 is nil – in other words, all NS&I has to do is match inflows and outflows. At first sight this might look surprising, given that in the current financial year the Government needs to raise nearly £163 billion in cash. The simple truth, however, is that at present NS&I represents an expensive way for the Government to borrow.

This was underlined last month, when the Treasury sold £1.6 billion worth of index-linked stock at its lowest ever yield. The price paid by institutional investors for 0.125% Index-Linked Treasury Gilt 2024 meant that they were accepting a real (inflation-adjusted) return of -1.26% a year if they held the stock to maturity. Negative real returns have been with us for some time, as a result of the Bank of England’s quantitative easing and the pension funds’ desire to match their inflation-linked liabilities. Even so, the fact that big investors are locking in a loss of over 1.25% each year for 11 years gives pause for thought.

The last public issues of index-linked savings certificates, withdrawn in September 2011, offered a real return of 0.5% a year over five years. If you have existing certificates reaching maturity, NS&I will now only offer RPI + 0.15% for reinvestment over three and five years. The new certificates would also be subject to revised terms, which include early encashment penalties. Unattractive as that sounds, index-linked stock for similar periods will give a return of about RPI – 2.5%.

April saw a raft of economic news, but ended with two small rays of light for Mr Osborne.

The Government’s chosen economic course, Plan A for Austerity, has not been receiving much good publicity of late. An economics paper by two Harvard economists that was seen as academic backing for austerity was found to contain significant errors.

At much the same time, the International Monetary Fund’s chief economist suggested that it may be time for the UK to relax its tight budgetary plans. On cue, unemployment figures rose by 70,000, taking the level to 7.9% of the labour force. Just to add to the Chancellor’s woes, a second credit-rating agency, Moody’s, stripped the UK of its AAA rating.

Towards the end of the month Mr Osborne had two pieces of good news.

• The initial estimate of government borrowing figure for 2012/13 came in at £300 million below the 2011/12 figure. This allows Mr Osborne to say he is still cutting the deficit year by year, although a reduction of just 0.25% could well be revised away in the future.
• The Office for National Statistics (ONS) announced that in the first quarter of 2013 the UK economy grew by 0.3%, reversing the 0.3% decline in the final quarter of last year. As a result, Mr Osborne avoided the much talked-about triple dip recession that had been forecast in some quarters.

The falling borrowing and positive economic growth figures do not yet mean the UK economy has returned to health. The government deficit is stuck at close to 8% of GDP – it will be virtually unchanged again in 2013/14 – and in the words of the ONS the economy “has been broadly flat over the last 18 months.” The UK’s economic peak was five years ago and the latest data show that we are still 2.6% below that level today.

The stock market took this all in its stride, and was little changed over April. Whether that reflects optimism about UK plc’s future or the impact of loose global monetary policy is open to debate.

Past performance is not a reliable indicator of future performance.

Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.

There was one change and one threat on the venture capital front in the 20 March Budget announcement.

For Seed Enterprise Investment Schemes (SEIS), the CGT reinvestment relief continues for 2013/14, but for only half the reinvested gain. Therefore, the maximum tax relief for SEIS investment will in theory be 64% (50% income tax + 28% x ½ CGT reinvestment relief). The Government is not expecting this to encourage much investment – it estimates the extension of the relief will cost just £5 million in lost tax revenue.

Over three times more costly for the Treasury has been the growth in enhanced buy-backs operated by many venture capital trusts (VCTs). Buy-back schemes allow investors who have held their VCT shares beyond the tax relief claw back period (currently five years) to sell and immediately repurchase their holding with minimal expenses, but with the benefit of a new round of 30% tax relief. In 2011/12 £60 million was recycled in this way. The papers accompanying the Budget said “…the Government is concerned that VCTs offering enhanced buy-backs are not operating within the spirit of the legislation”, which sounds ominously like the threat of a future attack.

There were two changes to stamp duty which will help some investors, although neither will occur before 2014/15:

• The purchase of shares on AIM and similar markets will be made free of stamp duty, cutting buying costs by 0.5% and potentially improving market liquidity.
• An arcane stamp duty reserve tax rule that applies to unit trusts and open-ended investment companies investing in UK equities will be abolished. In theory this will give a very small boost to investor’s returns.

The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice. The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances

The reductions to the annual allowance and lifetime allowance from 2014/15 were re-affirmed in the Budget. The Chancellor also confirmed that you will have a choice of two transitional protections if the lower lifetime allowance of £1.25 million could affect you. Further details are now awaited.

