On 23 November Chancellor Philip Hammond announced his first ever Autumn Statement, which was dominated by gloomy economic predictions from the Office for Budget Responsibility (OBR). In view of the uncertainty facing the economy and slower growth forecasts the Chancellor announced the Government would no longer be seeking to deliver a budget surplus by the end of the Parliament. In fact, the Government will borrow an extra £122bn over the next five years.
In light of the economic situation, Hammond said the statement would “prioritise high-value investment” that will directly contribute to Britain’s productivity. Key policies would include a new £23bn National Productivity Investment Fund for housing, research and development, and economic infrastructure. This means less focus on the so-called “jams” – the “just about managing” – that Prime Minister Theresa May wanted to target, with only modest giveaways for struggling consumers.
We’ve looked through the statement and picked out some of the key points relating to financial health below.
- The tax-free personal allowance will rise from £11,000 to £11,500 in April and to £12,500 by 2020, in line with Osborne’s plans. This has been criticised as an inefficient way to help low earners, as 72 to 75 per cent of the gains will be received by the top half of earners. Additionally, the threshold for the higher rate of tax will rise to £50,000.
- The Government will continue to freeze fuel duty for the seventh year in succession.
- The insurance premium tax will rise from 10 to 12 per cent, which the AA says will add around £10 to the average car insurance premium.
- Tax advantages of salary sacrifice schemes will be removed from April 2017. In these arrangements employees sacrifice a part of their income in exchange for benefits from their employer, which come out of their pre-tax pay – and so are exempt from tax and National Insurance. The Government’s aim is to create a fairer and broader tax base. Schemes concerning childcare, pensions (including advice), Cycle to Work, and ultra-low emissions cars will be excluded from the changes.
- National Insurance thresholds will be aligned for employers and employees at £157 a week. The thresholds currently stand at £155 for employees and £156 for employers. The Chancellor assured that there would be no extra cost for employees and that employers would pay a maximum of £7.18 extra annually.
- The Chancellor announced that the Government has no plans to introduce further welfare savings measures in this Parliament. However, calls for a reversal in the benefit cap have not been met.
- The taper rate at which universal credit is withdrawn as earnings rise will reduce from 65 to 63 per cent. This is a partial reversal of Osborne’s £3.4bn cut to UC work allowances, costing £1bn. This is a disappointment to politicians, including some from the Chancellor’s own party, who campaigned for a full reversal.
- From April 2017 HMRC will allow new Tax Credit claims to be made using digital devices.
- The Tax-free Childcare scheme will be introduced gradually from early 2017. The scheme is available to working parents, allowing them to set up an account with a registered childcare provider. For every 80p parents put in, the Government will top up 20p, up to £2000 per year. Tax-free Childcare will replace the Childcare Voucher Scheme.
Pensions and savings
- The “triple lock”, which raises the state pension every year by the highest of either inflation, wage growth or 2.5 per cent, will remain in place until the end of this Parliament. However, the Chancellor indicated that the next Parliament will have to “tackle the challenges of rising longevity and fiscal sustainability.”
- The money purchase annual allowance – the amount you can put into a pension once you’ve begun to draw from it – will be reduced from £10,000 to £4,000 in April 2017. The Chancellor said this will prevent “inappropriate double tax relief” being gained.
- The Government will launch a new National Savings and Investment bond in spring 2017. The market-leading bond will have an interest rate of 2.2 per cent for a three-year term, with a maximum investment of £3000.
- The Government will fund a regional pilot of Right to Buy for housing association tenants, available to over 3000 tenants.
- The cap on Housing Benefit and Local Housing Allowance rates in social housing will be delayed by 1 year, until April 2019.
- The Government’s “Pay to Stay” scheme will not be implemented after a public consultation. The plan would have forced local authorities to raise rents for social housing tenants with earning of over £31,000 (£40,000 in London). Critics say the scheme would have forced tenants from their local area and would have been too costly to implement.
- A further £10m over two years will be added to the Rough Sleeping Fund, which aims to support innovative approaches to preventing and reducing rough sleeping, particularly in London.
- The National Living Wage will rise from £7.20 to £7.50 an hour for over 25s in April. However, this is slightly less than the £7.60 the OBR estimates is needed to meet the Government’s pledge of £9 by 2020.
- The Government will also make an additional £4.3m available to strengthen National Minimum Wage enforcement.
Competition and Consumers
- The Government will ban letting agent fees for tenants, which have been criticised as unpredictable and disproportionate. This brings the rest of the UK in line with Scotland, which banned these fees in 2012.
- A consultation will be launched into pension scams. The Government intends to ban fraudulent cold-calling relating to pensions that is reported to have cost older people £19m in 2015.
- The Autumn Statement policy paper states that from 2018 an existing scheme to incentivise credit union membership in communities at risk of being targeted by loan sharks will be expanded. The document does not clarify which scheme this is, but we will keep our eye out for further details.
- From April 2017 new rules from the FCA will require insurance firms to disclose last year’s premiums at each renewal and encourage consumers to shop around for alternative policies.
- The Government has also agreed with the Joint Money Laundering Steering Group to modernise their guidance on electronic ID verification. This has the potential to make it easier for consumers to authenticate their identity and to grant better access to financial services.
In response to the Autumn Statement, Mike O’Connor, Chief Executive of StepChange Debt Charity, said:
“Today’s Autumn Statement was a missed opportunity to put in place the measures that are needed to help the ‘just about managing’ to manage with some hope of stability. Welfare changes in the pipeline leave many people dangerously close to not managing at all. Planned increases to the personal allowance and the National Living Wage may provide some respite, but the lack of action on the four year freeze on working age benefits and the two-child limit for child tax credits means there is still financial pain ahead for many families.”
Dan Scorer, Head of Policy at Mencap said:
“The Chancellor has failed to heed calls from his own MPs to reverse damaging cuts to disabled people’s benefits that will drive them further from work and push them towards or deeper into poverty. He has also failed to address the serious crisis in funding for social care.
“Whilst the change to the taper rate to Universal Credit will allow some people in work to keep a small amount more of their income, it does little to mitigate the damaging effect of the £30 a week cut to Employment and Support Allowance and it’s equivalent in Universal Credit – a cut which will hit both those out of work and those in work on low incomes.”
Torsten Bell, Director of the Resolution Foundation, said:
“Despite increasing borrowing elsewhere, the Chancellor has left the big welfare cuts intact and chosen not to provide significant support for the just managing families that Theresa May has rightly said she is focused on.
“The double whammy of lower earnings and benefit cuts mean that the poorest third of households are now set to face a parliament of falling living standards. In the months and years ahead the key task facing the government is to turn that situation around.”