THE BLOG
28/03/2015 16:59 GMT | Updated 27/05/2015 06:59 BST

What Does the Budget Mean for Savers?

With a General Election looming George Osborne had his last chance to inspire the country before they go out to vote in May. Since the recession many of us have been saving money while we weather the storm, but how will the recent budget affect savers?

One of the new ideas from Osborne that is sure to be welcomed by most is the introduction of a personal savings allowance. This will mean that you won't pay any tax on the first £1,000 of interest earned from your savings (it's just £500 for higher rate tax payers). This will need new legislation to be passed for it to come into force, so we won't see this in action until April 2016 (if the Commons votes in favour).

It sounds like a great idea at first, but it's maybe not as good as it first seems. For a start, interest rates are very low at the moment, so people aren't earning a huge amount of their saving as it is. Now there is even talk of deflation meaning the Government would have reason to cut interest rates to 0% if needs be. So while the idea of not paying tax on your first £1,000 of interest is a fine idea, in practice it will make little difference to anyone unless rates have significantly risen by next year.

The Chancellor has also announced plans to alter ISAs to make them more flexible. He wants people to be able to withdraw money from an ISA for an emergency or whatever reason without penalty if they reinvest the amount the same year. Again, on the face of it, it seems like a good idea, but some aren't convinced.

According to Tom Stevenson from Fidelity, ISAs don't need meddling with. He suggests that those who make use of their £15,000 ISA allowance will already have cash stashed away for unforeseen circumstances, while none of this applies to Stocks and Shares ISAs. In other words, like the personal savings allowance, the changes will have a minimal effect.

Another big announcement was the creation of an entirely new ISA for those looking to get on the property ladder. The Help to Buy ISA can be used by first time buyers with the benefit of the Government adding £50 to every £200 deposited up to £12,000 annually. This means that those buying their first property could get a £3,000 boost.

Again, this sounds excellent. We have a big problem with young people getting onto the property ladder as property prices continue to increase in much of the UK.

This new idea will increase the purchase power of first time buyers, but this could actually have a negative effect. A seller has to base their price on the market and the customers within it. This new ISA will increase the purchasing power of the customers in the housing market and the market will respond by upping the prices accordingly. It's unlikely they'll keep their prices low out of the goodness of their heart.

This means that while people saving for their deposit will have more by the time they come to buy a house, they'll also likely find a market that expects them to pay more, meaning their situation won't be much improved. It's a vote-winning policy essentially. It sounds good and can be implemented quickly, even though the only thing that will bring house prices down is by building more of them. Unfortunately, that just isn't as exciting as being given money just for saving.

The budget has not been bad for savers by any means. At worst, things stay near enough the same, at best they mildly improve for a small selection of people. What it will do is bring in a few more votes for the Conservatives in the upcoming election.