A great many more people will be affected by another change revealed by the Chancellor; the introduction of the new single-tier state pension from April 2016, one year before the earliest date suggested by the Department for Work and Pensions (DWP) in January. The DWP tried to justify the Chancellor’s move by saying in a press release after the Budget that “every woman affected by the changes we have made to the State Pension age in this parliament will also now have access to the new State Pension”. In truth, as the Institute for Fiscal Studies pointed out, the accelerated start date “may have been driven as much by a consideration of additional National Insurance revenues it will bring in as by any zeal to spread the benefits of the new pension more quickly.”

There was an announcement of a review of the basis for the income drawdown rate, alongside the new 120% limit, which takes effect for drawdown anniversaries from 26 March 2013. It is unlikely the review will make any significant changes beyond a small drop in rates.

The one surprise on the pension front was that the Treasury would “explore with interested parties whether the conversion of unused space in commercial properties … to residential use could be encouraged” by making changes to the self-invested pension rules. At present such pension arrangements are subject to penal tax if they invest in residential property.

The value of your investment can go down as well as up and you may not get back the full amount you invested.

The individual savings account (ISA) limit rose to £11,520 for 2013/14 (£5,760 for cash element). However, there was a more interesting development announced shortly before the Budget.

The Government published the results of its informal consultations on including ‘within ISAs’ shares listed on the alternative investment market (AIM) and similar specialist markets and said that move would be going ahead, although no final date was specified. There was also an important supplementary confirmation: AIM shares and the like will qualify for inheritance tax (IHT) business property relief under the normal rules, which can mean they are effectively removed from IHT after a two-year period of ownership. As there were moves in the Budget to clamp down on IHT planning, the ISA reform is all the more welcome.

The Chancellor also announced another long-awaited piece of ISA news. There is to be consultation on the options for transferring savings held in Child Trust Funds (CTFs) into Junior ISAs (JISAs). CTFs currently enjoy the same annual investment limit as JISAs (£3,720 in 2013/14), but since 2011 have not received any government payments.

The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice. The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.

The spring Budget of 20 March was not as it seemed, even if much of it appeared to be familiar from earlier announcements…

As in many other areas of the Budget, Mr Osborne had stolen some of his own thunder by turning last December’s Autumn Statement into a mini Budget. We already knew that the personal allowance for 2013/14 would be £9,440, £235 higher than previously revealed, and that the starting rate for higher rate tax would fall by £1,025 to £41,450. We had also been promised a 1% increase in that threshold for the following two years.

The surprise in the Budget was that the personal allowance will jump to £10,000 next tax year (2014/15), a year earlier than had been generally expected. If you are a basic rate taxpayer you will gain £112 a year as a result, whereas if you are a higher rate taxpayer with income of up to about £119,000 you will be £195 a year better off. Top rate (now 45%) taxpayers will be £29 worse off because they receive no personal allowance and suffer from a £145 shrinkage in the width of the basic rate band. One point the Chancellor did not make was that the freeze in personal age allowances and the qualifying date of birth (born before 6 April 1948) would continue in 2014/15.

The generous increase in the personal allowance – it will have more than doubled since 2005/06 – was not mirrored elsewhere. The capital gains tax (CGT) annual exemption was confirmed at £10,900 for 2013/14 and will rise by just £100 in each of the following two tax years. The Chancellor also said for the first time that the freeze on the inheritance tax (IHT) nil rate band would be extended until 2017/18, in part to fund the bringing forward of the social care reforms to 2016.

The main rate of corporation tax will fall to 20% from 2015, a move that will result in the unification of corporation tax for all companies, as the small profits rate (formerly small companies rate) is currently 20% and not changing. From April 2014 all businesses will benefit from a new Employment Allowance. This is set at an annual £2,000 for each employer and offsets the employer’s national insurance contribution (NIC) liability. In practice the smallest employers will be the major beneficiaries – the allowance covers just £14,500 of earnings liable to NIC.

The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice

One of the major clearing banks recently undertook a retirement planning survey across 15 countries in which it operates. Among its findings for the UK were:

• One third of people were not making any preparation for retirement, while a virtually identical proportion thought they were not doing enough.
• The average expected time spent in retirement was 19 years, which was 12 years longer than the average time retirement savings were expected to last.
• In terms of retirement income, the average amount thought appropriate was 73% of pre-retirement income.
• Just 38% of people are regular savers, leaving the UK only above Egypt in terms of thrift.
• The UK came top in one unfortunate category: prioritising saving for a holiday over saving for retirement. Given the choice of only one savings goal for the year, 58% of the UK respondents chose a holiday, while 32% opted for retirement.

