The size of the challenge for the chancellor Philip Hammond has become increasingly clear and after an Autumn Statement which abandoned pledges to hit a budget surplus by 2020, new analysis shows the squeeze on living standards could be worse during this Parliament than after the financial crisis of 2008.
The report by the Resolution Foundation says lower earnings and higher inflation could mean incomes growing less than half as fast between 2015 and 2020 compared to the years following the financial crisis and the recession that followed.
The Resolution Foundation study said the freeze on benefits and rising inflation could mean the bottom third of earners seeing their incomes fall. The findings of the study are echoed in the Treasury’s own “distributional analysis” which looks at the impact of tax, welfare and public spending pledges contained in the Autumn Statement. This analysis indicates that it’s likely that the bottom 30% of earners is likely to be worse off, as well as the top 10% of earners. Middle income families fare slightly better with some modest improvement likely by 2020.
What will the Chancellor actually do that will directly affect individuals and small businesses?
- The pension “triple lock” will continue until the end of this Parliament
- Income tax threshold to be raised to £11,500 in April 2017, from the current £11,000
- Higher rate income tax threshold to rise to £50,000 by the end of the Parliament
- National Living Wage to rise from £7.20 an hour to £7.50 from April next year
- Insurance premium tax to rise from 10% to 12% from June 2017
- Universal Credit taper rate to be cut from April at a cost of £700m, to ease the transition from benefits for someone going into work
- A ban on upfront fees charged by letting agents to tenants in England will be introduced
- Fuel duty rise cancelled for seventh year in succession
- Rural Rate Relief to be increased to 100%, which will give small businesses a tax break worth £2,900
- Reforms to the level of compensation allowed for whiplash claims to cut the cost of motor insurance by £40 for the average motorist
- Income Tax salary sacrifice tax relief to be severely constrained
- A new savings bond will be launched through National Savings and Investments, with an interest rate expected to be set at about 2.2%
- There will be a new tax relief to help those who buy and sell on a small scale, such as on internet auction sites or at car boot sales. From April 2017, the first £1,000 a year of income will not be taxable
- There will also be tax relief for the first £1,000 of property income, such as from letting your room via a website
- A new Lifetime Individual Savings Account (LISA) for those aged between 18 and 40 to open from April 2017. You can save up to £4,000 a year, and the government will add a 25% bonus if the money is used to buy a home or as a pension from the age of 60
- Any family which has a third or subsequent child born after April 2017 will not qualify for Child Tax Credit
- A sugar tax on soft drinks will be introduced in April 2018
- From September 2017, parents working more than 16 hours a week and earning less than £100,000 a year will be able to claim an additional 15 extra childcare hours
Overall, an unsettled future looks certain with wage rises likely to be less than 2% and inflation greater than 2%. With the UK economy growth forecast’s cut by 50%, there will unfortunately be precious little surplus cash for Mr Hammond to ease the pain.
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