Our Review of the 2015 Autumn Statement
The Chancellor of the Exchequer this week delivered what was effectively his fourth Autumn Statement or Budget delivered over the last 12 months.
The Autumn Statement is the government’s Spending Review, where they set out the budgets for each of its departments. Speaking for more than an hour, he delivered spending plans for the next five years which include some of the deepest cuts in government spending in recent memory.
The government’s primary spending and economic focus for the previous and current parliament is reducing the budget deficit through spending cuts, with reducing welfare spending being the cornerstone of this is.
State of The UK Economy
As Chancellor’s like to do at any opportunity, George Osborne started with a review of how the economy is performing. Of course, unlike previous Chancellors, he now quotes from the government’s own independent advisory non-departmental public body he established to provide independent economic forecasts and analysis of the public finances.
The Economic Headlines
Growth of 2.4% forecast for 2015, unchanged from June
Growth in subsequent years forecast to be 2.4%, 2.5%, 2.4% and 2.3%
UK is fastest-growing economy, alongside US, since 2010
The Public Finance Headlines
Budget surplus of £10.1bn to be delivered on schedule by 2019-20
Borrowing to total £73.5bn this year, falling to £49.9bn, £24.8bn and £4.6bn in subsequent years
Debt to be lower in 2015-16 than 2014-15 and to fall every year after that
In summary the growth forecasts are cautious and all things being equal, the government’s spending will move into a surplus around the time of the next General Election.
Tax Credits
The big topic of the Autumn Statement was bound to be the government’s £4.4 billion cuts in Tax Credits, following how the government’s planned cuts were awkwardly upended by the House of Lords in October. According to the Institute for Fiscal Studies, the cuts would have hit the working poor hardest and damaged work incentives.
The Chancellor announced the planned cuts will not go ahead although the taper on the in-work benefits would stay the same, effectively cancelling the largest part of the planned cuts.
The Chancellor will have to breach his own welfare spending target, known as the Welfare Spending Cap. But has said he would continue to go ahead with his flagship £12bn welfare cuts, which means money will be taken from elsewhere in the social security budget.
The overall Department of Work and Pensions budget will be cut by 14%.
Family Provision
The government gave more detail to the previous commitment to provide further support for childcare costs.
Parents working more than 16 hours per week and who each earn £100,000 or less will get 30 hours of free childcare for three and four-year-olds, which will be available from 2017.
Many parents already get a free 15 hours of childcare for three and four-year-olds and this will be a blow to part time workers.
Pensions, Savings and Personal Taxation
There were few changes for tax payers or anyone facing retirement.
Pensioners have been protected from a lot of cuts by this government. However, pension credit payments will be stopped for people who leave the country for more than one month. It is currently paid for up to 13 weeks while claimants are temporarily abroad. It will be paid for longer if they go overseas for medical treatment under the NHS. The same new restriction for those going overseas will also apply to housing benefit.
The government is currently reviewing the various tax breaks on offer to high earners’ pension contributions. The consultation is still underway, but this is something we’re looking out for in next year’s Budget.
The new “Flat Rate” State Pension comes in from next April, set at £155 a week. The state pension for existing pensioners will rise by £3.35 a week to £119.30 next year and the savings credit will be frozen at current level.
A popular move will be on the so-called “Tampon Tax.” VAT is currently levied on the sale of tampons at 5%. The VAT measure cannot currently be repealed because of EU rules, however, the £15m raised from this every year will be handed over to women’s charities.
Fuel duty escaped unchanged despite fears that a fall in oil prices would mean repercussions for motorists. However, the removal of the diesel supplement for company cars was delayed until 2021, due to “the slower than expected introduction of more rigorous EU emissions testing.”
The Chancellor has committed to every individual and small business to have their own digital tax account by the end of the decade as part of his HMRC modernisation programme that includes earlier announced consolidation of tax offices.
