Today’s Autumn Statement by Chancellor. George Osborne, had the distinct feel of a full on Budget, with wide ranging measures that will affect pension savers, business owners, employees, and pensioners.
Despite admitting that he will miss one of the key targets he’d previously set, the Chancellor began his Autumn Statement in a bullish fashion, saying: “Our economy is healing”, “Britain is on the right track” and “Turning back now would be a disaster.”
Mr Osborne went on to say: “The deficit has fallen by a quarter in just two years. And today’s figures show it is forecast to continue to fall”.
Perhaps nervous about protecting the UK’s much vaunted ‘AAA’ credit rating the Chancellor pointed out that: “Investment is flooding into UK gilts”; not such a positive thing for anyone buying an Annuity with rates having fallen so far in 2012.
Before moving onto the main points of his Autumn Statement, which will affect us all, Mr Osborne talked at length about the state of the UK economy.
The Chancellor said the economic contraction in 2008/09 had actually been deeper than previously thought, with the economy shrinking by 6.3%, which was the “largest shock to our economy since the Second World War.”
Moving forward Mr Osborne said that the “deficit and borrowing is due to fall this year” and would reduce further in coming years so that the level of borrowing should start to fall by 2016/17, one year later than the Chancellor had previously targeted.
The Office of Budgetary Responsibility (OBR) has predicted that the economy will actually contract by 0.1% this year, significantly below the 0.8% predicted in the last Budget.
The OBR also predicted that growth in future years will be 1.2% in 2013, 2% in 2014, 2.3% in 2015, 2.7% in 2016 and 2.8% 2017.
Turning to jobs, the Chancellor predicted that unemployment would peak at 8.3%, lower than the 8.7% previously predicted.
An extra £5 billion was announced for capital infrastructure projects, including £1 billion for roads, £1 billion to expand schools and build 100 new free schools, as well as additional money for the underground, 120,000 new homes, flood defences and high speed broadband.
Responding to recent stories about tax evasion the Chancellor said that “hundreds of millions of tax loopholes are being closed with immediate effect” and that “prosecutions for tax evasion were up by 80%.”
However, no new tax on property, the so called ‘mansion tax’, will be introduced and at the other end of the housing ladder first time buyers will be disappointed that no new Stamp Duty holiday was introduced.
The Personal Allowance, the amount you can earn before paying tax, will be increased from next April to £9,440. This is £235 more than was previously announced and close to the manifesto commitment of £10,000.
The higher rate tax threshold will rise by only 1% in 2014 and 2015, meaning that people will start to pay higher rate tax sooner than they would have done if the band were uprated in line with inflation.
Having been frozen for the last three years, the Inheritance Tax threshold will be increased by 1% in the 2015/16 tax year, from £325,000 to £329,000.
A further reduction in Corporation Tax to 21% was announced. The cut will come into effect from 2014, and, according to Mr Osborne, will see the UK have a significantly lower Corporation Tax rate than many other economies.
The new lower rate of Corporation Tax will not though apply to banks.
This was the area on which there had perhaps been the largest amount of speculation before today’s speech.
As expected the Chancellor has reduced the amount an individual can pay into their pension and receive tax relief on, known as the Annual Allowance, from £50,000 to £40,000 from the 2014/15 tax year.
In a more surprising move Mr Osborne also reduced the amount that can be held in a pension without a tax charge being levied. Known as the Lifetime Allowance the amount will be reduced from £1.5 million to £1.25 million; this again will take effect from the 2014/15 tax year.
Whilst both measures were pitched as part of a package of measures aimed at the wealthy some relatively modest earners in Final Salary or Defined Benefit pensions could be adversely affected.
It appears that the Chancellor has listened to the howls of protests from Income Drawdown investors and has increased the maximum income available from 100% of the GAD figure (Government Actuary’s Department) to 120%. This move should help to ease the pain of retirees, who have used Income Drawdown rather than buy an Annuity, and subsequently been hit by the lower income limits which have resulted from falling gilt yields and a previous change by the coalition government to restrict the maximum allowable income.
It was not announced when this change will come into effect, it is believed that it will require a change to legislation, which is likely to take some time to implement.
The Chancellor announced that the State Pension is set to rise by 2.5% to £110.15 per week from the 2013/14 tax year.
The maximum amount which can be paid into an ISA will rise by a modest amount from £11,280 in the current tax year to £11,520 in the 2013/14 tax year. However, there was no change to the amount which can be paid into a Cash ISA, currently limited to 50% of the overall limit.
The Chancellor also announced that he would consult on allowing smaller company shares, for example those quoted on AIM, to be held in ISAs.
It was announced that the temporary doubling of small business rate relief would be extended to 2014.
In a move which will be popular with voters and many business owners the 3p rise planned for January will be cancelled.
Alcohol & Tobacco
No new increases to alcohol or tobacco duties were announced.
Mr Osborne announced that whilst carer and disability related benefits would rise in line with inflation other benefits, including Job Seekers Allowance, Income Support, Child Benefit, Child Tax Credit and Working Tax Credit would only increase by 1% a year, meaning a real terms cut.
These, and other changes to welfare, are expected to save £3.7 billion by 2015/16.
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