George Osborne gave his Autumn Statement yesterday, laying out the state of the nation’s finances and his spending plans for the coming months and years.
To say the message was gloomy is an understatement, it is clear that the economic downturn will affect Britain for much longer than had originally been predicted and that any recovery will be a slow and painful process.
How bad is the economic outlook? Are you a winner or a loser from Mr Osborne’s statement? What were the key points? Read on to find out.
Motorists January’s planned rise in fuel duty has been scrapped and Augusts’ rise will now be 3p and not 5p, according to the Chancellor this will save the average motorist £144 per year.
Various road building projects were also announced, which will hopefully cut journey times in some of the most congested areas, of course only time will tell whether this works.
Pensioners & people approaching retirement If you have already retired the Basic State Pension will rise by £5.30 per week to £107.45 before tax, due to recent high inflation and the government’s ‘triple lock’ this represents the largest ever monetary increase.
There had been fears that the Chancellor would make moves to limit the maximum tax free lump sum which could be taken from pensions or remove high rate tax relief from contributions; thankfully for those people with private pensions no mention of these areas was made.
Parents The government will extend the entitlement of 15 hours of free nursery education for 38 weeks a year, currently enjoyed by all three and four year olds, to 260,000 two year olds.
This is designed to encourage more part time working amongst mothers whilst reducing the ever expanding social divide in Britain.
Commuters A small win for Britain’s commuters, who will see rises in rail fairs capped at 1% above RPI and not 3% as was previously the case.
Homeowners In his speech the Chancellor said that 10 million mortgage holders were benefiting from the low interest rates delivered by his economic policies. This statement was echoed by Lloyds TSB, Britain’s largest mortgage lender, who believe people on average earnings now spend less than a third of their take home pay on mortgage payments, down from a half four years ago.
Would be home owners If you are a first time buyer looking to get on the housing ladder the Chancellor confirmed a raft of incentives to help. The most interesting of which are government plans, previously announced last week, to underwrite up to £40 billion of loans to borrowers with only a 5% deposit.
But it wasn’t all good news for first time buyers though, see below.
Furthermore those people in social housing will be able to exercise the ‘right to buy’ with a discount of up to 50%.
Businesses It has long been the government’s policy that any recovery needs to be led by business, even more so given the predicted rise in public sector job losses.
Small and medium sized firms should be able to benefit from the government’s Credit Easing program. The Chancellor believes that this program will help to reduce the amount of interest paid by firms, although some experts believe that interest rates for business borrowing is less of a problem than the willingness of banks to lend in the first place, compounded by the fact that many companies simply do not wish to take on additional credit in such tight economic times.
There was also help for small firms on their business rates bills.
To encourage investment in small and start up businesses income tax relief at 50% will be available for investments made into qualifying firms, to pay for this the Capital Gains Tax (CGT) allowance will be frozen.
Public sector workers Following a two year pay freeze the Chancellor announced that the maximum pay rise for the following two years in the public sector will be capped at just 1%, significantly below current levels of inflation.
At a time when the public sector are already taking strike action after proposed changes to their pension, the cap in wage rises will do nothing to improve their mood, or help bring the pension negotiations to a swift conclusion.
Savers Mr Osborne announced no measures whatsoever to help savers tackle the problems of low interest rates and rising inflation, which have hit savers hard over the past three years.
Some experts had hoped to see a rise in the Cash ISA allowance, but no mention of such a move, or indeed any help for savers was made.
Would be pensioners The state pension age will rise to 67 eight years earlier than planned and will affect anyone born after 1960.
The government has also delayed, for a year, the date at which smaller companies with less than 50 employees will have to introduce, and contribute to, work place pensions.
People receiving tax credits Any rises in the value of the majority of tax credits, with the exception of the ‘child element’ of the Working Tax Credit, will be frozen.
Plans to increase the ‘child element’ above the rate of inflation have been scrapped.
First time buyers The stamp duty relief for first time buyers will come to an end as planned on 24th March 2012. The government believe that the stamp duty concession for first time buyers has been ineffective in encouraging more house sales.
Key points of the Autumn Statement
The OBR have forecast that growth in 2011 will be 0.9%, down from the previous forecast of 1.7%
In 2012 growth will be just 0.7%, significantly lower than the previous forecast of 1.7%
The OBR said that these figures assume the problems in the Eurozone are solved satisfactorily, if they are not the OBR warned that the growth figures could be significantly worse.
Compared to previous predictions the government will borrow an extra £111 billion over the next five years
In 2011/12 borrowing is forecast to be £127 billion, falling to £53 billion four years later
Public sector pay
1% cap on public sector pay rises for two years after the end of the current pay freeze, which finishes next year
The state pension age will rise to 67 in 2026, seven years earlier than had previously been announced
Basic state pension to rise by £5.30 per week next year to £107.45
Working age benefits to be increased in line with inflation, by 5.2%, next year
The disability element of tax credits will rise in line with inflation, but other tax credits will rise below inflation
Above inflation rise in child tax credit to be scrapped
Transport & Infrastructure
Average rise in rail fees capped at 1% above inflation in January, lower than the 8% expected
Planned 3 pence rise in fuel duty in January to be scrapped, although duty will rise by 3 pence in August 2012
£5 billion of new spending over three years for various projects, including 35 road building and rail projects
The government will aim to raise a further £20 billion of infrastructure spending from pension funds
Jobs and Business
OBR forecast public sector job losses will total 710,000, up from the previous prediction of 400,000
The government will underwrite up to £40 billion of loans to small and medium sized businesses under a new credit easing scheme
Regional growth regeneration fund to receive an extra £1 billion of funding
Relief for small firms from business rates extended until April 2013
£1 billion to subsidise work placements for up to 410,000 young people
A mortgage indemnity scheme, announced last week, will help up to 100,000 first time buyersn with a 5% deposit, buy a new home
£400 million to kick start stalled development projects, again announced last week
Up to 50% discount for social housing tenants who want to buy their own home
Families and education
£1.2 billion extra spending on schools, 50% to local councils to provide more school places and 50% to fund an additional 50 free schools
Number of childcare places for the most deprived two year olds to be doubled to 260,000