Yesterday, the Chancellor of the exchequer George Osborne delivered his Autumn Statement. For me, the detail of the statement was overshadowed a little by the incredible ineptitude in the response from the shadow chancellor. And Mr Milliband wasn't much better in PMQs before the statement was delivered. That isn't a political statement, just a comment that Mr Balls was stumbling along and looked all at sea – we need a better-prepared opposition than that.
Here is our summary of the key points of the Autumn Statement that directly affect your personal financial planning.
The key message of the statement was that we are heading in the right direction, but slower than Mr Osborne would like. This was clarified by the latest projections from the Office of Budget Responsibility (OBR):
- Economic growth forecast revised down to 1.2% in 2013, 2% in 2014, 2.3% in 2015, 2.7% in 2016 and 2.8% in 2017
- Expectations for 2012 is now for the UK economy to shrink by 0.1% – compare this to the previous forecast of 0.8% growth
- The OBR expects national debt to start falling in 2016/17 – a year later than its previous estimate
- The deficit will reduce in monetary terms this year but stay the same as a percentage of GDP (6.9%). It is predicted to fall to 1.6% of GDP by 2017/18
These wildly changing projections reminded me of the fantastic quote by JK Galbraith:
The only function of economic forecasting is to make astrology look respectable.
Mr Osborne is asking government departments to find further savings this year and next, with HMRC, Health, Education being excluded from those reduction targets.
Taxation & Benefits
Mr Osborne announced changes to the taxation and benefits system, which he says will reduce the welfare bill by a total of £3.7bn over the next three years. The various announcements relating to taxation and benefits were:
- An increase to the personal allowance from April 2013 to £9,440, £235 more than the planned increase
- Working benefits will increase by 1% per year for the next three years. This is of course a cut in real terms as inflation is running higher than 1% and is projected to do so for some time.
- Child benefit will also rise by 1% per year over the next two years
There were some significant changes to the pensions regime:
- The Annual Allowance was reduced from £50,000 to £40,000, taking effect from 2014/15
- The Lifetime Allowance was reduced from £1.5m to £1.25m, also from 2014/15 – the government is understood to be working on a personalised protection scheme for those likely to be caught by this, but no details are yet available
These two measures are set to save the Exchequer £1bn per year in tax relief, but are a blow to those who maximise their savings into their pensions. There is time to make the most of the higher allowances for a couple more years yet.
The other significant change was a return to the 120% of GAD income limit for capped drawdown, welcome news indeed. But there was no word as to when this will be reintroduced.
The annual ISA subscription limit will be increased to £11,520 next financial year. The chancellor also hinted that there may be a relaxation of the restrictions as to what kinds of investments can be held in an ISA, to include stocks listed on the AIM stock exchange. This is intended to encourage priate investors to invest in smaller companies, thereby boosting the economy. Investors need to be aware however that generally, AIM stocks represent a higher level of investment risk than the shares of larger companies.
The Capital Gains Tax annual exemption will rise to £11,100 by 2015/16.
The Inheritance Tax Nil Rate Band will rise from £325,000 to £329,000 per person, the first time this has risen since 2009.
The two other headline-grabbing points were a reduction in the main rate of Corporation Tax from 22% to 21%, and the scrapping of the proposed 3p rise in fuel duty expected in January.
These are both good news for small businesses and the scrapping of the fuel duty rise will help ordinary people whose household budgets are still being severely squeezed.
This is just a summary of the main points of the Autumn Statement as they appear to us. It is far from an exhaustive list, and you certainly shouldn't make any significant financial decisions based on this information.
If you want more detail, you can find the full documents of the Autumn Statement here.
Photo Credit: flickr.com/altogetherfool