The distributional impact of today's Autumn Statement as broken down by HMRC.
The key measures from today’s Autumn Statement
Business rate rises to be capped at 2 per cent rather than linked to RPI inflation
Fuel duty frozen until May 2015
Foreign home owners to pay tax on UK property sales
Student loan book to be privatised
Employer National Insurance contributions to be scrapped on 1.5 million jobs for young people
Stamp duty on shares purchased in exchange traded funds to be abolished
From April, tax relief is to be introduced for investment in social enterprises and new social impact bonds
20,000 apprenticeships to be funded over the next two years
£1bn in loans for housing developments in Manchester and Leeds
Tax allowances to encourage investment in shale gas to cut tax on early profits by 50 per cent
Free school lunches for year 1 and 2 pupils
Winners and losers
Where were the measures to improve productivity?
The most striking thing George Osborne’s Autumn Statement was lacking were measures to boost worker productivity. Productivity in Britain is down almost 5 per cent per worker since the crash, whereas in the US it’s up 8 per cent. This is partly to blame for real falling incomes: pay is at 2003 levels but prices have risen by 20 per cent since 2008.
Britain needs a pay rise. There was very little in George Osborne’s Autumn Statement on improving worker productivity and therefore on tackling low pay.
More pain for the young
The news that the government is to press ahead with the privatisation of the student loan book will come as a hammer blow to indebted graduates. Young people have already been hit harder than most by the recession, with a million young people out of work. Today the chancellor ensured that they will at some point face greater interest on the student debts as well as a more distant retirement – 70 years old for today’s teenagers.
Household debt is on the way up
According to the Office for Budget Resposibility (OBR) the household debt to income ratio set to rise again – and at a faster rate than forecast in March. This is largely a consequence of stagnant wages. It’s also similar to what we saw prior to the crash – people are struggling to stay afloat so they pile more on credit cards etc.
Another house price boom?
The OBR expects house price inflation to be above 5 per cent in 2014 and 7 per cent in 2015. They have revised the level of house prices up 10 per cent by 2017-18.
Not only does it appear that Britain is witnessing the inflation of another housing bubble, but it makes it much harder for young people to get on the housing ladder. A recent report by housing charity Shelter said that most people in their 20s stand less than a 50 per cent chance of ever owning a property to live in.
David Cameron and George Osborne pledged to balance the books by 2015. Yet the deficit is now set to be £79 billion that year. In other words, Osborne is now following Alistair Darling’s plan – but with a great deal more pain infliced in terms of cuts.
The lesson of the deficit being revised down? You need growth to pay off the deficit. We now have a growing economy (like we did in May 2010) and as a consequence the deficit has started to come down.
Married couples tax allowance
Just 28 per cent of couples in marriages or civil partnerships will benefit from the Tory proposals to ‘reward’ marriage in the tax system, according to analysis by the Institute for Fiscal Studies (IFS).
From April 2015, up to £1,000 of the income tax personal allowance will be transferable between adults who are married or in a civil partnership at a cost of around £700 million a year to the exchequer. The policy will work by allowing an individual not using all of their £10,230 income tax personal allowance – because their income is less than the allowance, for example – to transfer up to £1,000 of the unused allowance to their partner. This transferred allowance would lower the spouse’s tax bill by up to £200 a year.
According to the IFS, however, just 28 per cent of couples in a marriage or civil partnership will benefit from the policy.
The impact of the Autumn Statement on overall government fiscal policy
The distributional impact of all the tax and benefit measures since 2010, including measures announced in today’s Autumn statement, as broken down by HMRC.