What the next Chancellor will do to your money

In a matter of months, George Osborne will be the Chancellor of the Exchequer. John Fitzsimons looks at what impact he will have on your bank balance.

I'd guess most of you are pretty relieved the conference season is over. I'm a politics buff, but even I felt exhausted by the end of it. There are just an awful lot of very smug speeches.

But the one that I paid closest attention to wasn't by Gordon Brown, David Cameron or Nick Clegg. Forget the leaders, the most important speech for me, and indeed for all of you, was George Osborne.

Because, love it or hate it, it's odds on that the guy will be living in 11 Downing Street by next summer. And his decisions will have a very direct impact on the state of your finances.

So let's have a look at what he had to say in his conference speech, and what it means for your financial situation.

Increasing the pension age

This was the big one, the announcement leaked to the press in advance to ensure Osborne got all the headlines.

Under the plan, the state retirement age for men will be raised to 66 by 2016, ten years ahead of the Government's previous schedule, while for women it will be increased to 66 by 2020.  

So if you are a man in your late fifties, or a woman in your early to mid-fifties, then bad news - you will have to work at least one extra year before you are eligible for your retirement money.

And while the Tories made a bit of a hash in the way the plan was announced - initially suggesting the pension age for women would rise at the same time as men, which would mean a jump from 63 to 66 in the space of a single year - on the whole it has received a pretty positive reaction.

The situation with pensions in this country has been a mess for a while now, and this sort of increase is a sensible start. But it is only a start. There is plenty more to do on this one.

Freezing public sector pay

Obviously, this only applies to you if you're working in the public sector, whether that means you are a civil servant, or a doctor or teacher.

In 2011, the UK's four million public sector employees earning more than £18,000 will have a pay freeze imposed on their salaries.

In truth, all of the major parties have acknowledged that some form of freeze or cut will need to be implemented on the UK's public sector, but the Tory plan hits the biggest number of people, and by some distance.

While you can make the argument that those public sector workers at spurious Quangos on massive wages do not deserve the money they get, it is a different scenario entirely for newly-trained nurses and teachers, earning a penny more than £18,000 - well below the national average wage, remember - having to stomach a pay freeze.

Raising the inheritance tax threshold

This one is something the Tories announced a fair while ago, but have - perhaps surprisingly - stuck with.

The current 40% inheritance tax is payable when your estate is valued at £325,000, or £650,000 for couples. Under the current Government's plans, this would then increase to £350,000, or £700,000 for couples in 2010-11.

However, Osborne has said the tax will no longer apply unless an estate is valued in excess of £1m, though he has been reticent on just when the change will be made in the next parliament.

Undoubtedly it is a good thing that the threshold is increased, as the current boundaries are horrifically out of date - it doesn't take a lot for pensioners in the south to leave an estate worth in excess of £1m thanks to property prices. Which is partly why I don't think a mansion tax on £1m properties is a good idea. Watch this video, where I go head-to-head with Ed Bowsher, to find out more.

The family finances

Child Trust Funds have not worked as well as they should have, according to the Shadow Chancellor, so in future will be restricted to the poorest families, and those with disabled children.

The current system involves two £250 vouchers being given to parents who earn more than £16,040 a year at seven-year intervals.

This will be a significant loss to many families -according to the Tax Incentivised Saving Association, more than 640,000 funds are receiving regular monthly contributions, worth more than £14.4m, and that is increasing all the time. Even in times of economic difficulty, parents are still taking advantage of such schemes.

And it does seem a touch hypocritical for Osborne to talk about turning Brits into a nation of savers, and then removing a brilliant tool which can be used as the very foundation for saving.

However, there will still be money for that old Tory favourite, the tax break for married couples! Osborne's main argument seems to be that, as it exists in countries like France, Germany and the US, we should have one here. But it's hardly a good incentive for marriage.

The 50p tax band

The Shadow Chancellor would love nothing more than to be able to ditch the Government's plan to impose a 50% income tax band on those earning more than £150,000 a year, as it would appeal greatly to the traditional Tory vote.

However, the nation's finances are such that he does not feel he will be able to do that for some time, so he is keeping the tax in place until he can afford to scrap it. Bad news if you are one of the lucky ones earning such a figure.

The winners and losers

As befits the current economic hardships, you won't so much win from George Osborne's Chancellorship as lose a bit less than others.

If you are married, and will inherit an estate of between ££750,000 and £1m in the next five years, then there are a couple of financial fillips for you here.

But if you are an unmarried parent, working in the public sector, then you might want to look at getting a decent savings plan in place, as you will not be getting an awful lot back from the next Government.

More: It's the end of the credit crunch! |Prepare your finances for the next recession