George Osborne’s latest Autumn Statement started bullishly, with him telling a packed House of Commons: “Britain’s economic plan is working”.
Before moving into the detail, he went on to call for “a responsible recovery, where we don’t pretend we can make this nation better off by writing cheques to ourselves, and instead make the hard choices.”
He started by summarising the state of the economy and the Government’s finances.
According to Mr Osborne, the financial crisis and subsequent recession was far worse than previously thought, with GDP falling by 7.2% between 2008 and 2009, not the 6.3% previously reported. However, following revisions in the official statistics, he confirmed there was in fact no double dip recession.
Growth in 2014 is now expected to be 2.4%, higher than the 1.8% previously predicted.
Furthermore unemployment is now expected to fall to 7% by 2015, the level which could trigger the Bank of England to push up interest rates. Good news for savers, though not for mortgage holders with variable or tracker rate loans.
State of the Government’s finances
The Chancellor reported that the deficit, the amount the Government spends above the income it receives, is set to be 6.8% this year, lower than the previous forecast of 7.5%. The deficit is set to fall further over the next few years, to 1.2% in 2017/2018, with a small surplus in the following year.
On the back of the deficit figures, borrowing is set to be £111 billion this year, £9 billion lower than had been predicted in March.
On the income tax front Mr Osborne confirmed the personal allowance, the amount each individual can earn before they start to pay tax, will rise to £10,000 from April 2014 and then increase in line with inflation, as measured by the Consumer Prices Index (CPI). In addition it was also confirmed the new transferable tax allowance for married couples, worth up to £200 per year, will be introduced from April 2015.
The Chancellor then went on to announce that measures to tackle tax avoidance will raise a further £9 billion over the next five years.
The Chancellor also confirmed that owners of residential property, who are not resident in the UK, will have to pay Capital Gains Tax (CGT) on any sales from April 2015. Announcing the move, he said: “Britain is an open country that welcomes investment from all over the world, including investment in residential property. But it is not right that those who live in this country pay capital gains tax when they sell a home that is not their main residence, but those who don’t live here do not.”
“That is unfair, so from April 2015 we will introduce Capital Gains Tax on future gains made by non-residents who sell residential property here in the UK.”
The headlines will be grabbed by the Chancellor’s announcement that more people will have to wait longer for their State Pension.
Mr Osborne said that the State Pension age “has to keep in line with life expectancy” and that on average people should spend a third of their life in retirement.
The State Pension age was already set to rise to 68 by 2046, but it was announced today that this will be brought forward to the mid 2030’s. A further increase to 69 could be on the cards in 2040’s raising the prospect of a State Pension age of 70 for workers currently in their 20’s.
Changes already announced, which will push the State Pension age to 66 in 2020 and 67 in 2028, will still go ahead.
For those people nearing retirement, a new National Insurance contribution top up scheme was announced. This will allow people to make additional contributions, allowing them to qualify for the flat rate State Pension. Mr Osborne said: “We will give people the facility to make additional NICs. This will apply to those who reach SPA before the flat-rate pension comes in and will help those who have not built up sufficient entitlements, such as women and the self-employed.”
Existing pensioners will see their State Pension rise by £2.95 per week and it was confirmed the triple lock, which sees the basic State Pension rise in line with the higher of earnings, inflation or 2.5%, will continue for a further year.
Fears that pension tax-free lump sums or higher rate tax-relief could be abolished, or restricted, have proved unfounded; allowing millions of would-be retirees to breathe a sigh of relief.
However, included in the Autumn Statement is news that the Government will not be changing the way in which Income Drawdown rates are set.
In his last Budget George Osborne had announced a review of how the maximum income from this type of plan was calculated. There had been calls to ‘de-couple’ Income Drawdown rates from Gilt yields; it seems though that these have been ignored with the announcement that the Government has decided to make no changes.
George Osborne announced a new cap on Social Security spending, although the State Pension will be excluded
The small disc which has populate the corner of car windscreens for nearly 100 years is about to be a thing of the past, as the Government moves to an electronic system.
In a further change, motorists will now be able to pay for their car tax over six or 12 months by direct debit, although doing so will increase the cost.
There was good news for motorists as the Chancellor announced next year’s rise in fuel duty will be cancelled.
He also claimed that petrol is now 20p cheaper per litre than it otherwise would have been.
Train fares will now rise in line with inflation, as Mr Osborne cancelled plans to put them up by 1% higher than inflation.
In an effort to help small businesses the Chancellor announced that increases to business rates for small and medium firms, in England and Wales, will be capped at 2% next year, rather than rising in line with inflation. Businesses will also be able to pay their business rates over 12 months in the future and receive 50% relief for taking on an empty property.
There were measures to help improve the job prospects of the young. Including news that apprenticeships will be funded directly from HMRC and an aim to create an additional 20,000 ‘higher apprenticeships’ over the next two years.
In a surprise move George Osborne also announced that employers will no longer have to make National Insurance contributions for workers under the age of 21.
Savers looking for help from the Chancellor will be by and large disappointed.
Whilst it was confirmed that the Individual Savings Account (ISA) allowance will rise to £11,880 from 2014/15; whilst Junior ISA and Child Trust Fund allowances will increase to £3,840, there were no other measures announced to help savers struggling to cope with low interest rates.
It was also announced that the Government will begin a consultation on whether ISAs should have wider powers to invest in retail bonds.
Savers will however be grateful that cap on the maximum amount which can be held in ISAs was not mentioned by the Chancellor, hopefully this idea has now been kicked into the ‘long grass’.