Autumn Statement 2014 - HFP Briefing
When George Osborne stood up to deliver his Budget in March everything in his garden was rosy or as rosy as the prevailing world economy would allow. Most of the UK economic indicators were moving in the right direction and it was generally agreed that the UK was recovering from the global recession more quickly than all of its major economic competitors.
Nine months on, as the Chancellor prepared to give his last Autumn Statement before the 2015 General Election, the picture was less healthy. As Osborne himself has acknowledged, the UK cannot be immune to the wider world economy and the slowdown in China and the threat of recession in Europe have both impacted adversely on the domestic economy. Whilst jobs continue to be created in the UK, they are in the main low-paid jobs: add in the fact that more people are becoming self-employed and the government is simply not receiving the tax take it had expected. With government borrowing for April to October 2014 £3.7bn higher than the same period in 2013, there was the possibility that the Chancellor might miss some of his debt reduction targets.
Politically too, the Chancellor had a difficult balancing act to perform. Back in March, the referendum on Scottish independence was a) a long way off and b) going to result in a comfortable No vote anyway. Although the Union ultimately stayed intact, the success of the Yes campaign ultimately meant a large transfer of tax raising powers to the Scottish Assembly, which immediately saw calls from Conservative backbenchers for greater powers for England and in particular, English Votes for English Laws. Many of those same backbenchers were also glancing nervously at their majorities and feeling the hot breath of UKIP on their necks. Back in March, UKIP was only a factor at the European elections. Now they have two MPs and are taking votes from both the major parties and what could happen at the polls on May 7th 2015 is anybody’s guess.
Finally, there was the media to satisfy. As George Osborne read the papers on the morning of December 3rd he’d have seen calls to ‘do more for the high street’ by reforming business rates (in the Telegraph), help small businesses and homeowners by overhauling stamp duty (Times) and to clamp down on the tax loopholes used by the big online firms (Guardian).
So it was that the Chancellor rose to his feet at 12:35pm, knowing that what he had to say in the next hour would go a long way to determining whether he still had a job on May 8th – or whether Ed Balls could add ‘call removal company’ to his to-do list.
The Chancellor wasted no time in accentuating the positive, pointing out that the UK continued to grow faster than any other major economy. “We will stay the course,” he declared, “and stay on course for prosperity.” Plenty of problems remained and the Autumn Statement would not be a giveaway. In an echo of previous speeches, he promised to “back aspirations to save, work and own your own home.”
The “warning signs were flashing” over the global economy: despite this the forecast for the UK’s growth was good – and here came the first rabbit out of the hat as the Office for Budget Responsibility had ‘revised its statistics.’ So the growth forecasts for the year, which had been revised upwards from 2.4% to 2.7% in the Budget speech, were now further revised up to 3%.
The forecast was then for growth of 2.4% in 2015, 2.2% in 2016, 2.4% in 2017 and 2.3% in 2018/19. Inflation was expected to remain below the government’s target of 2% for the next three years. Borrowing would fall from £97.5bn to £91.3bn this year, and then progressively come down to £75.9bn, £40.9bn, £14.5bn before reaching a surplus of £4bn in 2018/19. A surplus of £23bn was forecast for the tax year 2019/20 with the Chancellor declaring that Britain would, “be back living within its means.” Wage growth would also be above inflation for the next five years, whilst unemployment was expected to fall to 5.4% in 2015.
Measures Already Announced
Several measures had been leaked or confirmed ahead of the Autumn Statement: these were duly confirmed and credit claimed, during the Chancellor’s speech. There would be an extra £2bn for the NHS from 2015 and £15bn for 84 new road projects. £2.3bn was allocated to 1,400 flood defence projects in the hope that Somerset would remain above ground throughout the winter and plans were confirmed for Britain’s second new ‘garden city’ with 13,000 new homes to be built in Bicester.
As had also been widely trailed, the Chancellor announced that Britain would repay the national debt incurred to fight World War I.
What The Chancellor announced an overhaul of stamp duty payable on the purchase of property, describing it as “a badly designed tax on aspiration.” In future, stamp duty would be payable on a progressive scale, as is the case with income tax. The new bands are as follows:
On the first £125,000 - No tax payable
When The change became effective from midnight on December 3rd 2014, with anyone having exchanged contracts but not yet completed on their purchase having the option to choose which regime to pay stamp duty under.
If you would like to see the before and after effect for your own property, there is an excellent calculator on the HMRC website.
