The Chancellor, George Osborne, started his Spending Review and Autumn Statement in bullish mood, with a forecast that the four-year spending plan would deliver a budget surplus.
However, he also confirmed that the £12 billion of welfare savings will be delivered “in full”, despite the House of Lords kicking out his plans to reform Tax Credits.
The early sections of Mr Osborne’s speech were dominated by the usual assessment of the economy and forecasts for years to come, which are summarised as follows:
The economy is predicted to grow as follows:
- 2015: 2.4%
- 2016: 2.4%
- 2017: 2.5%
- 2018: 2.4%
- 2019/20: 2.3%
Forecasts show that the Government will borrow £73.5bn in the current financial year, which will fall to £24.8 billion in 2017/18 and then to £4.6 billion in 20187/18.
This equates to national debt as a percentage of GDP as follows:
- 2015/16: 82.5%
- 2016/17: 81.7
- 2019/20: 74.3%
He then turned to his first ‘rabbit from the hat’ or ‘U-turn’, depending of course on your view of these things.
Following the Government’s defeat in the House of Lords, one of the most eagerly awaited announcements was on the proposed changes to Tax Credits.
The Chancellor surprised everyone when he said that due to “improved” public finances, the proposed changes to Tax Credits, which would have saved £4.4 billion, will be scrapped.
Despite this change Mr Osborne still forecasts a surplus of £10 billion in 2020.
NHS & health
Mr Osborne has found £6 billion extra for the NHS in England for 2016, whilst there will be an additional £600 million for mental health provision.
Furthermore, local authorities will be allowed to levy a 2% “precept” to spend exclusively on social care.
Overall the NHS budget will rise from £101 billion today to £120 billion in 2020/21.
Following the Paris terrorist attacks and mounting concern about the effect of cuts to police budgets, Mr Osborne announced that spending in this area would be protected in real terms.
£12 billion will be injected into the Local Growth Fund with 26 new or extended enterprise zones.
At the same time small business rate relief scheme will be extended for another year, benefiting some 600,000 businesses.
However, the business budget has been cut by 17% partly by switching some £165 grants to loans. Furthermore, despite pressure there was no U-turn on the changes to dividend tax announced in the Summer Budget, which will affect millions of small business owners.
Capital Gains Tax
Although no changes were announced to the rate of Capital Gains Tax (CGT), those people who have made a gain through the sale of residential property, for example Buy to Let investors, will have to pay the tax due within 30 days.
Currently property investors have up to 18 months to pay the tax due.
The increases to contributions, which would have risen to 5% on 1st October 2017 and to 8% from 1st October 2018 will be pushed back six months so they are aligned with tax-years.
The triple lock, which means the Basic State Pension rises by the higher of earnings, inflation (RPI) and 2.5%, will be maintained, this means that the Basic State Pension will rise to £119.30 per week from next year.
The single tier State Pension, to be introduced in April 2016, will be set at £155.65.
However, although estimates vary, up to one third of pensioners will not receive the new rate as they have made insufficient National Insurance contributions. To qualify for any State Pension, National Insurance must have been paid for at least 10 years, whilst the full rate will only be available to those people who have paid for 35 years.
The Chancellor reported that the VAT raised from the sale of sanitary products, which has to be levied due to EU rules, will now be passed on to women’s health charities.
Free child care
The 30 hours of free childcare will now be limited to parents working over 16 hours per week.
Central to the Autumn Statement was a series of announcements on housing:
- The housing budget will be increased to £2 billion per year
- 400,000 new affordable homes, to both rent and buy, will be built by 2020
- The right to buy scheme will be extended to tenants of housing associations, with a pilot starting at midnight tonight
- To help house buyers in London, a new Help to Buy Scheme will be introduced in the capital. This will allow those with a 5% deposit to borrow an extra 40% of the value of a new build home, interest free
Buy to Let
Coming on the back of changes in the Summer Budget to the way in which Buy to Let incomes are taxed, Stamp Duty will rise by 3% from April 2016 for purchases of additional properties.
Other than a small change to the dates when Auto Enrolment contributions will rise, the Chancellor made no further changes to pensions.
Watch this space though, most experts expect significant changes to be announced in the Spring Budget, which could see the rate of tax-relief cut significantly.
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