How you are already affected

• Council tax rises held down
• CAT Standards to go, replaced by Stakeholder
• The new-look Individual Savings Account (ISA)
• What Stakeholder Savings could mean for you
• Child Trust Fund open for business

Council tax rises held down

Average council tax increases across the country are being held to around 4.5% for the fiscal year 2005-06, thanks to the £1 billion pre-election fix unveiled by the Chancellor in his Pre-Budget Report, pushing the bill for the average Band D home up from £1,167 to £1,220.

However, behind the average is the usual wide variation: Westminster is to set the lowest council tax in the country after proposing to freeze its share of the bills. Residents will still have to pay more, however, a result of a 5.5% increase in London Mayor Ken Livingstone's share of the bills. Elsewhere South Cambridgeshire District Council has voted to raise its share of the council tax bill by 100% to pay for dealing with an invasion of gypsy travellers.

Council tax bills have already become a hot political potato and will certainly feature as an election issue. A report by Sir Michael Lyons on long-term reform of the tax is not expected until December.

In the meantime there is likely to be more pain ahead. In 2007, the Government is due to complete a revaluation exercise, placing homes which have increased in value into higher bands. The Conservative party has already charged the government with holding council tax bills down just before the 2001 general election only to allow them to let rip in the two years after that.

In the 2007 revaluation it is being suggested that as many as seven million homes will be moved up a band despite Government protestations that the exercise should be revenue neutral. By some estimates the council tax on a typical house in England could rise by £257 a year - on top of any annual increases. This could land homeowners with a total bill of £1,599 - up £432, or 37%, on the current figure.

Overall council tax bills have gone up by around 70% since Labour came to power. The Local Government Association claims the Treasury has failed to take account of new cost pressures brought about by changes such as generous pay packages for teachers.

Increases in council tax above inflation since 1997 will raise a net £5.8 billion for local government next year. However, the market value of one's home is no indication of ability to pay a tax. The increase in council tax is regressive - except for the poorest fifth of the population who receive council tax benefit.

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CAT Standards to go, replaced by Stakeholder

The introduction of the stakeholder suite of simple, low-cost, risk controlled savings and investment products with effect from 6 April 2005 means that the existing voluntary CAT standard will be discontinued for the marketing and sale of ISA products.

Existing CAT standard ISA holders will continue to remain on the same terms and conditions after 6 April 2005, without any changes being made to their ISA account. In January 2000, CAT standards were also introduced for mortgages. CAT standard mortgages are unaffected by these changes and will continue in their present form.

CAT (reasonable Charges, easy Access, fair Terms) standards were introduced in 1998 but are being replaced by the stakeholder product suite available to savers from 6 April 2005, which will include three types of savings vehicle to meet various savings needs:

• cash deposit account
• medium term investment product
• revised stakeholder pension

The stakeholder Child Trust Fund will also be available within the suite as will ISA versions of the stakeholder cash deposit account and the stakeholder medium term investment product.

The stakeholder cash deposit account will be able to give savers a better deal while offering many of the same features as the CAT standard cash ISA. The stakeholder cash deposit account will have to offer an interest rate no less than Bank of England base rate minus 1% (rather than minus 2% under CAT standards), while it could also offer the same tax advantages as the CAT ISA.

The stakeholder medium term investment product will provide risk controls as well as having charges capped at an annual 1.5% for the first 10 years followed by 1% thereafter.

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The new-look Individual Savings Account (ISA)

On the 6 April 2005 the ISA rules are changing, allowing new 'stakeholder' cash and medium term products can be held in your ISA. You will still be able to hold an insurance policy in your ISA, but the separate 'Mini insurance ISA component' is being done away with and, depending on the type of insurance policy you hold, your policy will now qualify for one of the remaining ISA components, either cash or stocks and shares.

The withdrawal of the insurance ISA comes with a slight change to the ISA subscription rules. The Mini ISA cash component and the Max ISA limits are unchanged at £3,000 and £7.000 respectively. However, the subscription limit for the Mini ISA stocks and shares component is increasing to £4,000.

Your ISA manager will tell you which component your insurance policy qualifies for. If you currently pay into an ISA insurance policy, it will be possible to continue paying into that policy after 5 April 2005. But if you also subscribe to either a Mini cash or a Mini stocks and shares ISA component you may have to rearrange your savings.

You can continue to pay into an an ISA Insurance policy but only if you do not also pay into another ISA component of the same type with a different ISA manager. For instance, if your policy falls in the Mini stocks and shares component you can only continue paying into it if you do not also invest in another Mini stocks and shares component with a different manager.

In most cases your ISA insurance policy will be a Mini ISA stocks and shares component, but this is not always the case. If your insurance policy qualifies as a Mini ISA cash component, you cannot hold another cash component with another ISA manager.

If you already have an ISA insurance policy and a stocks and shares ISA running separately and, after 6 April 2005, your insurance policy is treated as a stocks and shares component then you will need to choose which to continue paying into. Remember the ISA rules do not allow anyone to invest in two ISA investments with different managers if they fall in the same component. For example, you cannot have two Mini ISA stocks and shares components.

If you want to continue to subscribe to both then from April 2005 you can only do so through a single ISA Manager. You can still invest as much as you did before, as the stocks and shares component investment limit will increase to £4,000.

If your insurance policy falls within the cash component, you will not be able to take out a separate Mini cash deposit component whilst also continuing to pay into an insurance policy which falls in the cash component. Even if the same ISA manager manages both products, the total that you may invest in the two products is restricted to £3,000.

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What Stakeholder Savings could mean for you

The new range of so-called "stakeholder" products will include a cash deposit product, a medium-term investment product and a revamped stakeholder pension. The cash deposit product will have the tax benefits of an ISA and replace the current CAT-marked cash ISA. It will pay interest at a rate no lower than base rate minus 1%, have a £10 minimum subscription level and allow for unlimited withdrawals and free transfers between accounts and providers.

The medium term investment product may either be a life assurance contract or a collective investment. It can be treated as an ISA, with the associated tax benefits, and will have an annual charge capped at 1.5% for the first 10 years and 1% thereafter. The minimum subscription limit is £20 and, as with the other stakeholder products, it must offer free transfers between accounts and providers. It is required to hold a maximum of 60% invested in equities and property and be diversified across a range of different asset classes, markets, sectors, securities.

The stakeholder pension is also included in the stakeholder suite. It was first introduced in 2001. However, from April 2005, a number of changes will be made to the stakeholder pension to bring it into line with the rest of stakeholder suite products. The most important of which is the charging structure, which will be the same as other products and the Child Trust Fund (1.5% for the first 10 years and 1% thereafter). Also, if sold through a new "basic advice regime", the pension fund must be "lifestyled" (i.e. volatility must be reduced) as the policyholder approaches retirement.

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Child Trust Fund open for business

Chancellor Gordon Brown first unveiled his proposal for a Child Trust Fund in the April 2003 budget but it has taken two years (of repeated fanfares) for the accounts to become available. The Child Trust Fund It is a tax-free savings/investment vehicle for children born on or after 1 September 2002. Your child is eligible if Child Benefit has been awarded for them and they are living in the UK.

The government makes a starting payment into the Child Trust Fund and another payment on your child's seventh birthday. Parents, family and friends may contribute up to a total of £1,200 a year into the account.

The government will kick-start your sprog's Child Trust Fund with a voucher worth at least £250. Poorer parents will get more. If your family income is below the Child Tax Credit income limit (currently £13,480), the value of the voucher you receive will be doubled to £500.

For more information see our guide to Child Trust Funds.

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