Philip Hammond has given his first Autumn Statement as the new Chancellor of the Exchequer. The UK economy is forecast to be the fastest growing major economy in 2016, but the Office for Budget Responsibility has forecast growth to slow and inflation to rise over the next two years with government borrowing set to increase. Here are some of the key points from the Statement.
The Personal Allowance is the amount of income you can earn before you start paying income tax. It is currently £11,000 this year, and will rise to £11,500 in 2017-18. The point at which you pay the higher rate of income tax will increase from £43,000 this year, to £45,000 in 2017-18. Also, the government is committing to raise personal allowance to £12,500 by 2020 and the higher rate to £50,000.
The National Living Wage for those aged 25 and over will increase from £7.20 per hour to £7.50 per hour from April 2017. That means over £1,400 a year more for a full-time worker currently on the National Minimum Wage.
The National Minimum Wage will also increase from April 2017:
- for 21 to 24-year-olds – from £6.95 per hour to £7.05
- for 18 to 20-year-olds – from £5.55 per hour to £5.60
- for 16 to 17-year-olds – from £4.00 per hour to £4.05
- for apprentices – from £3.40 per hour to £3.50
With Universal Credit, as a person’s income increases, their benefit payments are gradually reduced. The taper rate calculates the reduction in benefits as a person’s salary increases.
Currently, for every £1 earned after tax above an income threshold, a person receiving Universal Credit has their benefit award reduced by 65p and keeps 35p. They will now keep 37p for every £1, from April 2017.
Three million households will benefit from this change:
- a single parent with one child and not receiving support with their housing costs earning £15,000 a year will benefit by £170 a year
- a couple with two children receiving support with their housing costs, where one parent earns £30,000 a year, will benefit by £425 a year
- a disabled person receiving support with their housing costs and earning £12,000 a year will benefit by £180 a year
Letting agents will no longer be able to charge a renters fee. This will stop tenants being hit with fees averaging £223 per tenancy.
£2.3 Billion will be spent to improve housing infrastructure, the funds will be used for projects such as roads and water connections that will support the construction of up to 100,000 new homes in the areas where they are needed most.
On top of that, £1.4 billion will be used to provide 40,000 new affordable homes, including some for shared ownership and some for affordable rent. And another £1.7 billion will be used to speed up the construction of new homes on public sector land.
In 2017, fuel duty will remain frozen for a seventh consecutive year saving car drivers £130 and van drivers £350 a year on average.
£390 million will go to future transport technology, including driverless cars, renewable fuels and energy efficient transport.
There will be a major new investment into the transport infrastructure as part of the National Productivity Investment Fund, this will cover:
- £1.1 billion to reduce congestion and upgrade local roads and public transport
- £220 million to tackle road safety and congestion on Highways England roads
- £27 million to develop an expressway connecting Oxford and Cambridge
From April 2017, most salary sacrifice schemes will be subject to the same tax as cash income.
In salary sacrifice schemes, employees exchange some of their salary for a non-cash benefit in kind (such as a mobile phone). Both the employer and employee make a tax saving, because the benefit is taxed less than a salary or not taxed at all.
This will affect types of salary sacrifice schemes differently:
- pensions, pensions advice, childcare, Cycle to Work and ultra-low emission cars will be exempt
- all arrangements in place before April 2017 will be protected for up to a year, and arrangements in place before April 2017 for cars, accommodation and school fees will be protected for up to 4 years
To support savers, the NS&I will offer a new three-year investment Bond with a 2.2% rate in spring 2017. The bond will offer the flexibility to put away between £100 and £3,000 and be available to those aged 16 or over.
The government is also going to be cracking down on pension scams, tax avoiders and those who help them by introducing a new penalty for those helping someone else to use a tax avoidance scheme. Tax avoiders are hit with significant bills when HMRC defeats their avoidance scheme, this new penalty will ensure that those who help them will also face the consequences.
Insurance Premium Tax (IPT) will increase from 10% to 12%. IPT is a tax on insurers and it is up to them whether and how to pass on costs to customers.
If you have any questions regarding these changes, contact us for further advice.