Changes for Business
To fully assess the affects on business, we’ll have to see the detail as it released over the next few days. However, with the business department’s funding being cut by 17%, this may indicate how investment programmes, other than infrastructure projects, may go.
Something that may not be welcome to all firms is the Chancellor’s introduction of an Apprenticeship Levy at 0.5pc on the wage bills of large employers. The measure will raise £3bn a year from 2017. The Confederation for British Business Director-General has already said it’s “a significant extra payroll tax on business and by widening the net it will now catch more smaller firms.”
A welcome announcement for businesses will be 26 new or extended Enterprise Zones. The combination of business rate relief, enhanced capital allowances and streamlined planning regimes means Enterprise Zones can provide fast track business growth and the creation of quality jobs.
Uniform business rates will be abolished, letting councils decide whether to cut rates to make their town centres, with elected mayors being allowed to raise rates under certain conditions.
Local government will keep all revenue raised from business rates, which currently goes into central government. Business rates raises more than the government pays to local authorities. This is an opportunity for local government payments to be phased out entirely over this Parliament.
Buy to Let and Help To Buy
A £1 billion tax raid on buy-to-let and second homes was unveiled with a new 3 % premium on stamp duty for buy-to-let investors and those buying second homes. The measure is to tackle the issue of second homes bought by those who live overseas and will be introduced from 1 April 2016
Money raised will be used to help struggling first time buyers. The current Equity Loan scheme enables first time buyers, with at least 5% the value of your home as a deposit, to borrow up to 20% of the rest of the value of the property from the government, alongside a mortgage of up to 75%
To reflect the current property market in London, from early 2016, a new London Help-to-Buy scheme was announced for Londoners with a 5% deposit being able to access an interest-free loan worth up to 40% of the value of a new home.
Remember the Help to Buy: ISA launches in December, and is designed to help homebuyers save a deposit. The government will boost savers capital by 25%, up to a maximum of £3,000.
Housing benefit for new social tenants will be capped at the same level as private sector and housing benefit and conditions for benefits will be extended to more than one million more claimants.
The Plan for House Building
The Chancellor promised the biggest house building programme since the 1970s in his speech, doubling the housing budget to £2bn a year in order to build over 400,000 affordable homes.
It will include £2.3bn paid directly to developers to build starter homes for first-time buyers, with the buyers getting a 20% discount on property worth up to £450,000 in London and £250,000 outside the capital.
A further £4bn will be spent on 135,000 Help to Buy shared ownership homes for households earning less than £80,000, or less than £90,000 in London. Shared Ownership homes come without restrictions such as who can buy them, who can build them and who they can be sold on to.
The government put £200m towards 10,000 new homes for people to live in for up to five years at reduced rents to help them to save for a deposit, before having the “first right” to buy the home. £400m will go to build 8,000 specialist homes for older people and those with disabilities.
Previously announced plans to the Right to Buy scheme to housing association tenants will be extended with roll-out during 2016, giving 1.3m households the chance to become home owners.
To facilitate finding space for the new homes, the government will release public land suitable for 160,000 homes through measures such as collocating Job Centres in Council offices and closing underused courts and the iconic Holloway women’s prison.
Our Conclusion
The Chancellor has opted for stability with no major changes so that UK taxpayers can continue to conduct their business and financial affairs with some degree of certainty. However, there is still a lot of detail to come out of today’s announcements over the next week, not least the effect of the Chancellor’s U-turn on tax credits on his spending plans.
This is a brief summary of the announcements of most interest to our clients. You should seek professional advice before taking any steps based on the contents.
If you would like to talk about how any of the topics raised by the Autumn statement, or financial planning generally, contact us today.
The BBC have produced a useful summary of all measures set out in the 2015 Autumn Statement
LEVELS AND BASES OF AND RELIEFS FROM TAXATION ARE SUBJECT TO CHANGE
The post George Osborne’s New Economic Plan appeared first on Continuum.