George Osbourne
Presented by Chancellor George Osborne on 26th November, the Spending Review set out what government spending will be over the next four years, while the Autumn Statement was his annual update of government plans for the economy.
So what did the Chancellor reveal in his latest financial game plan and how this will affect the wallets and purses of the watching public?
The Tax Credits U-turn?
Tax credits are benefit payments for those on low incomes, aimed at topping up pay and are the biggest welfare cost to the government apart from the state pension. In his summer Budget, Mr Osborne announced a plan for a £4.4bn cut to tax credits from April 2016. This meant cutting tax credits sooner and faster as a claimant’s income rises, but having lost a key vote on the House of Lords, he promised to reconsider.
Surprise, surprise, he did reconsider and has scrapped the planned cuts. This will mean that many low-income families who were expecting cuts in tax credit payments of up to £1,200 a year will no longer face that loss.
Will this be the end to cuts if you’re on a low income?
No. Changes to the criteria of Universal Credit – a benefits system that sees tax credits and five other benefits merged into one over the next five years, were voted through recently. This will reduce the amount that can be applied for by new claimants, with all new claims for tax credits being switched to Universal Credit from 2018.
Also, his plans to limit tax credits for new claimants when they have more than two children remain.
The rate of housing benefit in the social sector will also be capped at the same rate as is paid to those in the private rented sector, in order to make savings of £225m by 2020-21. This will apply to tenancies signed from April and affect housing benefit from April 2018 onwards.
Will it become easier for me to buy a house?
Money will be spent to encourage house builders to construct starter homes and these will be offered at a 20% discount on prices up to £450,000 in London and £250,000 elsewhere.
There will also be investment in a shared ownership scheme, reduced rent for those saving for deposit, and specialist homes for the elderly and those with a disability; with the aim being to shift to aspirational home ownership and help to reduce the housing benefit bill.
There will also be a London Help to Buy scheme for those within the capital who can save a deposit of 5% of the value of the property they want to buy. They will be able to get an interest-free loan, for up to five years, worth up to 40% of the value of that home.
How will this be paid for?
A total of £1bn will be raised by 2021 owing to a change to stamp duty in England and Wales, with a 3% surcharge on Stamp Duty on the majority of buy-to-let properties and second homes bought after April 5th 2016.
This means it will add £5,520 of tax to be paid when buying the average £184,000 buy-to-let property. The new charge would have hit 160,000 buyers if it had applied last year.
What other tax rises are being planned?
Councils which have responsibility for social care will be able to add 2% to council tax bills in a bid to provide up to £2bn for that care.
Taxpayers will have to wait to see exactly how that affects them in pounds and pence when they receive their council tax bill.
What about Pensions?
The state pension for existing pensioners will rise by 2.9%, or £3.35, to £119.30 a week from April, to match the rise in average earnings, because of the triple-lock pledge on pensions – a government promise for the next five years – which means the state pension rises each April to match the highest of inflation, earnings, or 2.5%.
Next year is a significant one for new retirees as it is the start, from April, of the new “flat-rate” state pension, set at £155 a week. However, not everyone will get the full amount, such as some of those with a private or workplace pension provision. Some who have built up an additional state pension may get more.
Shadow Chancellor John McDonnell quoted from Chairman Mao’s little red book during the Autumn Statement debate. Mao is Mandarin for Cat
There is however, a bit of bad news as the chancellor said that pension credit payments will be stopped for people who leave the country for more than one month. At present, pension credit is paid for up to 13 weeks while claimants are temporarily abroad. If they go overseas for medical treatment under the NHS, then it is paid for longer.
The same new restriction for those going overseas will also apply to housing benefit.
Any changes for students?
Graduates in England and Wales who started university on or after September 2012 will see their student loan repayment threshold frozen until April 2021, rather than rising in line with inflation; with these graduates being able to earn up to £21,000 before making student loan repayments.
There is a possibility, however that freezing the threshold could make repayments more expensive.
Also Nursing students will no longer receive government bursaries and will have to take out loans instead.
Any changes on wages?
We already know that a 1% cap on rises in public sector pay will be in place for the next four years. We also know a compulsory Living Wage, in essence a new minimum wage, will be paid to people aged 25 and over, starting in April 2016 at £7.20 an hour and reaching £9 an hour by 2020.
Any changes on childcare?
The government has already said it would give further support for childcare costs and the chancellor has announced 30 hours of free childcare for three and four-year-olds will be available from 2017 in England, but only to parents working more than 16 hours and who each earn £100,000 or less.
Many parents already get a free 15 hours of childcare for three and four-year-olds.
Any other announcements that affect your finances?
The chancellor announced a plan to end the right to cash compensation following crashes on the roads. He’s making it harder for people to get compensation because of the plethora of exaggerated or fraudulent whiplash claims in recent years.
But if those nice people in the insurance industry pass on these savings, then motor insurance premiums could actually fall, but don’t hold your breath.
If you would like more detailed information on some aspect of UK Tax, send me an e-mail and I’ll be pleased to advise further.
David Jones is the Senior Partner and Founder of Morgan Jones & Company. Born in Liverpool and an Accountancy graduate of the University of Wolverhampton, David spent twenty years working for the Customs & Excise in London then Shrewsbury before starting his own business. David's depth of knowledge of the UK tax system and his ability to communicate this learning has seen Morgan Jones & Company grow into Shropshire's most respected Accountancy Practice.