Autumn Statement 2014: at a glance
Chancellor George Osborne delivered his 2014 Autumn Statement at 12.30pm on 3 December 2014. Here's our summary of the key announcements.
Growth in 2014 has been revised upwards to 3%; then 2.4% next year, followed by 2.2% in 2016, 2.4% in 2017 and 2.3% in 2018 and 2019, according to the Office for Budget Responsibility (OBR). In the 2013 Autumn statement, those were 2.4% for 2014 and 2.2% for 2015. However, the 2016 figure was forecast to be 2.6% and 2.7% in 2017 so these have been revised downwards.
Unemployment was revised down in all years to 2018 and is expected to be 6.2% in 2014, 5.4% in 2015, 5.2% in 2016, falling to 5.3% in 2017 and 2018. The Chancellor added that 85% of the jobs that have been created in this parliament are full-time. Most have been created in Scotland and the North, and the gender pay gap has fallen to its lowest level in history.
The OBR forecasts inflation to be 1.5% this year, 1.2% in 2015 and 1.7% in 2016 before returning to the Bank of England's 2% target in 2017.
Government borrowing is forecast to be £91.3bn in 2014 (higher than previously forecasted back in the March Budget at £87 billion), then £75.9 billion in 2015. Osborne added that there could be a small surplus in 2017/18 of £23 billion by the 2019/20, at point at which the UK would be "out of the red and into the black for the first time in a generation".
The Chancellor has abolished the "residential slab system" for paying stamp duty on property that saw homebuyers charged at 1% for properties worth between £125,001 and £250,000, and then 3% on properties worth £250,001 to £500,000. That meant a stamp duty bill of £2,500 on a £250k home but £7,500 for one worth £250,001. However, from midnight on Wednesday 3 December, a 2% charge will be levied on the portion of a property value on anything exceeding £125,000 up to £250,000.
A 5% charge will then apply to the portion of value that exceeds £250,000 up to £925,000. Between £925,001 and £1.5 million, a 10% charge will apply. And for everything above £1.5 million, a 12% charge will be enforced.
The Chancellor said 98% of homes paying stamp duty will be better off under the new system, which will result in a tax cut of £4,500 when buying average family home costing £275,000.
The changes will also apply to Scotland from midnight until the introduction of its own system in April.
The rate at which higher-rate tax (the 40p rate) becomes payable will rise from £41,865 to £42,385 in April 2015.
From April 2015, new married tax allowance will allow married couples to transfer £1,000 of their unused allowance to their spouse as long as they are basic-rate taxpayers.
The amount that can be saved in cash Isas or invested in stocks and shares Isas will rise to £15,240 in April 2015, up from £15,000 in the current tax year.
A new student loan system will enable graduates wishing to study for a post-graduate masters degree to borrow up to £10,000. It is expected that the loans will be made available from 2016/17 and that some 40,000 students could benefit. The loans will be repaid alongside undergraduate loans and students will need to be 30 or younger to apply.
Air passenger duty
From May 2015 parents will no longer have to pay air passenger duty for children younger than 12 when they are flying in economy class. From 2016 it will be scrapped for all children younger than 16. According to the Treasury this will save a family four £26 on a flight to Europe and £142 on a flight to the US.
Fuel duty will remain frozen at its current rate until May 2015 – the end of the current parliamentary term. It currently stands at a rate of 57.95p per litre for petrol and diesel.
Saving and Isas
Pensions and annuities
Peer to peer
Office for Budget Responsibility
Formed in May 2010, the OBR makes an independent assessment of the public finances and the economy, the public sector balance sheet and the long-term sustainability of the public finances. The OBR has four man priorities: to produce two forecasts a year for the economy and public finances, to judge the progress the government has made towards meetings its fiscal targets, to assess the long-term sustainability of the public finances and to scrutinise the Treasury’s costing of Budget measures.
A hugely unpopular tax paid on property and share purchases. Stamp duty on property is levied at 1% for purchases over £125,000 (£250,000 for first-time buyers) which then moves up at a tiered rate. For property between £125k and £250k you pay 1%, then 3% from £250k up to £500k and then 4% from £500k to £1m and then 5% for properties over £1m. But unlike income tax, which is “tiered” and different rates kick in at different levels, stamp duty is a “slab” tax where you pay the rate on the whole purchase price of the property. On shares, stamp duty is charged at a flat rate of 0.5% on all share purchases. Figures correct as of May 2011.
There are limits to how much you can invest in any tax year. For 2011/12, the limit is £10,680. Of that, the maximum you can invest in cash is £5,340 and the balance of £5,340 can be invested in shares (individual company shares or investment funds). If you don’t take the cash ISA allowance, you can invest up to £10,680 into a stocks and shares ISA.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
An alternative to an annuity, income drawdown (also known as an unsecured pension) allows you to take income from your pension fund while the fund remains invested and so continues to benefit from any fund growth. The drawdown of income has to be calculated carefully as taking too much income could exhaust the pension fund so experts say the annual drawdown must not exceed what the assets would normally yield in an average year. The invested pension fund could also be hit by market turbulence and the value of the assets could fall.
In exchange for any lump sum – usually your pension fund – an annuity is “bought” from an insurance company and provides an income for life. When you die, the income stops. Annuity rates fluctuate daily and depend on your sex (although from 21 December 2012 insurers will no longer be able to use gender as a factor when calculating annuities), age, health and a number of other factors, so you have to pick the right one and, once bought, its terms cannot be altered, so seek financial advice.