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Autumn Statement: 12 key takeaways from the chancellor's speech
The chancellor's Autumn Statement was defined by around a dozen announcements that confirmed the outlook on growth, the government's plans for spending and a grand tax clampdown plan.
The deficit, growth and austerity
The Office for Budget Responsibility (OBR) downgraded its growth forecast for this year, reducing it close to zero, and also cut it for 2013 when the economy is expected to expand by just 1.2%.
As expected, George Osborne said while the deficit was coming down – in two years it has been cut by a quarter – austerity was here to stay until 2018.
Looking forward, the OBR warned slow growth should be expected to continue, with the financial crisis wiping off more than 6% from GDP in 2008/09, much more than thought, and the impact of the eurozone crisis still weighing. There was also speculation that contrary to what the chancellor said, the deficit is actually on the rise.
Cutting welfare as well as extending austerity was probably one of the main takeaways from the Autumn Statement.
£4 billion a year will be cut from the government’s austerity bill. Jobseekers Allowance, for example, will rise by just 1% each year for the next three years. Currently, the benefit rises with inflation.
Mansion tax – a damp squib
Many had expected the Liberal Democrats to win through on this, but Osborne said no new property tax would be introduced.
Instead, when it came to homes and commercial buildings, the chancellor said there would be extra rate relief for empty buildings, and new investment allowances for plants and machinery were announced, in a move that will boost business. Firms making investments will see their allowance rise from £25,000 to £250,000.
AIM stocks to become ISA-eligible
Funding for smaller companies was lent a boost with Osborne’s decision to allow alternative investment market (AIM) stocks to become ISA-eligible.
Osborne said AIM stocks could be held within tax-efficient wrappers, which would include ISAs, popular savings vehicles with investors because of their tax exemption allowance.
Infrastructure - the big rail, school and road spend
As widely expected, the chancellor unveiled a plan to generate growth via infrastructure spending, while a new system for PFI will be introduced.
He said that as well as the Battersea extension to the Northern Line, a similar programme would be rolled out for the Olympic Park. The extension was previously expected to be contributed by the financial backers of the development programme taking place at Battersea Power Station.
A further £1 billion will be devoted to roads, while plans to extend the HS2 high speed rail line to Yorkshire. An additional £600 million has been earmarked for research infrastructure, alongside £270 million for higher education and £100 million for schools.
Food – resources are becoming scarce
Last year there was a furore surrounding the so-called ‘pasty tax’, an increase in VAT charged on hot backed goods. This year, it was the agri-food sector that came into focus.
The sector remains vital, the chancellor said, reminding that as well as the industrial revolution there was an agricultural one, and the UN is now warning on the scarcity of resourced. Currently, the government devotes some £400 million to this sector. Although it skirted around making an official pledge to extend this, Osborne said the UK had to maintain its lead in this area.
Motorists and businesses will be delighted with the scrapping of the 3.02 pence fuel duty rise that was planned to come into force in January next year.
The rise had been intended to occur in August but it was initially delayed in June. Additionally the 2013-14 increase planned for April next year has been delayed until September.
The government is seeking the views of car manufacturers and motoring groups on providing time-limited incentives through company car tax to encourage business to purchase and develop ultra-low emission vehicles.
Gas to help fire up UK growth
The government will create an Office for Unconventional Gas to maximise economic production from UK natural gas resources.
Aimed at joining up responsibilities across government and to provide a single point of contact for investors, the chancellor is expected to plan 30 gas-fuelled power stations by 2030, to boost infrastructure investment and help drive long-term growth, according to reports. Some 26 gigawatts of new gas capacity could be required by 2030, based on current carbon budgets, and politicians’ focus on this area could encourage growth.
At least £300 million will be lent to small and medium enterprises over the next three years.
The money will be part of the £1 billion ‘Business Bank’ announced by Vince Cable in September and will come from the government and private investors.
The Business Bank will be operational from next spring and is intended to be fully operataional in autumn 2014. Further lending to small businesses is expected to come from the £2.5 billion Business Growth Fund introduced by Barclays, HSBC, Royal Bank of Scotland and Lloyds. The fund is budgeting to increase its level of investment to £200 million in 2013.
Another initiative to increase lending is the Business Finance Partnership which has invested £600 million and raised another £650 million. Four fund managers are involved in the scheme and a fifth is intended to be added soon.
£72 million of loans will be made available to start-ups as follow-on funding.
Tax avoidance and evasion will become harder as the government offers some concessions to campaigners.
Details of a general anti-avoidance rule will be unveiled later this month and HMRC will be given further data-gathering powers, see its debt collection capacity expanded, and have its offshore capability improved.
Wealthy tax evaders will have to worry about an expanded HMRC Affluent Unit with a remit extended to cover taxpayers with a net worth of £1 million.
Three corporate avoidance schemes will be closed from December and a strategy for tackling offshore evasion will be published next year. Agreements with Switzerland and the US should see more revenue raised for the Exchequer.
Pensions - allowance cut
The lifetime allowance for pension contributions is being reduced to £1.25 million from £1.5 million and the annual allowance is being further reduced from £50,000 to £40,000.
These measures will come into effect from 2014-15 and will affect the wealthiest pension savers.
These cuts are estimated to save £1 billion annually.
Top tier tax
The threshold for paying the top 40% rate of income tax will rise by 1% from 2014, the threshold for paying the top-tier level of income tax will go from £41,450 currently to £41,865 in 2014, followed by a further 1% rise in 2015 to £42,285.
The news came as the chancellor announced plans to 'uprate' benefits, essentially freezing rises in state support at less than the rate of inflation. He said this should be matched with less tax for those who do work.
Personal allowance will rise by £1,335 next year, ‘the highest cash increase ever’, Osborne claimed, so that next year workers will be allowed to earn £9,940 before paying any income tax at all.