Last month, the Chancellor spent over an hour detailing his Autumn Statement and laying out the government’s financial plan for the period ahead. Pundits watched closely as he explained how the public’s wallets would be affected by the changes.
Read on for the key points that will affect your own personal budget, whether you are financially comfortable, reliant on benefits or looking to better manage your personal finances with an Individual Voluntary Arrangement or other managed plan.
Osborne’s speech comprised both spending review and autumn statement and included more than one notable change of direction, such as scrapping his earlier proposal to slash tax credits. But whilst recipients of these credits may now be breathing a sigh of relief, other parties – private landlords in particular – look set to feel the pinch.
The U-Turn on Tax Credits
People on low incomes receive a form of benefits payment called tax credits, which work by topping up household income. With the exception of the state pension, these represent the single biggest welfare bill for the government, who have been desperate to reduce them. In the summer Budget statement, the Chancellor controversially announced his plan to slash £4.4 billion from the tax credit welfare bill, starting from April of next year.
However, the public backlash was immense, and facing the loss of a vote in the House of Lords, Osborne was forced to revise his plans and scrap the cut proposals entirely. This means that those low-income families who would have been facing a tax credit cut of £1,200 and more will no longer have to worry about this reduction in benefits. The Chancellor has said that he can commit to this because the BoE interest rate is continuing at a historic low and the state of the UK economy is good.
However, for those on low income the story doesn’t end there. There will still be changes made to the Universal Credit criteria marking system that will see six benefits combining into one in the coming years. The necessary votes to push through this legislation were recently obtained, and it is expected that some families submitting new claims under the Universal Credit system will find that they are squeezed. The new system will be in place from 2018. Some action groups, including the Citizens Advice Bureau, the Joseph Rowntree Foundation and the Resolution Foundation, have said that some families could find themselves worse off financially by 2020 if the parents are not in full-time work. Tax credit limits will also be applied to new claimants with three children and more. The changes to benefits may see more individuals seeking to move into sustainable employment – the government’s overarching aim – and private debt firms expect to see an increase in Individual Voluntary Arrangement applications as a result. Visit carringtondean for more information.
Housing benefits for the social sector will also be capped at the rates for private rentals in order for the government to achieve a £225 million saving by 2021. The new capped rates will be applicable to tenancies from April 2016 and affect benefits paid from April 2018.
What About Home-Buyers?
Funding will be pumped into the home-building sector to deliver more starter homes, and there will be 20pc discounts on prices up to £250,000 and £450,000 in London. Further investment will also be made in shared-ownership schemes, specialist care homes for individuals with complex needs or disabilities and residential homes for the elderly. An additional scheme for reduced rent will also be implemented to help would-be buyers to save for a deposit.
For those living in London who can save up a 5pc deposit, there will be a special Help to Buy Scheme offering a five-year interest-free loan to cover up to 40pc of the property’s value – a move that Mr Osborne described as being in response to the home-ownership ‘crisis’ amongst the young.
Funding the Schemes
By 2021, £1 billion will be generated through stamp duty taxation changes. From April, second homes and some buy-to-lets will be taxed at 3pc. Market commentators believe this could hit the private rental market hard, with many people having planned to buy BTLs as an alternative pension fund. The stamp duty change will be the second after last year’s reforms, which impacted the upper end of the housing market.
Other Key Tax Rises
Social-care departments in councils will be given the right to add a 2pc surcharge on to council tax bills to generate up to £2 billion, which is needed to provide this care in the UK. Taxpayers will find out what this means for them when they receive their annual council tax statement. State pensions will rise to £119.30 per week from April, which is an increase of 2.9pc, to stay in line with average earnings rises. Over the next five years, the government has promised a triple-lock pledge of rises so that pension payments rise annually by 2.5pc at a minimum. For new retirees, April will mark the start of the flat-rate system at £155 a week.
However, those who head abroad for a month or more will find their credit payments stopped.
For Students and Graduates
Those who went to university after September 2012 will see their loan repayments frozen until 2021, and they will no longer rise with inflation. Repayments will still only kick in when graduates are earning £21,000 or more. You can see the full review at: https://www.gov.uk/government/topical-events/autumn-statement-and-spending-review-2015.
Public-sector pay will be capped at 1pc on rises. The new compulsory minimum wage will come in from April, starting at £7.20ph for those aged 25 and above. Thirty hours a week of free childcare for children aged three and above has also been confirmed for most working families.
Finally, the insurance industry will be under pressure to pass on savings to motorists on the back of new measures to slash fraudulent compensation claims and to end the automatic ‘right to cash’ schemes for road traffic accidents.