One interesting point the survey threw up was that, for those on average incomes, there was a strong relationship between financial planning and greater saving. People who had carried out some type of financial planning had at least four times the retirement savings of those who had failed to plan. Where professional advice is used, savings were two and a half times more than those of people who have not taken expert advice.

The Government has announced its proposals for funding long-term care.

Long-term care has been one of the topics which successive governments have pushed down the road with the help of enquiries, reviews and even a Royal Commission. The problem has always been the same: how to meet the cost for those who are not already funded by the state.

The Government has now published a policy statement, following up on a summer 2011 report it commissioned from a team headed by Andrew Dilnot. The framework – which is for England only – is far from generous. The headline-grabber is that there will be a cap on care costs to be met by an individual of £75,000 (index-linked). Alas, this is not as simple as it seems.

• Care means just that – the so-called ‘hotel costs’ of accommodation and food will still have to be met personally, which the Government says will be around £12,000 a year in 2017/18, when the new regime is due to start.
• The care cost that will be met is what a local authority would pay, based on an individual needs assessment. If you want better care/comfort than the local authority would buy, you will have to pay the excess and this will not count towards the £75,000 cap.
• The means test ceiling, above which there is no initial state help, will rise from the current £23,250 to £123,000. The floor, at which all costs are met, will increase from £14,250 to £17,000. The jump in the ceiling means that many more people will receive some help with care costs, but there has been no change to the basis of contribution – £1 a week for each £250 above the lower threshold (equivalent to 20.8%). So, for example, if you have assets worth £100,000, initially you would be expected to pay £332 a week towards your care.

The Government estimates the yearly cost in 2020 at £1 billion, which it says will be funded by the savings from state pension reforms and extending the freeze on the inheritance tax nil rate band at £325,000 until 2018. So, even if you think you can now dispense with planning for long-term care, you may want to revisit your estate planning.

The pound has had a grim two months against most major currencies. It has risen against the Japanese Yen only because the new Japanese prime minister has imposed a 2% target rate of inflation on the Bank of Japan. There are several possible reasons for the drop in the value of sterling:

• The immediate concerns about a US fiscal cliff and a Eurozone collapse have receded, at least for the time being.
• The disappearance of the UK’s triple-A rating. This had been expected for some time, although most experts thought the ratings agencies would wait for the Budget on 20 March before acting.
• The UK’s austerity programme is viewed by some as failing to deliver on either deficit reduction or economic growth.
• An expectation that the new governor of the Bank of England, who is due to arrive in July, will be more willing to see sterling weaken.
• The new uncertainty about the UK’s continued membership of the EU.

The flipside of sterling’s demise is that the good performance most global stock markets have put in since the turn of the year has been magnified by the pound’s depreciation – with the exception of Japan. It is a useful reminder of the benefits of making sure your investments are internationally diversified.

Past performance is not a reliable indicator of future performance. The value of investments and income from them can go down as well as up and you may not get back the original amount invested. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.

What do you think is the current top market interest rate for £10,000 in a new instant access account?

If you have not looked at the savings league tables recently, it may surprise you to learn that the answer is now just 2%. And that is gross, so if you are a 40% taxpayer, the net return is just 1.2%, little more than a third the current rate of retail prices index (RPI) inflation.

Rates have fallen for new accounts and for many existing variable rate accounts (notably the Post Office) because the banks and building societies can access up to £80 billion worth of cheap money under the Funding for Lending Scheme (FLS). The FLS was launched by the Treasury and Bank of England last summer in an effort to stimulate lending to households and businesses. So far, the main impact has been on deposit rates for investors and the mortgage market, where rates for new loans have been falling.

The drop in instant access deposit rates has rippled through to fixed term accounts, with only the longest terms from a handful of lenders now offering a rate above 3%. This year’s cash ISA season looks set to be much less competitive than previous years, with building societies rather than banks giving the best terms at the time of writing.

We all need some rainy day money on deposit – three to six months’ cover for outgoings is a good start – but if you have more, now is a sensible time to consider ways in which you could make that excess cash work harder, if only to counter that stubbornly over-target inflation rate.

Past performance is not a reliable indicator of future performance. The value of investments and income from them can go down as well as up and you may not get back the original amount invested