The Chancellor of the Exchequer George Osborne delivered a mixed bag in his Autumn Statement on the nation’s finances.
The review of the economy and the economic predictions made depressing listening and whilst there was good news for businesses, investors and motorists, there was bad news for public sector workers and tax credit claimants.
So what did he announce and how does it affect you? Below is a summary of the main points of his speech:
Pay, Pensions, Taxes & Allowances
• The Chancellor plans to cap increases to public sector pay to 1% per year over the next two years.
• The government’s Office for Budget Responsibility (OBR) has also increased its estimate of public sector job cuts, from 400,000 to more than 700,000.
• The unemployed will however benefit from an increase to state benefits of 5.2%, in line with inflation, from April next year.
• Personal allowance will be increased, with the intention of bringing up to a million people out of paying tax altogether.
• Tax credits will increase, however the increase will below inflation. In addition, the proposed increase in the child element of the child tax credit has been scrapped.
• The basic state pension will rise by £5.35 from next April up to £107.45
• However, young people will have to wait longer to get their pension, with the increase in the state pension age from 66 to 67 being brought forward to 2026. It is anticipated that this change will save £59bn.
• There was good news for motorists as the increase to fuel duty planned for January was cancelled, and August’s increase will be limited to 2p.
• The Right to Buy scheme for council house tenants is to be reintroduced. Tenants will be offered a 50% discount on the Market Value of their property, with the money raised being used to build new homes to stimulate the construction industry.
• A £400m scheme will be introduced to jump start stalled construction projects in England.
• The Government will underwrite mortgages for 100,000 young families trying to get on the property ladder.
• Businesses may also benefit from the changes the Chancellor announced, with business rate holiday being extended to 2013.
• A proposed reform of employment law may make it easier for businesses to hire and fire staff
• The new National Loan Guarantee Scheme is intended to cut the costs of borrowing for small businesses by up to 1%.
• The Chancellor confirmed that the Main Rate of Corporation Tax will be cut from 1st April down to 25%.
• A £1bn youth contract will subsidise six-month work placements for 410,000 young people
• The Chancellor’s list of planned infrastructure projects includes the construction of a new ring road to the south of Bristol, which should create more jobs.
• Families in the South West will have their water bills cut by £50
The Chancellor’s announcements come against the backdrop of falling growth, with the OECD predicting Britain will fall back into recession. The OBR disagrees, but has drastically cut its predictions for growth in the nation’s economy from 1.7% in 2011 to a mere 0.9%. Next year is worse, with expectations of growth cut from 2.5 to only 0.7%.
The Chancellor blamed current poor expectations of growth on the previous government, saying that it was now clear that the boom had been even bigger than previously thought, and the bust would be even deeper.
He was forced to admit that public sector borrowing is not falling fast enough, and that the Government will not meet its target of balancing the nation’s books, and eliminating the structural deficit, by the end of this Parliament. Government borrowing will actually be £112bn higher than expected over the next four years, with debt peaking at 78% of gross domestic product (GDP) in 2014.
One thing is for certain – Britain’s economic growth will depend at least as much on what happens in the Eurozone as on what the Chancellor does.
Rachel Finch is the Tax Advisory Partner at Burton Sweet Chartered Accountants and Business Advisors. She specialises in providing advice to business owners and individuals on a wide range of issues from Income Tax and Corporate Tax through to International Tax and Corporate restructuring.
To find out more about Burton Sweet visit: http://www.burtonsweet.co.uk or call them on: 0844 225 0750