GEORGE Osborne unveiled a ‘Budget for savers and pensioners’ today – but was accused of running an “economy for the privileged”.

The Chancellor took advantage of rosier economic news to reward frustrated savers who have been punished by many years of rock-bottom interest rates.

A million new ‘pensioner bonds’ will allow the elderly to buy new products that pay higher interest than at the bank – four per cent for three-year bonds.

Loading article content

Other measures for savers included allowing people to save more tax-free - up to £15,000 a year – in more generous ISAs.

And, in the most radical reform of pensions for a century, retirees will no longer have to lock their money away in complex and confusing annuities, attacked for their poor value.

Instead, they will be able to take out more of their savings in cash – ending the “patronising view that pensioners can’t be trusted with their own pension pots”, Mr Osborne said.

The measures had a clear target - older voters with savings, angry at poor rates of returns, possibly disgruntled ex-Tories, leaning to Ukip.

The move on annuities appeared to wipe £4.5bn off the value of top UK pension companies, but was widely praised by groups campaigning for pensioners.

The Chancellor also announced:

* Another hike in the tax-free personal allowance – to £10,500 next year – and in the higher rate threshold, from £41,450 to £41,865 next month.

* A £7bn package to cut energy bills, predicted to save medium-sized manufacturers £50,000 and families £15 a year.

* An extra £140m for repairs and maintenance to flood defences and £200m for potholes.

* A halving of bingo duty to ten per cent – to stem a dramatic decline in bingo halls, down by three quarters over the last thirty years.

* A 1p cut in beer duty, with duty on spirits and ordinary cider frozen.

* Tobacco duty to rise by two per cent above inflation – an annul hike to continue beyond the next general election.

* Subsidies to encourage new routes from regional airports – although Newcastle will miss out, because it has more than three million passengers.

* A five-year cap on welfare spending, starting at £119bn in 2015 and rising with inflation, but excluding pensions and Job Seekers Allowance.

Mr Osborne drew the battlelines for next year’s election, saying: “There will have to be more hard decisions; more cuts. The question for the British people is: who has the credibility to deliver them?”

In response, Ed Miliband largely ignored the Budget measures, instead attacking an economy in which 350,000 people go to food banks and 400,000 pay the ‘bedroom tax’.

He said: “Under this government, it's an economy of the privileged, by the privileged, for the privileged.

“They tell people their wages are rising when they're falling. Just like they tell people their energy bills are falling when they're rising.

“But it doesn't matter if the pound is square, round or oval. If you're £1,600 pounds worse off, you're still £1,600 pounds worse off. You're worse off under the Tories.”

However, the Chancellor was able to roll out good economic news, including forecasts that the economy will grow by 2.7 per cent this year and 2.3 per cent next.

Borrowing will be £108bn this year - £12bn less than forecast a year ago – and earnings will finally outstrip inflation this year and for the next five.

In setting the new welfare cap, the Chancellor hoped to set a trap for Labour, but the Opposition quickly announced it would back the move, in a vote next week.