Pre-Budget Report: Five Key Changes

We highlight five key issues that came out of this week's Pre-Budget Report.

It's unfair to call the lengthy Pre-Budget Report a load of old rhetoric, but when you have to read (OK, skim) through the thing it does feel like it's a 'big-up the Treasury' document! Still, it's possible to pick out all the facts and figures that directly affect us Fools before the brain melts.

I think that there are five key changes that affect most of us, and not just hard-working families...Why is there never support for lazy families? That minority group has been forgotten by the Government!...Anyway, here they are:

1. House prices

House prices affect homeowners and prospective homeowners alike, which covers just about everybody, yet this bit seems to have been overlooked by the media. The main factor that affects house prices is supply and demand. Demand for houses is growing, yet supply is far short of what is needed, and it is growing more slowly than demand. The Town & Country Planning Association (TCPA), a social justice charity, says that 240,000 new homes are needed each year to address the existing backlog and meet future need.

Problem is, the Government isn't doing enough to make this possible. The Pre-Budget Report told of 29 'New Growth Points' across the country with potential to contribute around 100,000 new dwellings by 2016. The report also mentioned the recommendation of a government taskforce to accelerate the release of government-owned land for housing. The ambition is to create an extra 130,000 homes by 2016.

This means a total of another 230,000 houses over ten years, but that's just an extra 23,000 per year. The most recent data from National Statistics (2002/2003) shows that 184,000 dwellings are being created every year. Add on 23,000 and we still fall short of the 240,000 needed.

On this basis it seems housing supply will continue to fall, which means, in the absence of some other major change such as several interest rate rises in a short space of time, house price are likely to stay level or rise, but not fall.

Pay less for your home! Compare mortgages through The Fool.

2. Individual Savings Accounts (ISAs)

There are millions of ISA holders, many of whom will have been hoping to hear that the limits were going up. Unfortunately, you were disappointed. I'm not surprised that we learned nothing new here, but the report did at least reiterate the Treasury's announcement to make ISAs permanent, and it also restated their proposals. These proposals include:

• guaranteeing an overall annual investment limit of at least £7,000;
  
  
• bringing PEPs within the ISA wrapper;
  
  
• removing the Mini/Maxi distinction within ISAs;
  
  
• allowing Child Trust Fund accounts to roll over into ISAs on maturity; and
  
  
• allowing transfers from the cash into the stocks & shares component of ISAs.

The report also said that 'the Government intends to implement this package of reforms as soon as practicable', making all the proposals seem much more concrete.

Take a look at some cash ISAs and shares ISAs.

3. Life insurance

This year, many people have benefited from cheaper life insurance, known as pension term assurance (PTA), which gave you tax relief on life insurance premiums. I had hoped that many more Fools would be able to take advantage of this product. However, the Pre-Budget Report stated that these policies undermine the Treasury's principles of fairness and flexibility. The report didn't say what changes were going to be made, but it is safest to assume that they shall remove the tax relief from pension term assurance. However, policies incepted before the 6th December will not be affected by any changes the Government makes.

Compare life insurance quotes

4. Income tax and National Insurance Contributions

The income-tax and National Insurance personal allowances will increase in line with inflation in 2007/08. This sounds fine, but the first problem with this is that wages went up by more than inflation this year. Also, there was no mention of tax boundaries going up, meaning that more people will end up paying the higher rate of income tax. This technique to increase tax revenues is called 'fiscal drag' (if you were interested) and it's been used a great deal by this government. So no changes there.

5. Fuel and air passenger duty

The report had a lot of talk about the environment. The key changes that affect everyone are increases to fuel duty and air passenger duty. Fuel duty will go up by inflation, which adds 1.25p to a litre of petrol.

As I wrote back in March in Get Cheap Foreign Holidays While You Can, low air fares won't last. The Pre-Budget Report has started the ball rolling by doubling the air passenger duty rate. The intra-EU economy rate will cost £10 (up from £5) and non-economy will cost £20 (up from £10). The long-haul economy rate is up to £40 (from £20) and the non-economy is up to £80 (from £40). It's a shame that cheap flights are on the way out, but, on the other hand, you can't argue that it's not socially responsible.

Lower your motoring costs! Compare car insurance.

Ow. Me 'ead 'urts from all that readin'. And I've only got a few months to recover before the Budget!