Personal Taxation, Allowances and Savings
What ISAs are to be transferable to a surviving spouse or civil partner tax free on death
What The ISA limit will increase to £15,240
What The personal tax allowance will rise to £10,600 (instead of the £10,500 originally planned) and the higher rate tax threshold to £42,385
What The personal tax allowance will rise to £10,600 (instead of the £10,500 originally planned) and the higher rate tax threshold to £42,385.
What U-turn on proposals to introduce a single nil-rate Inheritance Tax band across multiple trusts
What Extension of the Inheritance Tax exemption
What Changes to the ‘non-dom’ fee structure
What New Pensioner’s Bonds
Annuities and Pensions
What 55% pension death tax abolished
What The Chancellor also announced that joint life and guaranteed term annuities may now be passed to beneficiaries tax free if you die before the age of 75
What Diverted Profits tax of 25% on UK profits moved out of the country
What Changes to banking profits and losses
What LIBOR fines
What Funding for Lending is to be extended for another year
What The doubling of the small business rate relief was extended
What The £1,000 business rate discount was increased to £1,500
What Support for Peer to Peer (P2P) lending
What Clampdown on investment fund managers
Other Business Announcements
‘Small Business Saturday’ was a phrase that cropped up several times in both the Chancellor’s speech and the preceding Prime Minister’s Questions: expect to hear it a lot more before May of next year. George Osborne was keen to take further steps to help SMEs. The research and development tax credit was increased, and further support came from a commitment to a further £500m of bank lending plus £400m of government backed venture capital funds investing in small businesses.
The Chancellor also announced that the inflation linked increase in business rates would be capped at 2%.
Other measures included the extension of the theatre tax breaks to orchestras, a new tax credit for children’s TV productions and a £45m package of support for first time exporters – particularly those exporting to the still growing emerging economies of Asia, Africa and Latin America.
There was a further boost for the drive to create more apprenticeships, with the announcement that there would be no employer national insurance payable on apprentices.
Public Sector Pensions
The Chancellor confirmed his commitment to completing Lord Hutton’s pension reforms, bringing total savings of £1.3bn a year to the Treasury. The government will “fully implement” the review, which undertook a ‘fundamental structural review’ of public sector pensions in the UK. The Chancellor was never going to reach any other conclusion given the increasing strain the cost of inflation linked pensions is putting on the public purse.
There was good news for families going on holiday, with the Chancellor announcing that air passenger duty for children under 12 would be abolished from May 2015, and abolished for children under 16 from March 2016.
As expected, the duty on fuel was also frozen.
The government announced a new funding scheme for postgraduate students to help them to complete their Masters level education, as part of its commitment to fostering ‘aspiration’. The new scheme will give students access to an income-contingent loan of up to £10,000, which they will repay at a rate that beats commercially available funding. The details of the scheme are still to be thrashed out so it is not expected to be implemented until 2016-2017.
The “Northern Powerhouse”
The term ‘northern powerhouse’ has featured in many of the Chancellor’s recent speeches and in the Autumn Statement he took this one step further as he sought to “balance” the economic growth across the UK. He announced that there would be a Sovereign Wealth Fund for the North of England, allowing the tax receipts from shale gas exploration to be directly invested in the region.
As expected, the Chancellor announced further cuts in welfare spending which, he said, was already £1bn lower than had been anticipated in March. He confirmed the announcement in October that there would be a two year freeze in working age benefits and stated that migrants would lose their unemployment benefits if they have “no prospect” of work after six weeks.
Having spoken for 50 minutes, the Chancellor sat down to loud cheers from the government benches as well as having ticked the boxes demanded that morning by the Times, Telegraph and Guardian. He declared that the UK had “a long term economic plan” and was finally “on course for prosperity.”
The headline announcement from the statement was unquestionably the change to Stamp Duty, which the Chancellor described as ‘one of the worst designed and most damaging taxes of all’. The new scheme brings Stamp Duty closer in to line with Income Tax and potentially lowers the cost of buying a home for hundreds of thousands of people.
The Chancellor was keen to stress, however, that the Statement as a whole was ‘not a giveaway’. Instead, the policies announced would continue the government’s long held belief that the route to a prosperous economy was to continue along a path of austerity measures.
It is probably fair to say that we can expect more of the same when he presents his Budget speech in March. This does not appear to be a Chancellor who will be handing out pre-election giveaways. Whether that will endear him to the electorate remains to be seen.
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